The Psychology of trading – The hotel room analogy

The Psychology of trading – The hotel room analogy

While on my visit to the US recently I visited the wrong floor of a hotel and realised that in fact the problem I was facing wasn’t that different from trading.

Therefore I’m offering some thoughts on why understanding how to traverse the hotel, could in fact help people understand their objective when trading.


December 7, 2014 / 5 Comments / by / in
  • Excellent video. Many thanks.

  • Bit of a long write-up here, but i hope you can find some value or at least further your knowledge base from it, and firstly, for the record i recall you mentioning a lack of interest [or rather less than you'd expected] for the psychological posts/rants to do with bf trading and i just want to say put me down under that category as completely interested. i'd peg my mental approach to trading as the heaviest weighted factor in my trading

    Discovering the many cognitive biases ( loss aversion/risk aversion, present focus bias etc.) and realising how alarmingly relevant they were and how they were so clearly applicable to trading was a huge turning point for my trading results.

    Between discovering & pondering ideas such as Kahneman and Tversky's ''Prospect Theory'' and watching a few documentaries on such biases, i was instantly aware of how many aspects to my trading that i had neglected and was acting on subconsciously that was definitely having effects on every single trade i was doing.

    As you mentioned back when you created this video fear is clearly a huge factor and as i'm sure you've seen countless times managing losing trades is where you can really test someone's trading mindset. I've had many days in the past where i'd be completely set on netting a positive result for the sake of it being above  +£0.00 and looking pretty in my P/L at the end of the day instead of taking losses as small as £5 and many times found it spiraling out of control – next thing i know my hedge figure is insanely negative due to doubling/tripling my position, swapping directions during the 'noise' of a successful trade, or making a forceful trade on a separate runner — the usual stuff. and i'm left scattering around during in-play trying to get positive still.

    That approach just seems simply hilarious to me now in retrospective as in these moments i'd very often still have made profit that day easily after taking the loss and moving forward. I have no doubt this inability to accept losses in isolation, or, each door in the proverbial hotel hallway… is the direct result of people busting their banks and being hugely down when we know that even if you were to prod around at random you should be relatively even. The variance in stake sizes, rapidly progressing in an individual trade is of course the main factor in everything going to pot.

    It's completely as you say, regardless of understanding or knowledge of the markets if i found myself in a losing trade, I tended to defeat myself mentally without the proper mental conditioning and long-term understanding and this is why i think it's extremely important for people to be aware of how they may be making decisions during trading, so please don't give up on your quest. Luckily for me i've always sought to understand anything related to decision making and try to understand what leads people to act in certain ways, as well as to create a better platform for myself to make 'smarter' decisions in the future. Not sure if others find pondering such things as intriguing as i do but regardless, i can say from experience that through understanding my state of mind and how emotions affect our decision-making brought instantly better success.

    – Lastly I truly appreciate this video and the accompanying one, as with all of your uploads. please don't hesitate to assign some time to a rant/video on your progress/findings in the coming times if you find yourself available.
    also i've missed checking out your blogged posts that were tagged under the Psychology category on the wordpress forum, i can't say i've read all the content between now and the last post there so perhaps you are no longer tagging categories anymore but i noticed there hasn't been an addition for over a year in that section~

  • Interesting analogy. But how do you pick your selections you trade on? There must be some kind of criteria. Technical analysis are almost non-existent, so intuition seems to be the only tool.

  • It's all true, but it needs a lot of time and effort to master like anything in life!

  • Rather than hotel rooms I like the analogy that trading is like women. You go somewhere and there are lots of women. You can;t try them all but you can try some of them.

    However the end result is certainly a loss of cash. Much like trading.

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