Were you raised on video games? If not, this article is for you.
Traders today have access to too much information, so extreme multi-tasking has become a way of life for the active screen trader. We have too many tools at our fingertips, too many stocks to choose from, and too many indicators on too many monitors. We check the Advance/Decline line, listen to a chat room or two, skim the news, scan the scanner, sip some coffee, answer a text or IM and talk to the cat.
No wonder people have difficulty remembering their trading plan, the actual setup they want to use and how to manage their trade.
By the way, clinical research on multi-tasking suggests that multi-tasking is actually an illusion. Humans can only do one thing at a time. As a result, there is a continuity gap when we go back to something after taking even a brief attentional break. It takes the mind a few seconds to re-connect with the context and data flow, which slows everything down.
How often have you looked away for what you thought was a brief moment only to find that your best setup triggered while you were reading an email or checking a finance site or Skyping?
Moreover, if you ‘multi-task’ the improvisational flow can spill over into your trading because you are improvising your minute to minute life as you trade. This can get you in trouble because it invites your intuition and imagination to the trading party and usually leads to sub-par entries and exits that have little to do with your plan.
To check whether this is the case, review your trades each day after the market closes and determine whether your entries and exits look reasonable in hindsight. Check every trade.
In a high-speed environment of interruption and distraction, it’s easy to lose sight of what we are supposed to do. This is particularly true if your trading method is already complicated and overly discretionary. In my view, if you can’t explain your method to a 15-year old kid so that she can follow it and trade your live account for you, then it’s too complicated for you to trade, as well.
If you find you are missing out on trades that you see clearly in hindsight, consider simplifying your method so a ‘cave man’ could trade it. As a rule of thumb, if your trading plan is more than a paragraph it’s probably too discretionary. Tighten it up.
Shoot for a method that is 80% mechanical and 20% discretionary. This is how you can move your trading from your analytical brain (slow) to your ‘muscle’ memory (fast) and be able to react in a timely and focused manner to trading opportunities with 100% conviction.
www.daytradingpsychology.com (Assistance for private traders.)
www.trader-analytics.com (Peak performance consulting to RIAs, hedge funds and banks.)
