Four aspects of cognitive futures trading

All disciplines in the world eventually return to the philosophical level. Just like the math master Nash's acceptance speech at the Nobel Prize ceremony in the movie "A Beautiful Mind": "I have always believed that numbers, whether equations or logic, guide us to think. But after a lifelong pursuit, I asked myself, ' What is the logic? Who decides the reason?" This leads to a joke: The profession closest to the essence of this world is security. They are asking these three questions every day: Where are you from? Where are you going? an ultimate philosophical question.

The futures market is an invisible battlefield, and any player needs to continuously question themselves and strengthen their correct understanding. Otherwise, futures trading will not be the "cash machine" of the market, but will become a "monster" that preys on people. The author gives several directions for thinking from the cognitive perspective of futures trading.

Cognitive Probability

Probability is possibility, and the understanding of probability is a basic skill in futures trading. I believe that many futures investors will secretly regard themselves as clever "hunters" in the futures market, rather than poor "prey". As one of the best hunters in nature, the cheetah is only suitable for high-speed sprinting, so it must exert all its strength in every attack. But even so, its attack success rate does not exceed 30. However, a probability of 30 does not affect the survival of the cheetah species.

Many investors, especially those who are new to the futures market, often think that they are smarter than other investors. Especially after experiencing relatively smooth transactions, it is easier to form the thinking that "it is easy to make money in the futures market". In fact, there is no so-called "Holy Grail" of trading in the futures market. It is common for small profits to be followed by huge losses, because probability is an objective reality.

Many high-frequency trading hedge funds with good returns accumulate small profits based on probability, and finally achieve amazing returns. If you grasp the probability well, you will be like Dugu Qiufei's azure sword, "sharp and fierce, indestructible."

Cognitive Stop Loss

"Cut the stop loss and let the profits run" is regarded as a guideline by many futures traders, but it is indeed "anti-human". Experts in behavioral economics have long discovered that humans are much more sensitive to losses than to gains. That is, in a personal "mental account", the sadness you feel when you lose 100 yuan is much greater than the joy you feel when you gain 100 yuan. degree. Therefore, stop loss is unacceptable to some investors.

Faced with book losses, many traders would rather choose to "carry it on", maybe the market will get better tomorrow, rather than decisively stop the loss and exit. In fact, only by decisively stopping losses and preserving strength can we seek development in the appropriate market conditions in the future. In the futures market, the most important thing is to "survive" first, and then "get stronger". Just like a cheetah on the grassland, before becoming an excellent hunter, you must first avoid becoming prey and being eaten. Of course, when many traders set stop loss points, they suffer serious losses either because of "small stop loss amount" or because of "misjudgment of stop loss conditions" and other reasons. Therefore, it is particularly important to grasp the stop loss scale.

Recognizing opponents

"Who is our friend and who is our enemy" is also an important issue in futures trading. The answer for most people is that if you are long (short), then your counterparty is obviously short (long). However, is this really the case? In the futures market, only when one party admits that it is out of the game can the other party pocket the profits. That is, the other party's losses are your profits. From this point of view, the "comrades" who share the profits with you are your competitors. At the same time, when market conditions go to extremes, "stampede accidents" will also occur.

Take the stock market as an example. When the market price continues to rise, a large number of traders continue to buy frantically, eventually causing the stock price to reach a stage peak. In this way, the final "successor" is obviously not the "comrades" who bought together in the early stage. Inscribed in front of an ancient temple in Delphi, ancient Greece are the words, "Know thyself."

In the futures market, a trader’s biggest opponent is himself.

Only after you have a deep understanding of yourself, you will no longer have the concepts of "short" and "long" in your mind, and you will be able to "heavy sword but no edge, great skill but no workmanship" in trading.

Understand the "Tao" and "Technology"

In futures trading, many investors often struggle with whether to place orders based on the moving average system or the K-line pattern. Is the wave theory effective or Gann's rule better? Does programmed trading have advantages or subjective trading is better? When running fundamental analysis, should we focus on the current status of spot goods or future trends, etc. In fact, it is not necessary. You only need to master one or two trading methods, and you can "do it all over the world" with "one new trick", because these are all techniques and the category of "skills".

What really makes futures investors grow is the improvement in mentality, system, overall view, values, etc. This is the so-called "Tao". There is no shortage of celebrities in the futures market, but there are few birthday stars, which also illustrates this truth. Only when your vision and mind reach a certain level can you have a sense of awe for the laws of nature, follow the trend, lift the weight as lightly as possible, and eventually "not be stuck in things, and all vegetation, trees, bamboos, and stones can be used as swords."