Dealing with Dissonance

One of the loudest and largest positions I've ever held was the Gold Miners in September.  With that, comes new challenges.  As traders, we face a lot of the same issues over and over again.  Using more size magnifies the intensity of any psychological hurdles.  After reviewing my tweets and thoughts on Gold and the Miners over the last two months, I recognized notable dissonance.

Barry Ritholtz explains Cognitive Dissonance.

Before I entered the gold miner trade, my main target was the 200 day moving average.  As you can see, price topped below it.

I was highly aware of that late October sloppy toppy price action and subsequent breakdown.  I was actually looking for short setups(although there were few to none other in the market).  However, I couldn't put myself in a position mentally to accept that and take that short trade.  

What's clear is I didn't have an unbiased view - which is okay.  What's not okay is not being mindful of that.  

One blanket solution many trading coaches recommend is a check list.  Check lists can be fantastic tools.  They are also worthless if you can't assess things honestly.  Well cognitive dissonance is a challenge where one struggle to assess things honestly, let's move on.

So what can you do?  Simply acknowledging your bias goes a long way.  It's difficult for most, myself included, to remain open-minded.  Verbalizing your true beliefs and thoughtful discussion with people you respect take things to a new level.

It's amazing how you unclothe the different thoughts in your head when you discuss them with many people.  Stocktwits and Twitter are a great tool for discussion, but verbalizing takes our breakthroughs to a new level.  

It's also important to remember that markets change constantly.  Ideas and opinions can stale quickly.  Being long gold miners made one look brilliant in the first half of October.  Then like a switch flip, the trade was over.  Risk happens fast.

Trade 'em well!