Traders' tendency to try to take shortcuts may ultimately lead to their failure, so we need to avoid greed, fear and shortcuts. In addition, there are three tendencies that need to be avoided. Otherwise, even if you have a very good trading strategy, you will most likely not succeed because it will be difficult for you to stick to it. These three tendencies are actually behavioral deviations caused by three cognitive fallacies.
The first is the tendency to try to predict the market. I noticed that no matter how many people keep warning that the market is unpredictable, people always like to predict. Prediction is also the hottest topic on social media. This situation is caused by many factors, such as the desire for success, anxiety, and people's need to create gods. What I want to say is that because no one can master all the information, it is even more impossible to analyze the intensity of the interaction between various variables, so accurate predictions are never possible, and investment is different from daily life. In daily life, you can tell everyone where you will be and what you will do tomorrow, and you can also know your status next week more clearly, but your life in a few years will be more difficult to predict, not to mention more than ten or even dozens of years later. Investment is completely the opposite. It is possible to predict the market price in a few years with a high probability, but investors are powerless for next month, next week and tomorrow. Since the prediction is invalid, or to be more rigorous, accurate short-term prediction is impossible, then we might as well focus on more valuable things, such as finding a strategy with a positive expected value through backtesting of historical data and market analysis. This strategy can guarantee with a high probability that as long as we strictly abide by its operating discipline and continue to operate, we will make money. Then, as time goes by and the market environment changes, we can backtest the data and analyze the market regularly or irregularly to ensure that the strategy is always effective. An experienced investor never focuses on predicting the market, but on integrating various possible situations into his operating system, grasping advantages, controlling risks and firmly executing.
The second is the result-oriented tendency. After an experienced trader has determined the trading system, he will not care whether a transaction is successful or unsuccessful, because every transaction actually has two possibilities, making money or losing money. Of course, considering the time attribute, making money or losing money will change. For example, left-side traders almost always actively buy a set of transactions, and most of the time they suffer floating losses after buying. However, with the changes in the market cycle, the bear market will eventually pass. As long as he can hold on and there is no problem with the target, he is likely to make a lot of profits in the future. The harm of result orientation is that this is a very utilitarian and superficial evaluation system. It only looks at the results of a transaction (mainly short-term results) and completely ignores the trading system. The quality of the trading system itself, in fact, is the long-term winning factor. The result-oriented tendency and excessive pursuit of short-term winning rate actually give up long-term interests. In fact, the strategies with high winning rate in the market often have lower final yields than strategies with low winning rate but high profit and loss ratio. To give the simplest example, the winning rate of grid trading in a volatile market is very high, but the profit it can provide to traders is far less than the operating method of taking advantage of the main rising wave with a low winning rate but full position. Of course, platforms that engage in high-frequency grid trading and Dawei that eats commission rebates are not included. Result-oriented thinking will also lead to investors mistakenly thinking that they are gifted once they win. This situation will also happen to some people who are keen on predicting the future. Once they fail, their emotions will be greatly affected.
Third, the tendency of recent effects. Recent events usually have a greater impact on our behavior than events in the distant past. Many novices may succeed in short-term bottom-fishing and rebounding once or twice, and will continue to do so in the future. If they buy everything in the bull market and it goes up, they will have the illusion that they are stock gods. When the bear market comes, the situation will be reversed. They will be caught in the recent market decline and various negative news, like a frightened bird, and they will be in a state of panic all day long. At this time, even if there is a very good trading strategy, it is difficult for them to stick to it. Have you ever known that you should insist on fixed investment, but you dare not start because of the falling prices? Have you ever given up halfway? You don’t realize a problem. Because of various things that have happened recently and various noises, you have terminated your operation and you are out.
To sum up the above three points, plus the greed, fear and attempts to take shortcuts mentioned earlier, you will find that behavioral deviations caused by various emotions are actually closely intertwined with everything. They are all stumbling blocks to your resolute implementation of trading strategies. This is also a very important reason why the number of people who make money in the market is always small. And this factor has a much greater impact on the investor's account than if he did not have superb skills or had a very bad trading strategy. In fact, if you have a good mentality and stable emotions, you can make money from the market in the long run even if you only use the most basic fixed investment, you can make money from the market even if you only use a single moving average strategy, and you can make money from the market even if you only buy when it breaks through and sell when it falls below. This is the biggest secret of trading. Of course, in addition to the behavioral deviations caused by the cognitive fallacies mentioned above, there are many other improper cognitions and behaviors that may be obstacles to our success, but the most typical impacts mentioned above are also greater.