*****David Blair, The Crosshairs Trader, is a blogger/trader/educator who does a wonderful job of sharing research on elite performance and how it relates to trading. Below is his latest post for the SMB trading community.***** — Editor’s Note

How much control do you have over the success of your next trade?  Before you answer that question what will you base your answer on?  Will the probability of success hinge upon a repeatable pattern, a streak much like the recent “Tuesday Effect”?  Is it based on the success of a technical indicator you recently began using that has produced X number of winners in a row?  Maybe your answer will be based on some new guru you are following who thus far has been accurate on the calls you decided to follow.  In all of these cases your answer may be the result an illusion…an illusion of control.

The illusion of control is the tendency for people to believe they have control over, or at the least have the ability to influence, an outcome that they demonstrably do not.  This is most often the case under conditions of uncertainty where innumerable possibilities exist due to innumerable influences.  No where is this more prevalent than in the stock market where future price action is based on the innumerable decisions of innumerable participants every minute of every day, oftentimes based on information known and unknown at the time of the investment or trading decisions.  You may want to read the previous sentence again just to make sure you understand the complicated nature of the markets before you make that next trading decision under the illusion of control.  Understanding our lack of control over the outcome of our next trade should reinforce for us our need to work on how we manage our trading (e.g. risk parameters, process vs outcome, acceptance of the unknown, etc)…something that we do have control over.   The following resources can help.

The Illusion of Control defined (Wikipedia)

The Illusion of Control (Nasdaq)

It is OK to be flexible when things are out of our control (PsychCentral)

Not being in control is no reason to give up (Psychology Today)

Do not allow the illusion of control to bruise your self-esteem (Mapping Ignorance)

The Illusion of control when managing risks (University of California, Santa Barbara)

Suffering from self-delusion (Psy Blog)

The illusion of control and its relation to stock market panic (Boston Fed)

When making financial decisions we can fall under the illusion of control (Physicians Money Digest)

What traders CAN control (Traders Log)

David Blair

THE CROSSHAIRS TRADER
www.thecrosshairstrader.com

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