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2024/09
How to improve trading cognitive level?
In the trading world, your cognition level often determines your success or failure. Improving your trading cognition is key to standing out in this challenging and opportunity-filled field.
1.Learn the Basics Thoroughly
Start by deeply understanding the fundamental knowledge of trading. This includes learning about various trading tools, market mechanisms, strategies, etc. Mastering these basics lays a solid foundation for further cognitive improvement.
2.Accumulate Practical Experience
Knowledge comes from practice. Engage in actual trading operations to experience market fluctuations and changes firsthand, summarizing your successes and failures. Every trade is a learning opportunity, so reflect and summarise well.
3.Maintain an Open Mind and Learn Broadly
Stay informed about domestic and international economic situations, policy changes, industry trends, etc., as these macro factors impact trading. Also, interact with other traders, sharing experiences and learning from their journeys.
4.Read Classic Trading Books and Research Reports
The wisdom and experience of successful traders can often bring us new insights and thoughts. Some key points to consider are:
- Thirst for Knowledge: Read books with substance, not just motivational content, as motivational content is useless beyond comforting yourself after losses.
- Keep Detailed Trading Records: Document every trade with reasons for entry, the plan, your mindset, and your emotions at that time for future analysis and reflection.
- Regularly Summarize and Analyze: Every three months, review your trades and analyze winning vs. losing trades, trends, your mindset, over-trading instances, and emotional trades. Identify bad habits and how they impacted your losses.
By improving cognitive levels, you turn “familiarity” into “true understanding.” Keeping detailed trading logs helps reveal overlooked or falsely confident aspects of your trading habits. The more you write, the more you’ll enjoy it, as it’s a process of refining and organizing your thoughts. Trading is a lonely profession that requires balancing emotions, and writing summaries is a form of self-dialogue to help you stay focused.
Trading Quality vs. Worldly Standards
When someone asks, “How’s your trading going?” they often mean, “How much money have you made?” But the correct answer might be, “Very well, I’ve been following my plan.” This distinction underscores the importance of self-dialogue and maintaining clarity as a trader.
Trading Principles and System
Overall Principle: “Earn big, lose small, survival first.”
- Only Trade Daily Swings: Focus on trend movements and avoid choppy markets.
- Entry and Exit Rules:
- Trade above the 5-day moving average for long positions and below for short ones.
- Enter on pullbacks within a trend when the price closes above the 5-day moving average.
- Set alerts at key levels for range-bound trades and enter on confirmed breakouts.
Stop-Loss Strategy:
- Use the 30-minute chart turning points, the day’s opening price, or a fixed percentage (e.g., 0.5% of your account).
The key is a flexible application, not rigid adhering to a system. Daily swing trading lets you avoid constantly watching the market, allowing for more relaxed, less stressful trades.
Recognizing the Risks of Fixed Trading Systems
Many famous traders, such as Robert Prechter (Elliott Wave), Richard Dennis (Turtle Trading), W.D. Gann, and Jesse Livermore, suffered significant losses or bankruptcy by rigidly sticking to fixed systems. When a profitable trading system becomes widely adopted, the market adapts, rendering that system ineffective.
That’s why cognitive flexibility is preferred over rigid AI or algorithmic trading. Trading wisdom evolves through practice, not pre-written codes. Human brains are more sensitive to market changes than any program. Thus, relying solely on a fixed trading system can never guarantee long-term profitability.
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Success in trading is not just about skill and knowledge; it’s also about patience and discipline.
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Note: Trading financial products involves high risks and may not be suitable for all investors. Please ensure you fully understand the risks and implement appropriate management measures.