“Think Like A Trader”
THINK LIKE A TRADER
Some scientists decided to do a study on how do people trade ‘like a trader’, and do they perform better when  people trade better when they ‘Think Like A Trader”.
This paper specifically takes a look at traders and loss aversion. If one ‘Thinks Like A Trader” will they be less risk averse and trade better. The answer is yes. I posted a link to the paper below.
For simplicity sake, I will define loss aversion as:
losses hurt more than gains feel good
That is taht people feel a lot more pain from losing $100 than from making $100. Thus, we make based decisions based on not making loses.
What the study did was ask the guinea pigs subjects to “Think Like A Trader” and not to worry about the losses. It seems to have worked. They have a lot of graphs and charts in the paper that you can check out in your free time.
SIM TRADING
A lot of people can sim trade better than they can trade actual money. I could have titled this post “Why I Am Great In Simulation Trading And Suck In Real Life” but that would have been just too long.
For most people, when we sim ( trading in simulation mode without money on the line ) we take more risks and tend to do better. When it comes to actually trading, we tend to suck. Time seems to slow down while we are watching every tick.
The reason some of us ( most of us ) , sim trade better than than real life trade is that were are in a better state emotionally to trade our systens and not second guess ourselves. We are thinking like a trader because we do not fear the losses.
AUTOMATED STRATEGIES ALWAYS THINK LIKE A TRADER
That is the beauty of an automated system. It is mechanical and it does think like a trader.
You should see my face when I watch the strategy trade. My strategy will make a trade and I will watch it and just want to close out the trade before I lose too much or lock in a profit. Most of the time, my strategy proves me wrong and stays in the trade. My strategy trades like a machine because it is a machine.
CONCLUSION
When I read an academic paper, I usually read the conclusion first and work my way back from there. I also read the ends of novels first, but considering how many novels I read now ( pick a number between nil and zero ) , it does not matter.
In real life, you need to fear and respect losses but not let them overwhelm your trading. Try to ‘Think Like A Trader” and don’t let the losses affect your trading or your system.
So when you can trade on a sim, and you move to trading a live account, remember to try to keep the same detachment you had when you were trading on a sim.
NOTES
The image is by Sakurako Kitsa, is a Bento box in the shape of a Starbuck’s Green Tea Frappuccino .
You can read the whole paper herepnas-2009-sokol-hessner-0806761106
so true the article. It takes such a hands off approach not to close out trades early and/or move targets. Sometimes I think I would just do better leaving the room after putting on a trade!
I totally agree. I try to just leave my stops set and try not to watch them. The worst thing I ever do is start to move stops. Sometimes it works, but some times it just goes horribly wrong.
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