When it comes to cognitive issues, many people will think that this kind of thing is mysterious and useless. It is better to just tell me your trading skills, such as how to identify the pattern, where to enter the market, and what profit and loss ratio is more realistic.
I find that no matter what industry you are in, being eager for quick success and instant benefits is a common problem. Everyone wants to make money quickly, but no one can make any money.
This is because making money is a multifaceted issue. It is not easy to make money simply by knowing a certain point. Just like there are many variables in our trading, when the trend changes, a pattern may be effective in line with the trend, but poor against the trend. You can't just go for it on a whim. You have to observe the market and make a more advantageous choice.
We ourselves are also a variable in trading. Our mental state is very complex. Sometimes we are short-sighted, sometimes we follow the crowd, and sometimes we make wrong decisions due to our cognitive biases.
It's like when you drive out, if the navigation is wrong at the beginning, you will never reach your destination.
Therefore, I think that in trading, we should put aside those complicated theories and the pursuit of trading technology, and adjust our trading navigation first. Today I will share the 5 most important cognitions in trading to help you find your own direction.
The article is quite long, I suggest you save it and read it. If you find it useful, you can give the article a like, thank you.
Two words first
Our human cognition is inherently flawed because we are irrational and emotional at heart, so our human nature is fragile, we are bound to make mistakes, and many of these mistakes are uncontrollable.
Therefore, if you make a mistake in a transaction, you should not feel extremely miserable, blame yourself, or think that fate is unfair to you, because everyone may be making the same mistake, and the competition is just about who can realize it better and stop making the mistake.
In addition, our cognition is not necessarily correct. We must always have the courage and initiative to adjust our cognition. The adjustment process will definitely be painful and difficult because we have to fight against our human nature.
However, it is precisely because this thing is difficult and most people cannot do it that the advantages of some individuals can be highlighted and a small number of people can earn most of the money. I hope you can all understand these principles.
Knowledge 1: Sugarcane is not sweet at both ends, you always have to keep one end and give up the other.
A friend who also loves trading chatted with Brother Ming, and the general content was as follows:
She asked: If I enter the market within 5 minutes, I will never get the profit of the big cycle. Can I enter and exit the market within 1 hour?
I said: This method is theoretically valid, and we can review and analyze the data.
She asked again: If I trade in 1 hour and trade out 1 hour later, will I lose a lot of my profits?
I said: There should be, but our trading technology is definitely not omnipotent, and there must be trade-offs. We choose this method to hold on to the profit for 1 hour, so don't worry about the problem of profit taking.
In fact, this phenomenon is very common in transactions. Everyone understands the truth that "sugar cane is not sweet at both ends", but when it comes to making a choice, they begin to hesitate and worry, fearing that they will miss the opportunity to have the best of both worlds.
If you think this way, your trading will always be in the painful state of "wanting this and that".
There is a mutual loss principle in trading technology. Just as we said above, small cycles mean that big profits cannot be held, and large cycles will result in profit loss.
Large stop loss and small stop loss, breakout entry and callback entry, almost all technical standards have corresponding advantages and disadvantages. Choosing one means accepting its opposite.
This is why I put this cognition first. Most of the pain in life comes from "wanting everything". The first lesson in trading is to learn to give up, otherwise there will be endless losses and pain.
Cognition 2: The trend will definitely repeat itself, and we must have confidence and patience in our own technical methods.
The longer you trade, the more you will find that historical trends repeat themselves; this is a basic law of the financial markets.
Although the times are constantly progressing and the entire world is undergoing earth-shaking changes, human nature is eternal, and trends are always a reflection of human nature and emotions. This is also the source from which we capture the patterns.
Please look at the picture below, which shows the trend of gold in three periods in different years.
The first paragraph is 2012.
The second paragraph is also from 2012.
The third paragraph is 2024.
The above three trends are all 1-hour gold K-line charts. The shapes are very similar. They all consolidate first, induce selling downwards, and then reverse and rise rapidly.
The first two segments occurred in 2012, and the last segment occurred in 2024. There are some differences in details in their trends, but the overall pattern is almost the same, and the shape of the moving average is basically similar.
There are no two leaves in the world that are exactly the same, but we can find leaves that are very similar, and the same is true for the market. So our goal should not be to find leaves that are exactly the same, but to find similar leaves, which is enough for us to make a lot of money.
Our technical method is to capture similar patterns in repetitive market trends, and then use the advantages of success rate and profit-loss ratio to make ultimate profits.
Everyone’s problem usually does not lie in establishing technical standards, but in “how to wait”, because everyone is afraid that they will not be able to wait for such an opportunity and are afraid of the unknown future, but patience is often the beam that distinguishes between profit makers and losers.
Therefore, we have to understand the significance of reviewing the market. One is to test our own technical strategies, and the other is to understand the patterns of historical market trends. When you understand that decades of historical trends have been repeating themselves, you will not have so many concerns about future trends, and you will naturally have more confidence in trading.
Cognition three: We must have a cost concept.
Brother Ming particularly likes a saying: Everything we get in life is obtained by losing something. Even if a thief steals something for nothing, he still runs the risk of being discovered and beaten.
