In medicine, there is a phenomenon known as the incidentaloma, that is you have a scan or test for one thing and they find something completely unrelated. These incidental findings which seem to be quite common in imaging present somewhat of a problem for medical practitioners. They raise the question of doing something about the new finding in the way of further investigation which may in itself be harmful or leave it alone and perhaps risking an adverse outcome. The presence of additional information above and beyond what was initially sort has caused a problem and this problem is enhanced by the natural disposition of people wanting to fix things. Afterall why become a medical practitioner if you are going to ignore things but many things turn out to harmless and many treatments or investigative regimes prove to be harmful. Simply telling someone they have something new causes distress – the best way to give people high blood pressure seems to be to tell them they have high blood pressure.
More information is not always better and doing something about this new information is not always the right thing to do but resisting this urge requires often extreme inertia in your decision making. A similar problem afflicts traders simply because of the volume of micro information that is generated by modern trading systems. As an example consider that you are a long term equities trader and you use weekly data – that is you run a scan on Sunday night and then place your trade sometime during the trading session n Monday. In an ideal world you would not look at this position again until the following weekend when you decide to move your stop or add to the position. The amount of information you are exposed to in such a scenario is quite low so requires very little bandwidth from the trader. However, modern dealing systems do not really cater to such trading strategies because of the amount of granularity they offer the trader. This means that it is very hard for traders to resist the temptation to look at their long term positions during the week. In doing so they are drilling down to a level of information that is irrelevant to their original trading business. Imagine with our wee trader that during the Wednesday session they open the system and see that prices have drifted and is now showing pattern or piece of information that on a daily system would indicate weakness and may prompt selling. This incidental finding now begins to play on the mind of the trader and may motivate them to take action that is not required.
My view is that all decision making needs to start from a point of maximum inertia – you need to be convinced to do something irrespective of the time frame or instrument you are trading. To take no action is actually an action and in trading leaving something alone is often the best course of action you can generate. Unfortunately, trading is seen as a profession of doing something – the word trading conjures up images of action so the natural predisposition is to overweight information that may elicit some form of action. If you have a weekly trading system there is no need to drill down to 15-minute charts to try and time your entry but many do. They then wonder why they are unable to hold long term winners.
You will always find a reason to do something – this simply the nature of confirmation bias but the more important question is should you?