The relativity of decisions in trading

Trading in asset markets is something truly fascinating and complex at the same time, because in addition to knowledge, it requires a high level of understanding of the scenarios and fluctuations that occur at all times, so the trader needs to pay close attention to the important details, know how to discern them, and make the decisions that are pertinent in order to obtain profits based on it.

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Attachment and attention to the present moment:

So, the trader requires to maintain an attachment to the present time in which he is operating an asset, but without detaching himself from what has happened in the past with its price; and all this without ever forgetting that this practice may be perfectly relevant, as it may well not be at all in terms of the results that he will achieve in monetary aspect. But the aforementioned is something to consider when making decisions in the markets, whether the operations result in profits or losses.

As if that were not enough, the trader must consider important factors such as the type of asset he is trading (commodities, currencies, cryptocurrencies or stocks), and must understand what strengths and weaknesses there may be in all respects with respect to them for a better understanding and better decision making in every way.

Preparation in trading

What has been mentioned so far surely sounds complicated, but in reality what we are talking about is the degree of preparation that the trader must have when carrying out his work of operating in the markets, because operating the markets means risking capital, and therefore Hence, it also means constant making of important decisions.

Although it is true that those who operate the markets must have an enormous preparation at the level of technical knowledge, which will allow them to understand chart patterns, indicators, temporalities, supports and resistances, gaps, volumes, etc., it is no less true that sometimes we We find the case that there are some traders who dispense with all this and only operate on fundamentals, and it is also valid, if you know how to do it. As well as also there are traders who dispense with fundamental analysis and only operate by technical analysis.

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However, the best thing to do when trading, in my experience and the opinion of most traders, is to properly understand that technical analysis and fundamental analysis are two elements that must go hand in hand to better understand the markets. , and that any trader who boasts of being, must take both factors into consideration in their operations.

In other words, technical and fundamental analysis complement each other, and cannot and should not be mutually exclusive, but quite the opposite, that is, they must be taken into consideration for making correct decisions in trading that allows obtaining important gains such as consequence of it.

In addition, beyond everything specified up to this part, the trader must also consider other important factors to make his trading decisions, such as the risk management he will do, and the type of trader he is, etc.

Correct vision in trading

But saying all this is easier than achieving it, at least for most people, in addition, even knowing and being clear about all the things mentioned up to this point in the article, the trader still has to deal with its own mind, with its own psyche, with its own personal way of seeing and perceiving things and the management it makes of its own emotions in the face of what he sees or perceives in the markets.

In other words, the trader still has to deal with its own beliefs, and therefore, on the correct management of ist beliefs, wisdom and emotions, what makes or not, will determine directly the result on its operations. It is up to the trader to understand that its beliefs, wisdoms and emotions can help or harm it, that is, they can limit and stagnate it or, instead, catapult it and propel it to success.

This makes us understand that there is a correct vision in trading; and paradoxically, it consists in understanding that there are no absolutes when it comes to operating the markets; therefore, things should not be considered in terms of good or bad, or in terms of right or wrong, but in terms of constant learning, and what we do in relation to that learning.

The relativity of decisions

As I said, it is something truly paradoxical, because most people when they start trading do not understand this no matter how much it is explained to them, and even when they begin to understand a little more about the technical part of trading, it is hard for some understand this "complexity so simple" which is the fact that decisions are relative.

Most novice or intermediate traders tend to think then that if they make a decision to buy or sell and end up making a profit, then the decision was correct; and that if, on the contrary, the decision and its action generated losses, then it was wrong.

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But those who understand the complexities and subtleties of trading know very well that a good decision can lead to losses, in the same way that a failed decision can lead to profits.

Let's pose a hypothetical case to understand it better:

Daniel (an expert trader), analyzed the graph of a cryptocurrency in 5 minutes time (Daniel is a scalper). The cryptocurrency cost about $ 1000 at the time of analysis; After careful analysis for a long time, Daniel decided to buy $ 3000 on that crypto, which means that he bought 3 units of the cryptocurrency in question. After about 20, 30 or 35 minutes, the price of the crypto had dropped $ 150, so if Daniel decided to sell or close the position at that point, he would have lost $ 450.

What to do? What decision should Daniel makes in such escenario of $ 450 lost? The answer is quite relative, many would say that Daniel should to sell immediately to cut losses; Quite simply, this would mean taking losses and accepting that his decision to enter the market when he did was totally wrong.

