Today, we continue to explore the mechanisms through which thinking affects trading outcomes.

We previously discussed the issue of cognitive blind spots, and now I will present two cases to illustrate how the existence of such cognitive blind spots can significantly impact our trading results.

Inability to Recognize the Adaptation Cycle of Trading Systems

First, let's address a blind spot regarding trading systems. Many of us who trade are eager to learn from the internet or videos about trading systems. After learning, we typically end up with two outcomes: the first is that we follow the teacher's methods; the second is that we absorb many technical aspects and integrate them into our own trading system.

Advertisement

However, many of us do not have a clear understanding of the logic behind trading systems and merely imitate them, focusing only on the techniques and the need for constant renewal and repetition.

But every trading system has its own blind spot, with different underlying trading theories. Due to the differences in your trading theories, it is impossible for our trading systems to cover the entire market conditions throughout the year, 365 days a year, 24 hours a day.

This leads to the fact that our trading system may be suitable for eight months out of the year, or perhaps only six months. Within different time frames, such as one hour, four hours, 15 minutes, or daily charts, the trading efficiency also varies.

In certain specific time environments, for example, it may be evident in the last five minutes. If you are operating a long-term trading system, you are bound to fail in terms of the cycle.

This is what we want to convey: each trading system has its own trading blind spots, and you must identify the time cycle and framework that suit the trading system.Make sure to determine the application context of your trading system, whether you are a technical system or one that requires other logical judgments, such as fundamental analysis to assist your system. Different systems all face the issue of application scenarios that I just mentioned.

Many friends here actually have an insufficient understanding, which leads to the cognitive blind spots I mentioned earlier. Because their understanding of trading is not deep enough, they do not know the blind spots of the trading system they have learned or constructed themselves.

Because they do not understand the basic principles or foundations that the trading system follows, in this case, they will blindly open positions, trade without discrimination, and trade at different times, which will not yield good trading results, and may even lead to significant losses.

However, this blind spot does not mean that the trading system is wrong or unreliable; it is due to your unclear understanding of the application blind spots of this trading system, applying it in an unsuitable environment, which leads to trading failures.

Trap of Continuous Losses

Let me give you another example, which is the cognitive blind spot that many traders face when dealing with the issue of continuous losses.

We see that the vast majority of traders, once they experience continuous losses, will basically have two reaction patterns. The first is to constantly adjust their trading parameters; the second is to replace their trading system. Overall, these two behaviors are incorrect.

If we cannot break through the cognitive blind spot of the continuous trap we just mentioned, then our entire trading cannot make a breakthrough.

We should all understand that every trading system, no matter how excellent, will face the issue of market adaptability. It may have a very high adaptability during a certain phase of the market, showing a high probability of continuous profits and very good trading results.

Of course, this is what everyone is willing to accept or happy to see. But in reality, every type of trading also has its own low point, and during the low point, it will manifest as continuous losses and capital drawdowns.In such moments, due to the cognitive blind spots that exist for us traders, they have no way to overcome the trap of consecutive losses. Once a problem arises, they will doubt their trading system, either changing parameters or replacing it altogether.

However, this situation is not because there is a problem with the trading system. For a mature, profitable, and healthy trading system, this is very normal. But for traders who do not understand this attribute, such a trading system becomes very deadly.

These two cases are actually problems I encountered during my trading growth process. I hope they can promote everyone's thinking, to see through the phenomena to the essence, and to deeply analyze whether it is your trading system that is not good, or because your understanding of the laws of trading is problematic, causing you to misunderstand your trading system. This is very, very important.

In this situation, if you can adjust your thinking and break through your cognitive blind spots, then I believe you can make a new leap in trading, and there will be a higher improvement in the stability of trading. That's all for today's sharing.