Here is an interesting comment from a reader in response to my blog post “My Thought Process: LIFE”

Steve,

Thank you sir  for your thoughts. I constantly look for your tweets during the day. I don’t know why I bought so many books in the past. I have learned a lot from your generosity.
I turned LIFE green into red due to recency bias and confirmation bias. Good thing did not do revenge trade.  Yesterday, I scaled out of ASML sooner than I should have. So, I determined to stay with LIFE longer (recency bias). Another mistake,  listened to CNBC anchor (while in the trade) saying that hedge funds won’t even sell out at $65 or so on take over. Bingo, I got confirmation bias and so decided to stay longer. Thus, turned it into chop shop. I saw your tweets live that you’re done with the trade. Well, I ignored your view  due to my bias.  Well, next time, I need to stop and think fresh.

Thanks again for your time.

GM

Some interesting thoughts there. Here is my feedback

1. “I don’t know why I bought so many books in the past.”
   1. Up until the time we started SMB I had only read one trading book regarding setups back in 1998. I have read several books about successful traders such as “market wizards”. I believe you can get a lot more from books that address the issue of process which is a common thread in all performance related fields.
   2. Prior to starting our foundation training program we give a reading list to our trainees that have zero to do with the technical aspects of the market. We cover our thoughts on technicals/strategies in the course and it is far more important to learn the importance of psychology and practice in your development.
2. “I turned LIFE green into red due to recency bias and confirmation bias.”
   1. This is actually not as bad as you think. 99% of the population goes through life suffering from these biases and aren’t even aware they have them. Being aware of a bad habit is the first step towards correcting it.
   2. Generally a winning trade should never become a losing trade. Sometimes the trade can become a scratch but not a losing trade. I don’t mean by this trades you were up 10 cents and then reversed and you got stopped out. I mean a trade that hit your first profit target…
3. Yesterday, I scaled out of ASML sooner than I should have. So, I determined to stay with LIFE longer (recency bias).
   1. Do you have a formal playbook? What are you basing the fact that you got out sooner than you “should have”. Hindsight is 20/20. What was your trading plan? (i hope you had one).
   2. These were not remotely similar setups. Trade similar setups similarly. Different setups should be traded differently.
4. Another mistake,  listened to CNBC anchor (while in the trade) saying that hedge funds won’t even sell out at $65 or so on take over. Bingo, I got confirmation bias and so decided to stay longer.
   1. If you were a trader on my desk i would be fuming right now. “CNBC anchor” yikes! I fought for CNBC on my trading floor in 1996 as there was an edge in having access to that information. There is no longer an edge. It is a distraction. Turn it off.
5. I saw your tweets live that you’re done with the trade. Well, I ignored your view  due to my bias.  Well, next time, I need to stop and think fresh.
   1. I shared relevant factual trading information. You should consider it and then make a trading decision based on a host of other factors. Hopefully some person on CNBC talking about a takeover price that is acceptable to hedge funds that are long won’t be given too much weight on an intra-day trade.

   

   Steven Spencer is the co-founder of SMB Capital and SMB University and has traded professionally for 16 years. His email is [email protected].

   No relevant positions