Opinions Are Bad For Your Trading

Several members have been exchanging emails with me discussing the potential of a major market shock in near future. One thing that stands out among the group is the way how this discussion has affected the traders involved. I think it is worth talking about here so that more beginner traders are aware of this interesting phenomenon.

In short, the discussion we had does not impact the established traders at all while the beginner traders are affected negatively. The good experienced traders involved in the discussion simply keep the idea of a potential top as one of the possible scenarios. The beginner traders, however, could not help but seeing every rally being a top in the making over the past two weeks.

What the beginner traders suffer from is forming an opinion about the market. The moment they develop a conviction of the opinion, they can no longer see the market objectively. In other words, they switch from probabilistic mindset into fixation on one single outcome. From there, they see only what they wanted to see.

One reason that this kind of opinions can affect a trader so much is because of the potential windfall possibility. Beginner traders do not have enough experience and confidence in themsevles that the idea of one sure winner is too sexy to give up. They are effectively wanting to win the lottery.

To shake oneself out of this kind of opinion driven problem, there are several ways to do so:

1. if you are a day trader, tell yourself that what you are thinking of on longer term horizon does not matter to your trading at this moment.

2. review your trading plan often so that you execute your plan, not your opinion.

3. remind yourself there is no such thing as a sure winner

Hope this helps!

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