Info!! The Ability Of Cognitive Flexibility Inwards Trading

In reply to the recent post service on the risks every bit good every bit rewards of selective attention, reader Igor Marinkovic raises an fantabulous point:  If you lot entertain outcomes at odds alongside your merchandise expectations, mightiness you lot non attain a province of affairs inwards which you lot overweight non-confirmatory information in addition to prematurely abandon your position?

Igor is absolutely correct.  Indeed, nosotros tin recollect of worry in addition to anxiety every bit selective *negative* attention.  In becoming also focused on what tin instruct wrong, nosotros tin overreact to the starting fourth dimension flake of random variance from our expectations in addition to neglect to let trades to instruct to their targets.

Clearly at that spot is an option to blind overconfidence in addition to skittish lack of staying powerfulness inwards ideas.  That alternative, I believe, is flexible commitment.  We tin live committed to a course of written report of activity at the same fourth dimension that we're opened upward to modifying it.  Military leaders know this well:  you lot attain a strategy, but few strategies live the fog of war.  You are ever attain to modify the strategy based upon weather on the ground. 

Cognitive flexibility requires emotional flexibility:  the powerfulness to anticipate existence right, but also gear upward for existence wrong.  We lately moved sharply lower inwards stocks in addition to my regression models, every bit good every bit a breadth inquiry that I ran, suggested the probability of a bounce over a 3-5 24-hour interval horizon.  Indeed, nosotros got some bounce inwards today's session.  But I know that models in addition to queries based on historical information rely on a crucial assumption: that the immediate hereafter volition mirror the recent past.  

As nosotros expression at recent concerns over disputed islands.  Can historical models adequately trouble organisation human relationship for unique geopolitical events?  Not without meaningful modification.

Cognitive flexibility agency edifice plans some your research, models, experience, in addition to expectations--all the spell creating alternate plans should this fourth dimension genuinely live different.  I mightiness await a bounce inwards stocks, but I also know that nasty headlines emerging from Ukraine or the East PRC Sea could severely exam nearby back upward inwards the ES futures.  I don't simply desire a trading plan; I also desire a Plan B.  The best-constructed quant models are severely challenged when idiosyncratic factors crusade cost action. 

Hope for the best, excogitation for the worst: non a bad approach to life in addition to trading.  Flexible commitment is non an oxymoron: it lies at the pump of surgery inwards fast-changing, uncertain domains.

Further Reading:  Why Controlling Emotions is Not the Goal of Trading Psychology