Essence of Trading: The Three Pillars of Critical Thinking (Part 4)

… continue from part 3

"The only thing more expensive than education is ignorance"

– Benjamin Franklin

Self-correction is the most difficult part in critical thinking. We may be very logical in analyzing a situation. We can be very objective in evaluating things. Yet, it is very difficult to apply these two skills onto ourselves. Overcoming this barrier is important in giving us the ability to control our weaknesses in trading and adapt to the ever changing market environment.

Self-correction is a multiple step process. First, we need to identify a potential problem within ourselves. Then, a correction strategy has to be derived. Finally, follow the the strategy to correct our beliefs, or condition our minds to take on the preferred behaviour over the original one.

Obstacles Against Self-Correction

First obstacle to self-criticism is our natural tendency to lie to ourselves. It is in fact a normal behaviour among majority of adults to overestimate their skills and down play their share of mistakes in something that failed to workout. It is an essential psychological make up for human to be more forgiving to themselves so that they would survive the hardship in life. This innate quality makes judging ourselves critically especially difficult.

Second obstacle is our inability to correct existing behaviours. This tendency in human enabled our species better survival chance in the natural environment. It is to our best interest to not question our ability when we are living in the wild. Casting doubts on one self can lead to hesitation. In life or death situations, such hesitations can be the end of our lives.

As in animal kingdom, the necessary skills for survival are all developed in the early age of an animal’s life. Specialized skills like hunting are trained from observation and game play among peers. There is no learning and correction after that once the animal hunters are on their own. The main corrective function is shut off for good after an animal has reached adulthood. Since our bodies including the brains are still mainly a copy of our ancient ancestors, it is no surprise that majority of us have difficulties correcting or changing our behaviour once we reached mid 30s.

Two out of the three steps making up the self-correction process are against our nature. No wonder why there are so many people failed to overcome this obstacle to improve their trading.

Be Honest With Yourself

To solve the first obstacle, you may have to solve an even bigger problem – being honest with yourself.

Since being honest with one self can be very difficult for some and that the only thing we are interested in is to improve our trading only, we can reduce the difficulty by being honest with ourselves in trading only.

Start with something simple. Criticize yourself on things that are obviously bad and difficult to deny. Write them down.

You need to crack your auto defense mechanism first with something minor and then move up the scale slowly. Once you are able to conduct self criticism in a constructive way, you will be able to identify more issues over time. The goal is to allow yourself to see better of what can be done to improve your trading.

There is no point to criticize yourself outside of trading because your interest is not to make yourself into a better person per se. I am not saying that is not a good thing. Just that I am not a "do no evil preacher" either.

For those interested in more about human behaviour in this aspect, you can watch the TED Talk by Dan Ariely, Our buggy moral code. It is a more thorough presentation on how we cheat and being dishonest in general. There are a lot of interesting topics he has touched in the presentation. At the end of the video, Mr. Ariely’s discussion on the difficulty for someone to accept the the opinions from other people when their intuition is contradictory to those opinions strikes home for many aspiring traders.

Kick Start Your Learning / Self-Correction Capability

To solve the obstacle of unable to correct our costly behaviour, there is a simple solution – keep learning new things.

As oppose to focus on just trading, which is the big hurdle you are facing, try doing something else that is simple yet challenging task. It can be a puzzle game. It can be building toy models. It can be learning new ideas and concepts from TED. The feedback from successfully acquiring new knowledge and insights from these tasks will make it easier for you to see the problems hidden within your current trade plan and also improve your willingness to adopt new strategies over the existing one that is not working for you.

It is a trick that triggers your mind to open up a little to different views. By giving it a small reward of satisfaction for adapting and learning new things, your mind is conditioned to be more acceptable to changes on your existing behaviours.

Do not, however, undertake another new challenge that is as complex as trading at the same time. It will defeat the purpose of stimulating your mind for the benefit of improving your trading. Having two daunting tasks instead of one can be very discouraging.

When Nothing Works There Is Always External Help

When you cannot see any problem in yourself or your trading game plan but you are struggling to become profitable, it means that you are not critical enough on yourself. It is probably best to seek for help from someone else. What you need desperately is an honest opinion on you and your strategy.

Due to the fact that the person who is going to help you will have to spend considerable amount of time to understand your situation and your game plan, a trading buddy may not be able to assist you. A coach or adviser with expertise in trading can be very costly and difficult to find as many of them are hired by trading firms to assist their in-house traders. If you do have the resources to hire a reputable coach, it is definitely something you can look into.

Going online and taking your issues to public forums may not be a good idea although you may get lucky at times. The disadvantage of taking your problem to a public trading forum is that people tend to pile on you as oppose to giving you constructive advices. There are also forum trolls who will do anything to seek attention and ruin your thread. If you are lucky, however, you may encounter some nice people who can point you to the right direction or people. Just do not put too much expectation in finding help from this route.

… end of the 4 part series

Share