Plan Your Trades And Trade Your Plan

Plan Your Trades And Trade Your Plan

The following is part 3 of our 3-part psychology series. You can read part 1 here and part 2 here.

Clearly our biology and the biases that come with it are hazardous to our financial health.

But how exactly do we solve this problem?

The trick is to plan your trades and trade your plan.

The first step to successful trading is creating a solid strategy that accounts for every possible market scenario. High volatility, low volatility, black swans, it doesn’t matter. Everything should be planned for. Nothing should be a surprise. Read more

Goals Expectations Inner Alignment In Trading

Goals, Expectations, & Inner Alignment In Trading

Why Do You Trade?

It’s important to understand the true drivers behind why you trade the markets. The answer is different for everyone. We all have different circumstances, wants, wishes, and desires.

Find yours.

Below are common reasons people get involved:

  • Entertainment
  • Gambling
  • Staying Informed About Economic and Political Developments
  • Intellectual Pursuit/Curiosity
  • Side Income
  • Primary Income
  • Advising Friends and Family
  • Professionally Managing A Fund

Your reasons influence how you attack markets. For example, people managing their own wealth might prioritize account growth over shallow drawdowns. Whereas the individual looking to run money professionally will need to focus on risk control. And then you’ll have the gamblers who will undboudtedely gravitate towards penny stocks and out-of-the-money options. Read more

Avoiding Cognitive Biases In Trading

Avoiding Cognitive Biases In Trading

The following is part 2 of our 3-part psychology series. To read part 1, click here.

On top of rampant emotions and a dire need to “fit in”, our biological evolution also had another side-effect. It made us lazy.

Back in the day we were faced with an endless cycle of feast and famine. We’d have short periods of feeding followed by long periods of minimal sustenance living. So naturally we evolved to conserve our energy as much as possible.

If given two options we’re conditioned to choose the one that involves the least amount of effort. This applies not only to physical activities, but to mental functions as well. After all, the brain does account for up to 20% of the body’s total energy usage (more than any other organ). We’ll always go for the quick and easy solution over the tough one that requires more thinking. This is true even if the easy option ends up being wrong…   Read more

Achieve Market Mastery Through Fallibilism And Perspectivism

Achieve Market Mastery Through Fallibilism And Perspectivism

Macro Ops is dedicated to one thing: mastering the markets.

But the path towards mastery isn’t linear. It’s a messy one that requires constant iteration, observation, backtracking, and improvement. Ray Dalio has a good visual for it:

Achieve Market Mastery Through Fallibilism And Perspectivism

The loops in the path are the necessary pain points that come with the journey. In order to push through them, you must continually self-examine to see where you can improve. An unwillingness to do so will stunt your growth and lead to plateaus.

Our team at Macro Ops employs two key mental models to keep ourselves growing rapidly: fallibilism and perspectivism.

Fallibilism states that humans can’t fully prove their beliefs and are therefore prone to mistakes. If you’re fallible then you know you’ll be wrong a lot. The philosophy requires that you’re open to new evidence that may alter or contradict your previously held beliefs. At no point should you be 100% confident in an absolute “truth.” Read more

Why Our Evolutionary Biology Works Against Us In Markets

Why Our Evolutionary Biology Works Against Us In Markets

“I think investment psychology is by far the most important element, followed by risk control, with the least important consideration being the question of where you buy and sell.”

~Tom Basso, Market Wizard

A strong psychological foundation is the key to successful investing. The human mind is a powerful, complex tool that quickly turns into a double-edged sword to those untrained in its control.

It’s like driving a Formula-1 race car. A skilled driver can push his racer to its limits, extracting every last bit of performance. A novice driver on the other hand is better off in a mini-van. Put him behind the wheel of an F-1 and he’ll end up crashing straight into a wall. Read more

risk management

What We Can Learn From The Masters

Everytime I watch golf I can’t help but think of how many similarities there are between successful investing and championship level performance on the golf course.

Anyone who’s attempted a round of 18 holes knows how difficult golf can be. The game is a ruthless fight between you and the course. You’re constantly engaged in an uphill battle. It’s uphill because with each hole you have the limited potential to shoot a few under par, but the unlimited risk of shooting way over.

Take a par 3 for example, the best you can do is shoot a hole-in-one. And that rarely happens even for professionals. Yet the worst that can happen is devastating. You could shoot 3 over, 4 over, 5 over, or even 6 over par on that short little par 3. This is what we call negatively skewed risk to reward. We can only shoot under par by so much, but we can shoot over par by an unlimited amount. Poor Jordan Spieth quadruple bogeyed the 12th hole at the Masters this weekend and went on to lose the tournament because of it. He had been in the lead the entire time only to lose in the final few holes.  Read more