Hello and welcome to this video, it will help you to improve your algorithmic trading results in the next 12 months.
In the last video we have talked about what that one thing is, that will help you to reach your goal in a fraction of the time you would need otherwise.
In this video we want to talk about the one thing you need to avoid to improve your process.
Are you good at something? Most people have something where they are better than other folks.
Most likely you have such a skill.
And most likely it is something that you did often.
If you good at playing an instrument, you have probably spent a few hundred hours learning how to play it.
If you are good in sports, you probably have spent a few hundred hours training how to become better.
If you are good with several languages, you have probably invested a few hundred hours to learn the vocabulary.
Yes, there are those wonder kids who can play the piano when they are 3 years old, but for most of us it takes time to become good at something.
If you ever had a first day at a new job, you know what I mean.
You didn’t know the people around, you didn’t know anything about the company culture and probably it took you a while until you knew how to get along.
But each day you learned something to become better at your job.
You noticed things that you have already seen some time ago.
You learned who was a nice guy and who was a threat.
You learned what was appropriate and what you should avoid.
Maybe you made a few mistakes and you learned how to avoid them in the future.
And probably you did a few things right and learned how to repeat the good things.
And today you know how things are and you can show the new colleagues how stuff is done in your working environment.
So what did you do? You learned from your own experience and the reactions from your colleagues what to do and what to avoid!
You repeated the things that produced good results and avoided the things that produced bad results!
That helped you to get along in your working environment and it is also what will help you to improve your trading results.
Using the parking lot of your boss just one time might have given you a good understanding of what to avoid in the future.
But to become a good trader, it is not enough to do things once or twice.
Actually it isn’t even enough to do things a few dozen times.
Making decisions based on just a few trade results is what most people do.
It worked yesterday, it worked last week, so why shouldn’t it work forever?
That kind of thinking is very human and it is called heuristics.
Heuristics are an abbreviation in thinking to save brain calories.
Heuristics helped the human kind to survive.
Heuristics work in most situations, but are dangerous when it comes to trading.
Trading heuristics is like selling Christmas trees in January, because the sales in December have been so good.
Trading heuristics is like climbing the Mount Everest in a T-Shirt because it was warmer in the valley below.
Trading heuristics is caused by a too small amount of data and they are very often the cause of big losses.
Here is a riddle, please answer as fast as you can.
A ball and a bat cost one dollar and ten cents.
If the bat costs one dollar more, what is the price of that ball?
Say it loud, right now. Do you have your answer?
The common heuristic answer is that the ball costs ten cent.
The correct answer is that the ball costs five cent.
Just take out your calculator or do a Google search, it is really true.
Heuristics are really dangerous, because they come disguised as common sense and they can easily ruin your trading results.
In this video we have talked about the one thing you need to avoid to improve your process.
In the next video we are going to talk about the one thing you need to find out how much of each ingredient will improve your outcome.