The Trader’s Enemies – Mindset Errors – Part 2
This is the second part of a two part series on errors in thinking that can keep you from becoming a successful trader.
The difference between winning and losing traders is usually not market information, inside knowledge, exotic trading techniques or better brokers. It is all about mindset. This article lists some more mindset errors and concludes with a brief discussion on overcoming errors.
Successful traders have adopted some winning mental attitudes that allow them to thrive, while most people try the incorrect and flawed cognitive approaches that are prevalent in the world (where they are commonly protected from the consequences of their actions), and unsurprisingly get wiped out by the market.
Here are some more errors.
Attempting to process too much data
When I began as a futures trader and placed my first stock index futures trade, I rang the broker for the opening quote (there was no Internet trading then). He gave me the quote, then asked if I wanted to know how the Nikkei had opened. I said “OK”, even though I had no idea on how to use that data.
Then I read a copy of the national financial newspaper in the hope that it would help me with my trade. Again, I had no idea which stories or numbers would help me. After a few days of this, I began to get overwhelmed. Eventually I worked out that I needed very little data to trade, and that most data was not information (that is, something that was useful or informative).
Again, here is a quote from Darvas’ book:
The solution was whispering to me but at first I could not credit it. It was so surprising, so simple and yet so extraordinary, I could hardly believe it. It was: My ears were my enemy.
It dawned on me like a revelation that when I was travelling abroad I had been able to assess the market, or rather the few stocks in which I was interested, calmly, neutrally, without interruption or rumour, completely without emotion and ego.
…There were interruptions, rumors, panics, contradictory information, all floating into my ear. As a result of this my emotions became involved with the stocks – and the cold, clinical approach had gone.
The human mind can process a limited quantity of data, so make sure that what you look at is relevant. Avoid numerous indicators, studies, tips, advisory services and focus your thinking on the important.
Listening to other people
In trading, most gains accrue to a small number of individuals. This means that most people are wrong, most of the time. Jesse Livermore wrote about the importance of ignoring tips or market gossip, even from those who would presumably be in a position to have good understanding or knowledge.
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