Saturday, November 07, 2015

Trading Your Best Decision Making

Why is it that I have valuable intuitive hunches about markets and not about fracking hydraulics or fly fishing?  Not a hard question:  I have no experience with fracking or fly fishing, but spend easily an hour or two each day reviewing recent markets and researching past markets.  The accumulated experience of the review and research creates an extensive database for noticing patterns that would otherwise be hidden.  It's that real time pattern recognition that manifests itself as intuition.  

To develop a keen intuition, we must first pay a tuition in terms of deep immersion, observation, and study.  We can't assemble the puzzle if we haven't first gathered the pieces.

I recently had an interesting idea:  What if I made my trading decisions the way I have made my best life decisions?

It's easy for me to identify my best life decisions, from selecting a career to taking certain jobs to finding the right spouse, to selecting cats to rescue and adopt.  I'm usually reasonably modest, but in those areas I've made some brilliant decisions.  

What's interesting is that I made those decisions the same way:  I focused on a few important things and then just put myself in positions of opportunity and waited for the right situations to present themselves.  The few things I focused upon were the things that make me fall in love:  factors that are deeply meaningful.  When those appear, I feel an immediate attraction.  I *know* this is the right choice.  That's the intuition--I've been so immersed in what's important that I get a powerful jolt when those factors line up.

When I've made bad decisions, it's been for one of two reasons:  1) I get into a pros and cons mode and start analyzing and overanalyzing the choice; or 2) I feel a need to make an immediate decision and accept a good alternative rather than one that I fall in love with.  The first approach--overanalysis--has led to tone deaf decisions:  ones that perhaps made sense on paper, but were altogether wrong for deeply personal reasons.  The second approach--compromise--has led to unfulfilling decisions because the decisions were made out of need, not out of a grounding in values.

Every great decision I've made is one where I've fallen in love with the selected alternative.  It's been the result of intensive focus on priorities (the tuition) followed by the sense of those priorities lining up (the intuition).  Every bad decision I've made has been made out of insecurity (the need to overanalyze) and need (the fear of not making a decision).

So back to the question:  What if I were to make trading decisions the way I make my best life decisions?  What I would do is focus on a few essentials, stand back, wait for those essentials to line up, and then fall in love with the idea before putting it on.  

I tried that this week:  3 winning trades, 1 loser.  The winning trades were much larger than the loser.  I traded much less often, but loved the trades when I put them on.  The losing trade turned out to provide the information that led to the next winner.  If a trade I loved didn't work out, I figured, perhaps the market was entering a new regime.

Overtrading is taking trades we don't love.  We overanalyze and we fear missed opportunity.  We push to find good trades, forgetting that the great trades come to us.  I suspect if you know how to fall in love--really fall in love--you know what it takes to trade well.

Further Reading:  Paying the Tuition for Your Intuition