Coincidence is a wonderfully odd thing. Whilst filling the truck at the local petrol station this morning a car pulled up at the bowser next to me – there is nothing earth-shatteringly exciting about this other than the interesting fact that it had three reasonably new parking tickets on under one of its windscreen wipers. These parking tickets looked as if they had taken up long term residence as the driver seemed completely oblivious to them. Somehow they were able to look through their windscreen without seeing them. What people choose to see and therefore take notice of and eventually believe is an interesting thing.
A coincidence requires two events and the second was the chart below which popped up on my social media feed just after I got home. It shows the perceived rate of occurrence for various things versus the actual rate.
As you can see people are wildly off the mark about almost everything and since perception is the means by which a word view is formed it means that it is no surprise that people have some very odd world views. As they say, perception is everything.
I find this interesting because trading is a business that is based upon perception, from perception an opinion is formed, and from this opinion, a business case for a given investment idea is formulated. If your perceptions are constantly at odds with reality then any business case you make and any investment decision you make is likely to be wrong. This raises the question of how to stop errors of perception creeping into the decision making process. With trading, I think this is more difficult than many think simply because of the amount of noise and the possibility of this creating an echo chamber that reinforces your original incorrect perception. When investigating ideas I have found that people are really just looking for someone who agrees with them not a true critique of their idea. Add to this the fact that the lies we tell ourselves are the most effective and you can start to build a picture of why traders often behave the way they do.
I find I have to ask myself the simple question when assessing and then taking a trade – what does being wrong look like. How will I know I am wrong?
For me, this is easy because I am fairly simple in my trading approach – if it hits my stop then I am wrong. But you have to be in the mindset to accept that the market and not your perception of the market is the ultimate arbiter of all things. Without this acceptance, you end up in a very expensive argument with a fairly implacable environment.