Reasoning and Trading - Reasoning and Trading Brett N...

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Reasoning and Trading Brett N. Steenbarger, Ph.D. www.brettsteenbarger.com “Think before you act!” “Count to 10 before you say something you’ll regret.” “Ready, aim, fire!” “I’ll think it over.” In many situations we face in daily life, we recognize that action must be guided by reason. Thinking is a powerful antidote to impulsive behavior. A perfect example is the breaking of habits. We learn to overcome compulsive eating or drinking by making ourselves first think about the consequences, then consciously choose an alternate course of action. Without clear thinking about priorities, it is far too easy to fall into patterns of behavior that offer short-term rewards but longer-term consequences. So it is for traders. Having worked with dozens of traders over the past year, I can vouch for the fact that, among active market participants, overtrading is the single most common problem they face. Overtrading in this context means putting trades on where there is no explicit edge—and even no valid rationale—for the trade. Generally, the reasoning behind the excessive trade is nothing more than, “I felt like it was going up.” What the impulsive trader fails to realize is that this is no different from the dieter’s
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Reasoning and Trading - Reasoning and Trading Brett N...

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