What we perceive is not just a function of what is out there, but also the lenses that we wear. Many of our cognitive lenses are so much a part of our thinking that we forget they are there. We assume that what we're perceiving is what objectively exists...but that's not always the case.
Some of the most powerful lenses are the metaphors that we use in describing markets. Consider the following:
* A trader views the market as an enemy to be conquered;
* A trader approaches the market as a puzzle to be solved;
* A trader sees the market as a paradise of potential riches;
* A trader regards the market as a mistress to be wooed;
* A trader views the market as a dangerous minefield;
* A trader looks at the market as a video game.
How do these metaphors affect our trading? Our emotional responses to trading? How would being aware of our metaphors--and shifting them--change how we trade and how we experience our trading?
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7 comments:
Since I write something called the research puzzle, that pretty much tells you in which category I am.
Your point is a great one: Our behavioral strengths and weaknesses are set up by the frame of reference that we adopt.
In addition, to the extent that we work with others that have different ways of thinking, if we don't understand that, we lay the groundwork for miscommunication about the nature of the trades or investments that we make.
Just my 2 cents;
* A trader views the market as an enemy to be conquered;
adv;
- discipline is necesary
- training is important
- strong desire
disadv;
- desire might get over the top
- "getting beaten" generates negative emotions (generally)
* A trader approaches the market as a puzzle to be solved;
adv;
- will be willing (able is another thing) to find out different things about markets
disadv;
- lack of desire?
- might ask too many questions
- analysis paralysis is high
* A trader sees the market as a paradise of potential riches;
adv;
- positive thinking
disadv;
- greed might run amok
* A trader regards the market as a mistress to be wooed;
adv;
- might work hard on him/herself to improve "execution"
disadv;
- "wooing can be costly"
- can be easily frustrated/distracted
* A trader views the market as a dangerous minefield;
adv;
- serious and disciplined
disadv;
- fear might dominate execution
* A trader looks at the market as a video game
adv;
- enjoys the process; can give positive feedback
disadv;
- not serious enough; you can't "restart mission" infinitely
- susceptible to boredom
Being aware of the perceptions will really help us in making a logical decision - a decision without bias.
We would be able to guage market movements in a much better way.
A leading dance partner?
There´s a metaphor I´ve read long ago, which it´s not politically correct now a days, but makes a lot of sense to me.
It mentions that a trader first figures the market out as a forest (the big picture) and then he goes after the proper trees, one by one, day after day.
Actually my analytical checklist about the whole scenario, which I stablish the odds in favour the whatsoever force may act stronger, has the title The Forest.
OKL ~
An insightful reply to Brett's insightful post.
Well done!
Adam.
This story is my favorite metaphor for the Stock Market.
I wonder what it says about my perception? Personally, I favor the puzzle to be solved approach.
"Once upon a time, in a village, a man appeared and announced to the villagers that he would buy monkeys for $10 each.
The villagers, seeing that there were many monkeys around, went out to the forest and started catching them. The man bought thousands at $10 and, as supply started to diminish, the villagers stopped their effort. He further announced that he would now buy at $20 for a monkey.
This renewed the efforts of the villagers and they started catching monkeys again. Soon the supply diminished even further and people started going back to their farms. The offer increased to $25 each, and the supply of monkeys became so small that it was an effort to even find a monkey, let alone catch it!
The man now announced that he would buy monkeys at $50! However, since he had to go to the city on some business, his assistant would now buy on behalf of him.
In the absence of the man, the assistant told the villagers. ‘Look at all these monkeys in the big cage that the man has collected. I will sell them to you at $35, and when the man returns from the city, you can sell them to him for $50 each.’
The villagers rounded up all their savings and bought all the monkeys. They never saw the man nor his assistant again, only monkeys everywhere!
Now you have a better understanding of how Wall Street works!
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