Everyone knows that memory plays a vital part in our trading decisions, it is also deemed to be an accurate reflection of the past.
Nothing could be further from the truth:
Your memory is as skewed as most of your recall of the past. Your life is viewed through a dense filter system which called conditioning.
How your memory tricks you
Let’s assume yesterday was a “great trading day”. The markets behaved not so well in the morning but your fortunes turned at the end of the day. Trades came easily to you, you finished the day on a high note. That last trade you took at the end of the day was the icing of the cake of an already very profitable outing. Never mind that two thirds of the day were spent barely breaking even.
Today you arrive at your trading desk with high hopes to repeat the same scenario.
You are looking to repeat the same “excellent” entry and exit points you observed so well yesterday.
Today the market has a different feel about it though. What worked yesterday is soon proving to be not so reliable today. Your confidence is somewhat shaken by the end of the trading day as you finish up giving much of yesterday’s easy profits away.
Now your mind goes into that only too well known and extremely well rehearsed automatic self flagellation scenario. You know what that is and I am deliberately not going to repeat these phrases every trader knows too well.
Let’s instead examine why you are at this point yet again.
After all you know you can trade, you have experience and this kind of day really shouldn’t happen to you.
The reason is to do with the way your memory recalls things.
Your memory does not accurately record events, it only recalls the outcome of an event and bases the feeling tone of the entire experience on the outcome. This leads your mind to have a skewed experience of what happened yesterday, often either leading to over confidence, or lack of confidence.
Your automatic filter system filters out much of the information that is relevant to accurately assessing what happened in the past.
With training you can alleviate the issue. Becoming self aware and increasing your conscious awareness will pay of handsomely. The more aware you are the greater will be your ability to make consistent trades.
It is not necessarily all about experience. It is about bringing hidden behaviour patterns which may sabotage your trading success to the surface, so that you can react earlier and change course before frustration and anger set in which can wreak havoc with your trading balance.
This insight can be the making of you as a trader and as a person.
