The four enemies of making great trading decisions is something all traders should be aware of. As human beings we all have natural tendencies that can get in the way of doing what is in our best interest. Click here or on the video to become aware of these tendencies and some strategies on how to overcome them to start making great trading decisions!
The four enemies of making great trading decisions are:
- Narrow framing – can happen when you focus in on a small amount of evidence or a small amount of options rather than considering all the options that are available to you.
- Confirmation bias – can happen when we form an opinion about something and then we only focus on the evidence that confirms or supports that opinion.
- Short term stresses and emotions – can cause us to look for immediate ways to relieve the stress through pleasure or immediate resolution.
- Over confidence – can happen when a combination of narrow framing, confirmation bias, short term stresses and emotions run wild! Many times when a trader is over confident all the three other enemies of great decision making are amplified.
What can we do about it?
- Narrow framing can be helped by expanding your focus. A strategy I use is coming up with at least three different options.
- Confirmation bias can be helped by coming up with the opposite story. For example, if I am convinced that the market is going down, I create a story where the market is going up. I find this process helps with better decision making and preparation if the opposite is true.
- Short term stresses and emotions can be helped by looking very closely at what may be causing the situation and know that this can cause irrational decisions to be made. I find that applying the 10 – 10 – 10 rule to the situation brings much more clarity and calmness to the situation.
- Over confidence can be helped by being aware that when you have 100% certainty about something it is time to take a step back and critically look at the situation to determine whether that the certainty is a FACT and not an over confident opinion.