Friday, January 06, 2006
Thinking Backwards to Re-Gain Objectivity
One of the most challenging skills in a trader’s game is Maintaining Objectivity. While there are a variety of factors which contribute to you losing objectivity in a given situation, there is a clear and defined path you can follow to re-gaining it. In simple terms, I like to call it Thinking Backwards.
More times than not, losing objectivity occurs when you micro-manage a situation. It may be in the form of watching the tape or over-thinking a position; but in essence, you are losing sight of the MACRO picture or what I will refer to as your reason WHY.
Your Reason WHY
Your reason WHY is what you should be asking yourself on a regular basis. Questions like:
Why am I in this trade?
Why do I like/not like this position?
Questions like these will help you to maintain objectivity in your trades as new data points, emotions or your own destructive trading habits attempt to throw you off course.
The more difficult it is for you to answer Your Reason WHY, the more likely it is you have lost objectivity in the situation.
The Solution – Thinking Backwards
1)Acknowledge that you have lost objectivity
Now that you are aware of the problem, you can begin to deal with it.
2)Remove yourself from the day-to-day noise and write down what your original thesis was
Cleaning off your mirrors will tell you what direction you are moving in. As Zig Ziglar once said, "You can't hit a target you don't see."
3)Begin to Think Backwards by creating three columns with the following headings (Support, Do Not Support, Undecided)
This will force you to Objectively lay out and evaluate the situation.
4)Talk to yourself:
Based on the data points I wrote down in each column, if I did not have a position on, what would I do?
Asking yourself this question forces you re-evaluate the situation from an unbiased perspective.
5)Compare your response with your original position/thesis to create a WIN-WIN
WIN#1 = if there is a discrepancy, you can be proactive in creating a new game plan which may involved taking some/all of the risk off or even reversing the position.
WIN#2 = if there is no discrepancy, you have instilled deeper conviction in your original thesis and can then hold or add to the position.
In closing, losing your way is not nearly as important as how long it takes you to get back on course. The skill of Thinking Backwards can serve as your map to Re-Gaining Objectivity.
Keep your eye on the ball and your head in the game!
-- The Head Coach
Copyright 2006, Doug Hirschhorn All Rights Reserved