In our ETF Prophet chat room last week, I was asked what motivates me to host the room. The first and easiest answer is the social aspect. Trading can be a lonesome endeavor, and it’s nice to have a virtual bull pen with which to share insights and ideas, as well as camaraderie and the occasional joke. If there seems to be a focus on the latter much of the time, I assure you it has more to do with day-trading being 90% patience waiting for proper set ups than anything else. When the trade is on, we are (usually) quite serious.
But the chat room serves another purpose for me as well, and that is to articulate my day-trade rational in written form. I find it extraordinarily helpful to pen what I see and why I take action in real-time, both as a form of documentation and for the teaching benefit of the group, but also as a means of cognitive self-talk. Indeed, this is one of the primary reasons that I started blogging to begin with. This latter point is the focus of this post, where I suggest that it may be even more beneficial to trader performance to physically verbalize out-loud what we see….
After decades of debate, scientists are building an increasing body of experimental evidence that our world-view, and indeed our very cognitive abilities are strongly shaped by our verbal aptitude. From a recent article by Robson(1) summarizing the significant connection between language and cognition,
“… language helps us to think and perceive the world… like a form of augmented reality, an overlay that changes how we think, reason and see…”
Interestingly, when I asked our very own “Doc” Martindale to review this piece, he found this quotation consistent with his own point of view. As a therapist, he has observed that people search for the causes of their problems while failing to see that they are often related to and indeed grounded in their very own vocabulary.
What We Say Affects How We See
Here are key “take-aways” from the Robson article:
- 70-80% of our mental experience appears verbal, rather than visual or emotional;
- We are better able to group objects into categories if we have learned a category name;
- Speed of object recognition is significantly increased through this same mechanism;
- Having and speaking names for objects also aids in memory, including retention of specific details;
- Hearing verbs associated with objects affects the eye’s sensitivity to the described action,
priming sensitivity to such stimulus; and, - Over generalization within a learned category is a potential downside, possibly reducing some attention to differentiating details.
In summary, having a vocabulary and language to explain and categorize our visual experience is, overall, a significant cognitive advantage. Essentially we create ourselves in dialog, speaking and language. We invent and create ourselves as we speak and do — we are what we say. Thus, using our language out-loud may confer important added benefits. I also wonder if continuously increasing one’s self-taught “vocabulary” through study and observation doesn’t largely overcome point six, constituting a large part of the oft referenced “10,000 hours to become an expert” rule.
Mapping a Vocabulary for Day Traders
While my swing trades are largely quantitative driven, my day-trade/scalps and hedges are somewhat less so and are certainly much more visually focused, even if driven by a myriad of essentially quantitative indicators. The practical relationship of the Roberson take-aways to my day-trader performance is therefore clear. Indeed, this article “opened my own eyes” to the potential benefits of literally talking through my trades out-loud. Below are some of the roughly categorized vocabulary I envision myself using to describe what I am seeing:
| What? | Where? | How? | When? |
|---|---|---|---|
| 5-Day MA | Channel | Slope | Projection |
| VWAP | Relative Strength | Acceleration | Time |
| Up/Down Volume | Averages | Efficiency | |
| Tick | Pivots | Chop | |
| VIX | Crosses |
In the silence of the Internet, I don’t suppose any of my “chat buddies” will be overly bothered by me talking to myself, although I strongly suspect that my dogs might seriously begin to wonder…. Well, in their case at least, it’s probably a good thing they can’t speak!
(1) New Scientist #2772, “The Voice of Reason” by David Robson, Sept. 2010.
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