The Problem with Overconfidence
Most of us have a tendency to overestimate how right we are. This tendency does not depend upon intelligence. Nor does overconfidence in our positions depend upon our expertise in a given subject.
Experts may be more knowledgeable about their subject matter than others are, but they are still not very accurate in estimating how much they know. Expertise in technical analysis, for example, has little to do with making money in the markets.
The more information to which one is exposed, the more one tends to be overconfident about his or her positions. Thus, if you are exposed to a great deal of information in order to make a decision about the market, you will be more adamant about your position once you make up your mind.
Unfortunately, most information—especially financial information—has little correlation with price movements. Thus, exposure to a lot of data will probably make a trader much more confident in a position but have little bearing on whether he is correct about the direction of the market movement.
Comments
Great.
If somebody wants to get something but is unconfident, he collects clues that support the action.
If somebody wants to be always right, he collects clues that support the decision.
If somebody does not want to do something, he collects clues that are aginst the action.
A confident mind does not need any clues.
Can we define confidence as absence of internal conflicts? If yes, then confidence and happiness should be synonyms.
Posted by: Serge | September 27, 2006 08:12 AM
Dear Van,
that's a very interesting comment. Fits perfectly my current brooding over not having stopps and not getting out of positions even after a loss of 80 % in one case.
I was brooding whether you bild up an emotional relationship with those positions you are not able to get out of. Interesting thought that after so much work to get into the position collecting information about the stock you don't want to get out of it and starting the whole process again.
I hope that you comment on that subject.
Best greetings from Germany
Gabriele
PS I just bought your book about financial freedom and thanks to an idea in this book started today with this 365-Day-Process in a "Course in Miracles". Hope that I stick to it.
Posted by: Gabriele | September 27, 2006 01:08 PM
Hi,
I am ralf from germany. I want ask gabriele from germany if she want to chat with me, how she trads in which platform etc. I have began with options and have had the problem in may with the correcture of the emerging market and have lost money in silver future and gazprom. Can you the email send to gabriele?
Greetings from germany
ralf kasper in oberhausen
Posted by: Ralf kasper | September 28, 2006 07:42 AM
Dear Van,
dear Ralf,
seems that there are some Germans that have a problem with the stopps :-)
What a funny coincidence, I remember you dear Ralf.
So we both get some nice advice from one of the best trading coaches in the world.
I appreciate your blog very much, dear Van, especially the recent article of Sep 28 which shows some solution to our problems I suppose.
I think we are going to discuss your material in the next weeks, dear Van. I am especially looking forward for your new edition of your ground-breaking book "Financial Freedom...".
... and which you both a most pleasant weekend.
Best greetings
Gabriele
Posted by: Gabriele | September 29, 2006 04:15 PM
Dear Van,
I have to say I am most pleased with your advice to develop a mission /vision first, then define the goals and then go into the action. I realize you can you this technique for all sorts of subjects life, trading, projects.... and I saw that you get much better results based on motivation and planful action.
Probably also refers to the discussed subjet above. If you have a trading plan you can omit some of the information not fitting your plan and thus gain more time for watching your positions and timing the exits or develop a computerized trading system alternatively.
Best greetings and best wishes for you and your family
Gabriele
Posted by: Gabriele | October 1, 2006 09:25 PM