COACHING
In order to do this effectively and with lower levels of hindsight bias it is important that you keep a record of your trading decisions, a journal or log. It is also worth noting that generally people are outcome biased and as a result of this we tend to spend more time looking at outcomes that were perceived as ‘bad’ and less looking at those perceived as ‘good’; we are also interestingly more prone to attribute success to ourselves when we get a good outcome and consider the role of luck and outside events less, whereas on the downside it is the reverse! Research conducted at Harvard Un iv e rsit y shows that there is a lot of value to be gained by looking at the times when we are successful, to look for patterns and factors that are consistent, and to then utilise them and attempt to replicate them.
Performance Aw a r e n e s s – Tis is the process of c o nt r a st ing and comparing your best decisions with your worst to look for similarities and differences. What helps you to make good decisions? What helps you to make your worst decisions? Is it your mindset, emotions, behaviours, or the context – market, work or life events. NB this process is only really possible if you evaluate your good trading decisions and outcomes with the same vigour as your bad ones.
FX
Situational Awareness – Tis is the ability to identify in the moment at a given decision time what level of decision making error risk there is, deciding how vigilant to be, and managing your own thinking, feeling and behaviour accordingly. As the risk of decision making error becomes higher – this might include times when stress and pressure are high, there is greater volatility or uncertainty in the market, you are fatigued, your mood and emotion is at an extreme, following a big loss or win, following a string of losses or winners – you need to become more aware of your processing, and good advice is to counter the reflexive instinctive part of the brain that wants to take over in such situations by also engaging the reflective, analytical part of the brain and ‘think twice’.
Management
‘If you teach intelligent people about the types of mistakes they might make in making decisions then in doing so you improve their ability to make decisions’
Keith Stanovich
A lo n g side developing your knowledge of your decision making process and the factors that affect it and raising your awareness, there are also specific techniques and strategies that you can employ that can help you to make better decisions. I have included a few below.
• Focus on the process – identify the key components or stages of making a good trading decision, and the critical factors such as information or indicators you base them on, and focus on them as you go through your process. One reason for underperformance in trading decisions is performance anxiety, which is largely attributed to an outcome focus.
FX TRADER MAGAZINE April - June 2012 29
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