In the famous trading book "Memoirs of a Stock Dealer", Livermore, the king of speculation, said: "Speculation is as old as a mountain, and there is nothing new on Wall Street." ”

Many people understand this sentence as a market, and think that it means that there will always be a certain pattern in the price trend. Actually, it's wrong. This sentence is not about specific historical prices that will be repeated, but about human nature.
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Speculation is as old as a mountain, because the essence of speculation is to make a profit on the spread. In other words, everything in order to gain from the spread can be understood as speculation. For example, trading, for example, doing business, doing business, buying and selling, is all about profiting from the difference between high and low prices.
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And when it comes to spread Fluctuation, when it comes to changes in interests, human nature will change with it. There's nothing new on Wall Street, it's actually about the change in human nature. Candlesticks go up and down, but human nature never changes.
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In the early days of our human evolution, the environment was simple and primitive, and we evolved a lot of instincts and cognitions in order to better survive and develop.
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For example, loss aversion. In the past, natural disasters led to starvation, and plagues led to extinction, and people were always trying to avoid various risks in order to survive better. As a result, people are very averse to loss. Because of these instincts and cognitions, people can live better in the environment at that time. And these habits have been continued.
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In the book Turtle Trading Rules, there are some cognitive biases that have a significant impact on trading. The main ones are as follows:
1. Loss aversion: Have a strong preference for avoiding losses.
2. Sunk costs: Pay attention to the money that has been spent.
3. Disposal effect: cash in profits early, but let the losses continue
4. Result preference: pay more attention to the result and ignore the process.
5. Near-term preference: pay more attention to recent data or experience
6. Anchoring effect: relying too much on easily available information.
7. Trend effect: blindly believe in one thing, just because many people believe in it.
8. The rule of decimals: drawing unfounded conclusions from too little information.
So, how do these cognitive biases affect our trading?
1. Aversion to loss
Loss aversion: Reluctance to stop losses. I'd rather not make a profit than stop loss. This is the psychological state of many people, futures are okay, because there is leverage, large fluctuations, people are more likely to be able to recognize the need for stop loss, but in the stock market, the number of people who are not willing to stop loss is very large, because in the Bull Market will always rise This sentence gives them the best reason.
Professional traders, on the other hand, are straightforward and decisive in their stop-loss, as simple as drinking water and eating.
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Because of the aversion to loss, people's attitudes towards "sunk costs" have been derived. Sunk costs refer to costs that have been incurred and cannot be recovered. Economist Xue Zhaofeng once pointed out that sunk costs are not costs. But most people don't think so, and they have a hard time accepting these facts.
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For example, there is an example in the Turtle Trade Rules: a company invested $100 million in the development of a project. As a result, after the successful development of this project, they found a significantly better technology. According to normal rational logic, the company should abandon the previous project and instead develop this new project, focusing on the future and not caring about the costs that have already been spent.
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But that shift would make the company feel like its $100 million cost was wasted. It is likely that they will continue to stick to the original project...... That's the bad decisions that come with sunk costs, influenced by costs that have already occurred and can't be recovered.
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In trading, this phenomenon is also visible in the market.
For example, many people often carry a stock, in addition to the loss aversion, maybe he is still thinking, if I close this stock, then my previous losses will be wasted. So, he insisted on recouping his costs, and didn't care about other stocks that were doing better. This is the same as the company mentioned above. Other better opportunities were forfeited because of previous costs.
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This pattern of behavior is reinforced as losses increase, as the greater the sunk cost, the harder it is for people to give up. That's why we often hear about someone whose stock has been held for decades. The fundamental reason why people can turn off the computer and uninstall the software is: since I have lost so much, if I stop the loss, then won't all the money be wasted?
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But in fact, in fact, how the market goes in the later period has nothing to do with how much sunk cost he pays.
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So, for traders, it's time to stop loss, it's time to take back, and don't overdo it with those sunk costs.
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3. Disposal effect
The law of the turtle trade has made people more willing to be put in the bag for safety and become a disposal effect. But I feel like it's caused by an aversion to loss and an aversion to uncertainty. When there is a floating profit in our account, we will face the uncertainty of profit and the possibility of losing profit at the same time. This makes it difficult for us to tolerate continued Holdings. We're desperate to make sure it's profitable. Therefore, once there is a floating profit, especially when the floating profit starts to Fluctuation, it is the time when people want to close position the most.
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But in fact, trading needs to embrace uncertainty, and when there is a floating profit, you need to try to get the big trend. Because only in this way can we have the opportunity to widen the profit and loss ratio and achieve the positive return expectation of the overall trading logic. The idea of closing when you see a good situation is not holding the trend market at all.
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4. Result preference
Outcome preference: that is, we prefer to believe in the outcome rather than the process. Many people only look at whether their trades are profitable or not, and they believe that profitable trades are right and losing trades are wrong. I don't care about the trading logic behind it at all.
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In fact, professional traders are more concerned about trading logic, the logic is correct, and it is right that a single trade is a loss. The logic is not correct, and the profitable order is also wrong.