But, there is no right or wrong answer for this type of case, because everything will depend on the situation, the type of trader Daniel is in terms of risk aversion, and what he thinks he should or should not do based on his emotions, beliefs and wisdoms.

Having said that, we could well venture to say that, in strictly orthodox terms, what Daniel should do in such a case is to look again at the price chart to determine the best action to follow, and see if cutting losses is the right best, or if on the contrary, perhaps it is best to wait for the price of the crypto asset to rise once more.

An impatient and inexperienced trader, faced with a scenario like the one proposed, would have run to sell without thinking about it and assumed the losses, but Daniel is not just any trader, he checks the chart again, and re-analyzes the cryptoasset in 5 minutes, 1 minute, 10 minutes and also in 15 minutes timeframe. After all this, Daniel makes the decision to stay on the market, and thus continue to wait for an increase in the price of the crypto asset.

28 more minutes later, the price of the crypto asset not only rallied back to the initial level, but rose $ 80 more (the crypto asset worth now $ 1080) and Daniel decided to sell at that exact point. This operation reported a profit of $ 240 for Daniel. From the example just presented, several questions may be asked:

  1. Were Daniel's analyzes right or wrong at first?

  2. Was the decision to stay in the market wrong or right?

Regarding both questions, the answer is relative, since as I have previously explained, there are no absolutes on this, so it all depends on how we approach the exposed situation; But what should be clear is that the decision and the analysis were not wrong or correct for the simple fact that the trader in question won or lost.

To put it in perspective, Daniel's analyzes may initially have been carried out correctly, and even so, the market could have gone the opposite way to what he thought (as it did), and ended up generating losses over time. that you initially established for take profit or cutting loss.

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But since Daniel is an experienced trader, he modified his expectation and made his operation more flexible, and simply made the calculated decision to review the graph of the cryptoactive again in various different timeframes and preferred to stay as it was, without leaving the market, that is, he decided to remain, just as if it were an operation with a greater temporality. It is worth saying that Daniel risk it, perfectly aware that his new move could make him lose much more money if the crypto asset continued to fall in price. But fortunately the price of the crypto asset turned around and Daniel ended up making a profit of $ 280.

If we see everything strictly from the point of view of profits, and of the operation as an integral whole, we can say that yes, indeed the operation and analysis were correct, without a doubt, but we cannot ignore the fact that at being Daniel a Scalper, he expected to make a profit in less time than it actually took him to make it.

Therefore, although Daniel is an expert trader, if he is someone thoughtful, he will at least question himself if the initial analyzes that he carried out were competent, and how his initial vision of the situation could have failed. If Daniel is someone thoughtful, he will acknowledge that his initial analysis may have failed, and even realize that perhaps his secondary decision to stay in the market was wrong, even though he ended up giving him a profit.

Of course, between getting the analysis and trading right and losing, and the opposite (I mean getting the analysis wrong and trading wrong and win), most traders would prefer the second option, there is no doubt about it. But that's not the point here, because what we're really talking about here is that we shouldn't believe that a trade can only be considered bad if we end up losing money; or good if we end up winning it; In other words, we must transcend this excessively simplistic vision of trading.

Even winning, as traders, we must be reflective, recognize what went wrong in our operations in order to better understand it and modify it for future occasions. In the same way, even losing, we must understand what were the positive or strong points of our analysis to be able to find those in which we could have been wrong and solve them for future occasions.

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Trading requires flexibility

So, successful decision-making in trading requires flexibility, to understand that things should not be seen in terms of black or white, but based on what is the best that can be done at any time in direct relation to our expectations and real possibilities.

From the constant practice of a thoughtful vision of the situations when operating in the markets, traders can becoming more and more experts in understanding the subtleties and complexities that lead to obtaining consistent profits in trading, and this is what we must always search.

An intelligent view of situations is worth more than a view skewed by the mistaken belief that what generates profit is good or correct regardless of the fact that it cannot be understood or replicated. It also implies understanding that taking losses may not necessarily be due to errors in analysis, because sometimes unforeseen events are generated, for example, at a fundamental level in the asset and crypto markets (like in the case of new news).

In any case, if the analyzes are correct, they can be rationally explained and therefore can be replicated with a high percentage of effectiveness and preciseness. Therefore, what we can then determine in trading is the percentage of effectiveness or ineffectiveness of our understanding of situations in direct relation to the decisions and actions we take in the markets; And this really ends up making a difference in how successful we are as traders or not. We must never forget this.

Please, comment your opinions on the subject discussed. See you!!

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