Stock Trader’s Corner — Understanding Why We Do What We Do

Every day we are bombarded by useless information. As a stock trader our job is to filter out the noise and focus on information that matters.

But working out what information matters can be tricky business.

The newspapers we read every day are in a constant search for content and the financial markets are the gift that keeps on giving.

‘Today the markets went up because of blah, and John Smith from XYZ financial advisers said blah, and thinks that in the future possibly blah blah could happen.’

Think back over the number of articles like this you have read over the past year and consider how many of them added value to your day and led to money-making decisions.

My guess is none of them.

So why are you reading them?

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If the markets go up they wheel out the perma-bull who claims that the markets will be up another 15% by Christmas. If the market is down that day you can be sure there will be a clever sounding analyst going into minute detail about why the markets can fall further and now is not the time to invest.

All they do is regurgitate information about what happened in the past and then make sweeping statements about the future with zero accountability.

The next time you see an economist talking about what has happened and what it means for the future, ask yourself whether they have made a clear statement about when they are proven wrong.

If they haven’t given you any indication of that, how can you ever pin them down in future and call them out? You can’t.

So, what’s the point of their statement in the first place?

Zeroing in on information that helps you move forward and actively blocking out information that is pointless and actually harmful is your first task as a trader.

My challenge to you is to stop reading the daily articles that claim to know exactly why the market did what it did that day. I assure you the person writing the article doesn’t actually know why the market did what it did.

Our need for cause and effect is ingrained in us. Being given an explanation why something happened immediately makes us feel calmer despite the fact the reason given may be a complete load of hogwash.

The newspapers’ need for content means they need to write the same sort of article every single day.

Think about that…

Every. Single. Day.

If you are taken down the rabbit hole with them and focused on every twist and turn that the market makes and searching for a reason for each and every one, you are not seeing the forest for the trees.

Step back, take a deep breath, and consider whether your path to riches is from knowing exactly why the past happened in the way that it did.

If you know exactly why the past happened, does that get you any closer to working out what the future holds?

Is your task even trying to work out what the future holds?

What is your task as a trader? Do you know? Or are you just flying by the seat of your pants and hoping the market keeps going up?

Does your mind change with every article you read? Do you think the people writing articles about finance magically know what’s going to happen?

Reading an article about an announcement by a company you are following closely is useful, of course. You can be alerted to companies that you don’t know about by reading the financial press and that can lead to your own due diligence and ultimately an investment. That’s why reading Money Morning every day can add value. It’s also why you should check out the Beyond Oil conference that’s happening right now.

But separate the useful information about actual things happening from the conjecture. Companies will always talk themselves up. The cheerleaders on HotCopper that love the stock to death will ignore negative information and harp on about the rosy future.

No one is going to give you back a cent if you do your dough, so at the end of the day the buck stops with you.

The best thing you can do as an amateur trader or investor is to track exactly why you do what you do and review it on a regular basis.

That means you need to keep a trading journal.

When you enter a trade write out exactly what the plan is for the trade and why you are doing it. At the end of the trade write down exactly what you did and why, and then review what you did well and what you could do better next time.

Personally, I use Evernote, because it works across all devices and updates automatically. It means I can update notes at any time of day or night and the information is always handy.

At the end of a week, you should be reading over your notes from the week and making notes about how you went. You can write down expectations for the following week and what you plan to do.

The weekly check in is a vital part of the whole process. It involves setting aside some time each week and collating all of the information you have learnt in the previous week and working out how to attack the next week.

I like doing it on a Sunday evening because the markets aren’t open, and I can focus on the task without distractions.

It doesn’t have to take a long time. You might be done in 10 minutes or so. Other weeks may grow into an hour as you write down new ideas and have realisations that help you to take forward steps.

Consider how much time you have spent looking outwardly for information to help you make money-making decisions. The point I want to make today is that, that time is better spent looking inwardly to better understand why you do what you do.


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Murray Dawes,
For Money Weekend

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Murray Dawes is the Editor of Pivot Trader and contributing Editor at Money Morning. He was one of five, from 5,000 applicants, chosen for a graduate position with the Swiss Banking Corporation — now part of banking giant UBS. The bosses quickly cottoned on to his potential and pushed him up the ranks as a futures broker on the floors of the Sydney Futures Exchange. Murray later broke out on his own and developed custom trading systems to trade leveraged financial instruments like futures. Due to his success, Murray became the ‘hired gun’ trader for Australia’s rich and famous. Today, Murray runs a trading service through Fat Tail Investment Research to help everyday Aussie investors use his advanced trading methods.

Money Morning Australia