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For example, dead carrying. A lot of people really fought back after they died. Under the cognition of the result preference, they will think that this is correct, and then one day they will be unable to resist it
The market was taken away. There are also many people who have achieved short-term profits due to luck, and as a result, they have strengthened their behavior patterns, which ultimately led to their failure.
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People have always liked results, especially in an uncertain space like the futures market. Therefore, in the trading world, there has always been a market for bragging. Because what makes money is powerful, and whoever makes money is a master, this is the way most people think.
It is better to look at the results than to look at the logic, because in this uncertain, leveraged field, the results are very accidental, and logic is truly stable.
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5. Recent preference
Procension preference: Values more recent data or experience.
This is easy to understand, many people use a certain set of trading methods, as long as they have lost money recently, they will immediately say: the market has changed or rather, the method has failed.
For example, the turtle trading rule itself, many people have tried this trading model, but as long as this method starts to lose money continuously, they will say that there are too many people who know this method, and it has long been invalid. But in fact, there are very few people who can actually use this method, very few of them because they really understand it, and most of them because they don't understand the trading logic, and they follow their own recent preferences. As soon as a loss begins to change, a large part of this is because of people's short-term preferences, as everyone knows, any set of trading methods can not achieve profitability all the time, any trading method has its own unfavorable period, and the long-term logical view of the problem is the right way.
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Whoever makes money recently is powerful, and whoever is a great god. In the past few years, the income has been stable, and the veteran masters who have lost money recently are not good, this is the layman's mode of thinking. There are often celebrities, but there are few birthday stars, but many people don't think so.
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6. Anchoring effect
A psychological term that refers to the fact that when people make judgments about someone or something, they are easily dominated by first impressions or first information, which is like an anchor sinking to the bottom of the sea to fix people's thoughts somewhere.
A prime example of this is appearances.
Why are many people indifferent when the trend falls and the account loses, and when the market rebounds to near the cost, people react and run away?
In addition to factors such as loss aversion and uncertainty aversion, there is also a reason for the anchoring effect. For example, I hesitated and didn't come out when I had more single rebar 3000, and now I can't come out at 2800, because I didn't come out when it was 3000. The position of 3000 becomes an anchor point. People always compare the current position to the anchor point. And when the price starts to rebound to this level, approaching the anchor, it is easier for people to come out because it is close to the anchor.
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We have heard stories in the futures market before that someone made tens of millions with 50,000 yuan, and finally returned to 30,000. Why didn't she settle down when she retreated to a certain point? I believe there were two factors. First: the reason why she was able to achieve exaggerated gains was that she was able to resist drawdowns. The second point is that in the process of retracement, she thought, since I once achieved such a high return, if I Close Position now, wouldn't I lose the profit that belonged to me in vain?
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The account equity fell all the way, was anchored all the way, was unwilling all the way, and finally, how to go up and how to come back.
This problem is very common in trading, and the solution is very simple, set a reasonable exit, tolerate a certain amount of drawdown, and understand that retracement is the inevitable price of trend trading. How to get the right direction in the trend without taking the retracement?
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7. Trend effect
The trend effect and the herd effect are relatively simple. It's that people will go with the flow because other people believe something. For example, most people believe that the rules of the turtle trade have long since failed. Why? Because they've verified it? No, because everybody says so. In trading, insight is important as it helps traders avoid both of these situations.
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8. The law of decimals
Finally, the law of decimals. In contrast, there is the law of large numbers.
The law of large numbers reflects a fundamental law of the world. In a large group of many individuals, individual differences due to contingency are chaotic and unpredictable when viewed at individual individuals. However, due to the law of large numbers, the whole group can show some stability.
The rule of decimal numbers is that people prefer to pay attention to small individuals and small samples.
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In fact, this means that you should look at the transaction from a certain height. Some people have traded 5 times, and some people say that this must be a master. But really? In fact, there is not enough sample to show his true strength. The market only goes up and down, and he may just be lucky.
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In the past, a friend told me about a technical indicator, and after we studied the trend of the last 2 months, we found that this indicator is simply magical, with an accuracy rate of 100%. Then I wrote the model and tested all of its historical movements, and found that it was 20% accurate.
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In the past, a friend of mine told me that every Tuesday, the XX variety always came out of the doji, and after looking at the trend of 100 Tuesdays, I realized that he was bullshitting.
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Result preference The law of decimal numbers makes it easy for people to mistakenly believe in something, and it can make it difficult for people to stick to a set of trading methods. Trading requires a certain pattern and the ability to think comprehensively from the big picture. Any basis, a logic, needs to have sufficient samples to demonstrate.
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These are the several cognitive biases mentioned in the Turtle Trading Rules book and their effects. In the world of trading, these perceptions and instincts are a kind of shackles, and most traders are following their instincts to trade.
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Therefore, those who can trade against human nature in trading can always make a profit. In other words, there is nothing new on Wall Street, history will always repeat itself, describing the human level, the people's decision-making level, not the trend.
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Therefore, the essence of trading actually requires traders to have insight into the shackles of human nature, and to be able to truly oppose "human nature" in terms of thinking and behavior patterns.
This is what makes us stand out in the field of trading. What do you think?