The Stochastic Reinforcement Dilemma in Trading: The Root Cause that Restricts Most People from Trading
Before I start this topic, I want to ask you a question: do you know what random reinforcement is ? Here I use an example of everyone going to school to arouse everyone's understanding of random reinforcement: When you are still studying on campus, do you think that if you are smarter in subjects such as mathematics and science, you can improve your score faster in the short term, while in literature and history? However, it is more difficult for subjects to be greatly improved. Because the answers to mathematics and science subjects are more standardized than the answers to literature and history subjects, we compare this kind of literature and history subjects to random reinforcement in transactions. Therefore, we often find that literature and history subjects may often go up and down, while mathematics and science students are relatively stable regardless of whether they study well or not.
Next, we return to trading. Fluctuating profits in the short term or even in the longer term will strengthen our thinking about making profits, and vice versa. But the real market is volatile most of the time, so whether we make a profit or fail, it will strengthen our thinking in a certain aspect. For example, in a period of time, we often fail in trading. We believe that we have failed very much, but there is a very high possibility that we will maintain a profit for a period of time in the next time, and then fail again or sometimes make a profit and sometimes fail. Therefore, we It has never been easy to find a stable profit cheat. Why is there such a situation? Here I have to mention the principle of psychological deviation.
What is psychological deviation ? I will explain it through an example here, please see the picture below:
First of all, please look at the place I marked: the deviation between the kinetic energy column and the K line , and then look at the K line above the weekly line. As for why this is caused, it is beyond the scope of today's discussion. What we are going to discuss today is the issue of psychological deviation.
When I was moving around this point, I knew that the high point of the year was coming, and I was very clear that it was not the best time to go short, but I couldn’t accurately judge when it was the best time to go short, so I had a mental idea : Shorting on rallies, constant trial and error, although I succeeded in shorting at the second high point in the end, but I also lost about two-tenths of the principal. What I want to emphasize here is that although I also know very well that the market will inevitably do the last crazy desperate struggle and find some people to back up, but I think that if I can do it at the highest point, this wave of profits will be very considerable, so I risked some unnecessary losses. From a trading point of view, there is no problem in doing so, but their thinking will always be affected by shorting on rallies, buying at the lowest point and selling at the highest point, but in fact, in many cases, the position is too heavy, or It is easy to die at the highest point if the trial and error plan is not rigorous. Therefore, many times the market does not coincide with what we imagined. This is called psychological bias.
In fact, this psychological deviation is caused by your trading philosophy, and then affects your trading attitude, which in turn affects your trading behavior. Your trading behavior will cause you to have psychological deviation, and finally affect your trading performance. So far, the whole process has entered random reinforcement.
This may be more abstract to understand. Let me take the above example as an example to lead you to understand the whole process again. Suppose I trade the chart I marked, as stated above. When I successfully placed a single high point, I failed before, so I may think that my judgment was wrong, and the market will continue to set new highs like gold did last year, breaking people's perceptions, so I am very disappointed after failing several times in succession. But the reality is that it has declined after a period of time. So whether the decline at this time is a short-term correction or a decline from the high point of the year started, you and I don’t know, so I became very painful. If I think it is the high point of the year and starts to fall, but it has corrected more than 50%, according to theory, it should be a temporary correction, but it did not take long for it to set a new low. . . I will not continue to deduce it, and you can probably guess how to continue to deduce it. So the market makes you puzzled in this way, so it is difficult for us to really do a good job of trading. It is different from school. For example, we learned a lesson in mathematics today. If we learn well, we will soon be able to Answer all the exercises quickly and correctly, but the transaction cannot be learned immediately and immediately produce the expected return.
Speaking of which, do you have any good ways to solve this problem? Here I will briefly talk about my plan-in fact, the biggest opponent that affects psychological deviation is short-term trading, because short-term trading fluctuates frequently and is disorderly, it is difficult for us to use existing knowledge to achieve stable profits, most people are Frustrated. Therefore, the psychological gap is very large, so enlarging the trading frame is an effective way to solve such psychological deviation and random reinforcement. In addition, we should trade based on trading principles, such as reducing the frequency of trading and other methods. The last is to gradually improve the trading deficiencies in the process of trading.
Thank you for reading, I am the God of Wealth Youdao, I wish you a lot of money, remember to make money in a proper way, do not be greedy for money outside the Dao, otherwise the God of Wealth will not protect your wealth .
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