Fresh Choices

• Posted by Derek
• on August 20th, 2011

“If you choose not to decide, you still have made a choice.”  Geddy Lee

One of the most satisfying aspects of trading is that we really do have Freewill.  As flawed human beings that offers pros and cons, but we truly are lucky to accept this responsibility given other paths that might leave us with less control.  One con rarely discussed is the effect of making decisions and exerting discipline all day.  I thought this article did a great job explaining how this affects our body, take a look at the following passage:

“The more choices you make throughout the day, the harder each one becomes for your brain, and eventually it looks for shortcuts, usually in either of two very different ways.  One shortcut is to become reckless: to act impulsively instead of expending the energy to first think through the consequences.  The other shortcut is the ultimate energy saver: do nothing.”

Any trader can sympathize; I’m years past shortcut #1 but no stranger to #2.  But it rarely manifests itself in my market operations…it shows up at home.  What do you feel like for dinner?  Should we stay at the Hilton or Marriott for that trip to the beach?  Entourage or Curb?  Little, tiny, barely noticeable decisions that I’m often incapable of making.  Throw in operating a business and it’s easy for me to come up with 100 examples of minor decisions that I postpone.

As the article explains, we have only a certain amount of willpower and discipline…I can assure you mine gets expended in a normal trading day.  It’s the primary reason I began measuring things and becoming more systematic in my approach; I didn’t like the effect those 7 or so hours of discipline were having on my life after hours.  The NYT article(read the whole thing, much better detail than what I’m writing) tells me I may not be alone, but I’m glad I’ve forced myself into breaks and walks and trips to the gym to rebuild my reserves.

“The best decision makers are the ones who know when not to trust themselves.”

Bingo.  I think very clearly in the morning, so that’s when I build trading plans that imagine every crazy scenario from way down to way up.  From there, it’s a matter of maintaining discipline all day.  Sometimes I can do it without help, but it’s way better for me to mix in a midday bike ride, engaging book read, or even a 10 minute nap.  Any of these reset my brain to accept the afternoon stimuli; without them, my brain turns to mush and I’m far more prone to errors of commission and omission.  Consider thousands of fatigued participants doing the same, and it’s no surprise that markets are far from rational.

Returning to the line from the classic Rush song, not deciding IS a decision.  A quarterback who stands in the pocket too long will get sacked.  A trader who stands long enough with money hanging out of his or her pocket will have it taken away.  I say a complete trading plan acknowledges our blind spots and builds in a plan to keep our decision-making ability as strong as possible.  We all know this, but a simple example of how most brains naturally function helps to remind us that executing our “edge” can be as simple as choosing to keep ourselves more mentally fresh than the guy across the trade from us.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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