Just like when we want to own something, we have to spend money to buy it, and the money we spend is the cost we pay.
We want to gain love, so we pay the cost of time and money, which is also an equal exchange.
Our growth in our life is also built up with countless pains and failures, which is also a kind of exchange.
We all understand the principle, but it is completely different when it comes to trading. We always want to get something for nothing, always want to make a small investment for a big gain, always want to get a huge profit without spending any cost, so it is impossible for trading to go astray.
For every transaction we make, we first consider the loss we can afford, and then consider the possible profit we may get. This is the risk awareness in trading, and we must also have this cost concept.
It's not just the financial cost. If we want to gain trading knowledge and trading skills that surpass others, we also have to pay the corresponding costs, such as spending a lot of time and energy on learning, doing a lot of reviews, having a lot of time to think, etc.
So in most cases, the greater the achievement we want to achieve, the more financial cost, time cost, emotional cost, etc. we have to pay.
Once you really learn to pay the cost, you will find that many things are not as complicated and difficult as you imagined, and your room for advancement will also be improved to a higher level.
Cognition 4: Group polarization and the herd effect.
I found that human beings are a group that is searching for a sense of belonging and identity throughout their lives. It seems that getting recognition from others will make them happier and more at ease.
This was also true for me when I first started trading. I liked joining various groups, listening to other people’s opinions, showing off my profits, and envying and hating on other people’s achievements.
Sometimes getting recognition and praise from others in such a group makes me happier than making a profit from my own trading, because it satisfies my vanity and sense of recognition.
However, groups are often irrational, especially when an opinion is shared by many people, it will be assumed to be correct, which is a terrible thing in trading.
For example, you originally expected gold to be bullish, but everyone in the group was discussing bearishness, and many people even expressed very firm opinions and produced a lot of evidence. At this time, you may begin to doubt your own judgment and have an inexplicable "extreme certainty", and you think gold must be bearish.
Then in real trading, gold turns from short to long, which obviously meets your original expectations, but you still firmly believe in its short position, because the opinions of most people give you this confidence, so you may not even set a stop loss, and end up losing a lot of money.
So many times when we are in a group, we tend to believe more in opinions that the vast majority of people agree with, and may even change our own opinions to appear to be "social".
Just like an old man I met in a group, who was very experienced in trading, when I was trading, he traded in the opposite direction to me, and he immediately advised me to change it quickly, and many people in the group also advised me. Later, I didn't want to lose face and made the opposite order, but the market went against me and I lost a lot.
At this time, you cannot blame others, because you are the one who made the decision, and you cannot fight against this group on your own. You can only accept the defeat and put your tail between your legs.
That’s why I said that if you want to do a good job in trading, it’s best not to join some groups, because there is a lot of noise. In order to eliminate their fear of future market conditions, everyone chooses to be lazy in thinking and trust the judgment of others. This completely loses the space for independent thinking, and even if you lose money, you can only suffer in silence.
Cognition 5: Emotional bias.
As human beings, we are bound to have emotions, especially when making judgments and decisions. Once emotions take over, they will affect our rational judgment.
For example, we are very averse to losses in trading. Please see the picture below, which is a transaction that a friend told me about last week.
The picture shows the 5-minute candlestick chart of gold.
After the US CPI data came out on Thursday, gold was clearly bullish, and he chose to go long in 5 minutes on Friday. In the evening, after the trend line broke and the moving average crossed, he made a long order at 2401.5, and set the stop profit at the platform pressure of 2416 in the hourly chart.
At 8:30 in the evening, the United States released the PPI data, and gold plunged by $10. His long orders suffered losses, so he began to panic and get scared. What if he suffered losses?
So he began to keep an eye on the market to see if it could reverse, and adjusted the take-profit to the opening price. He had only one thought in his mind at the time, "As long as I don't lose money, I will run as soon as I get my money back and I won't care about the profit either."
After that, the market did reverse. After he ran near the opening price, the market continued to rise and reached his original target of 2416.
This is a typical manifestation of loss aversion. Because of the fear of loss, or fear of losing existing profits, people follow their subjective emotions to stop profit and loss, resulting in more losses or less profits.
There are many more examples like this, such as being overconfident in one's own transactions, liking to instantly gratify one's desires, and having a recent preference, etc., which are all emotional biases in trading.
These problems are so common, is there any way to reduce the mistakes we make? According to my experience, there are several points:
(1) Keep a record of your trading records to see if you have made wrong trades due to your emotions over the past period of time, and how often.
(2) According to your own statistical results, formulate corresponding trading disciplines. For example, when you are emotional, what should you do to avoid premature closing of positions? You can reduce your attention to the market, set alarms, do other relaxing things to relieve stress, etc.
(3) Do a good job of risk management. If the psychological pressure is too great and the emotions have a great impact on you, you can reduce your position or set a stop loss position that reduces the psychological pressure. Because only when the loss is limited will you not be so worried and fearful, and your emotions will be stable, and you can do a good job in trading.
I’m Brother Ming. I’ve been in the trading market for more than ten years. If you have any questions about trading, you can find Brother Ming!
