BarrosMetrics Views
The more I learn about human nature, the more I doubt the veracity of Einstein’s oft repeated statement: “God does not play dice with the Universe”.
Here’s why I say that in relation to our behaviour around trading.
We are born ‘tabula rasa’ and in the process of ‘growing up’, we pick up unconscious strategies that served as children.To the extent that we come from functional families, the strategies help us ’succeed’; to the extent that our family environment is dysfunctional will be the extent to which the strategies will be a hindrance to our success. But since they are unconscious responses, even if the strategies are an assistance, there are times when they will be inappropriate; therefore, it behoves us to make the unconscious, conscious.
That of course is easier said than done. First we need to become aware of what we don’t know. The best way I know to do that is to is compare our behaviour to our stated goals; a divergence between the two would suggest an unconscious strategy at play. For example: we state we would to be a successful trader but consistently fail to execute an exit strategy.
Recently I read about some studies that show humans may have an additional trait: we have or acquired either a ‘fixed’ or ‘growth’ mindset. The ‘fixed’ mindset believes that our intelligence, skills are fixed; the growth mindset believes we are in a constant state of learning and improvement. Figure 1 is my mindmap that sets out the differences.
If we take the view that humans have both mindsets but that one tends to predominate in different situations, then we start to understand we some never make it as traders - despite the advances in psychology, technical analysis etc.
Since the mindset becomes part of the unconscious strategies, those with a fixed mindset in trading have a major hurdle to overcome. From the studies, those with a fixed mindset are more likely to rationalize away their approach and subsequent failure. In short, for those with a fixed mindset, ‘what we don’t know, we don’t know’ is more likely to remain so. Those with a growth mentality are more likely to accept reality and seek to change their behaviour.
The good news is there is a simple solution: it will go a long way to making the unknown known by just being aware that we need to search for unconscious patterns and by just being aware of the two types of mindsets. That doesn’t mean we’ll automatically overcome self-defeating behaviours - just that we’ll become aware of them. And I guess that’s the first step to defeating them.
Does God play dice with the Universe? Sometimes I think he does.
FIGURE 1 Mindset
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