Two books that will change the way you think

In my quest for unreachable perfection, I’ve spent a lot of time trying to understand how people think. There are several reasons for doing this.

The first is to make better decisions myself, sometimes people make decisions or say things that just don’t make any sense.  You often also get stuck making a decision which you can’t seem to resolve.

Having thoroughly explored the markets, what to do, when and how (so far) in my career I’ve switched my main attention to exploring the mind.

A simple concept

I’ve read an enormous number of books, attended lectures and read some academic papers. You can shortcut most of this into a simple concept.

Your brain has two modes of operation.  One is instinctual, the other more logical and computational.  The first reacts quickly to situations and sometimes gets it wrong, but generally gets it right. It’s a payoff between speed and roughly correct decisions. You act subconsciously but quickly.

The other is slow but accurate. Here you need to really engage your brain and work something out so you distract yourself from things at hand and fully engage thinking mode.

I’ve come up with an experiment where I can actively invoke both these functions in people to demonstrate both modes of operation. How to do this came to me when I was sat in a mountain lake of all places. But the process I came up with, can switch people backward and forwards between these two modes with ease to prove they exist and how they work.

Confusion occurs where these two mindsets interact with each other and try and outdo each other. You learn that both are necessary as humans navigate an ever changing world as without these two competing systems you couldn’t live day to day. Making simple decisions or learning new skills would become impossible without both systems in their respective modes. All the time you are switching between modes, especially when trading.

Why I’m interested

I originally thought I was leaving the corporate world to go into financial markets. To become a full-time trader / investor. I got side-tracked and ended up on sports markets, easily the best decision I ever made! But the interesting thing from this was that I was hopeless at trading short term. I was a total idiot, it was embarrassing. I was jumping in and out of positions and racking up loss after loss and I couldn’t figure out why.

Wind forward a few years and I have this phrase that the market ‘sings to me’. I can read the market really well and it’s easy for me to figure out if I’m hearing a lot of noise or a beautiful song. I can often tell what lyrics are up next.

It was difficult to explain, but with practice, you obviously get better. You also learn that your trained subconscious mind is working it out in advance for you. Read this fascinating Gladwell piece: –

“What the Iowa scientists found is that gamblers started generating stress responses to red decks by the tenth card, forty cards before they were able to say that they had a hunch about what was wrong with those two decks.”

https://gladwell.com/blink/the-second-mind/

Solving problems

I’ve basically learned to make the ‘right’ instinctual decisions. But this was actually a learned task You can learn to do it too, but it took some time and a framework for me to learn how.

I started where I suggest everybody does. I broke down the problems within the market by gathering data and knowledge and drilled down into more detail. I came up with ways to describe it, what created the perfect trade and why. For a market taking place tomorrow, I can tell you now what to look for and when and why that will happen and what will cause it. I’ve created the toolkit for solving that problem. I’ve also used that toolkit to automate some activity. But despite that trading manually I can still beat automation, apart from where speed is of the essence. It seems the ability of the brain to quickly react to changing circumstances is the reason.

You would think solving that problem would be enough. But you learn quickly that you can give people a very clearly defined plan but they can’t execute it. Trading is counterintuitive by nature and therefore executing a trade successfully needs a different mindset from that which people are generally used to in their day to day life.

Sports players often react way inside the generally accepted reaction times given by medical science. They have abilities to react to a situation without ‘thinking’ about it. It’s the same with any skill, the more you do purposeful practice the more instinctive it becomes: –

https://www.livescience.com/5693-top-tennis-players-simply.html

It turns out the people that coach Tennis players also have this ability but in a different context.

https://gladwell.com/blink/

Trading is simple, but not easy

This was my big leap forward. Through just plain grunt work you can solve most puzzles, sometimes by complete chance. But most often through perspiration. This is where I can help people a lot. You can spend lots of time and money trying to work out this puzzle, or I can just point you straight at the solution. There is a catch, however…

The harder part is to push the button. This was my epiphany, once I understood what I was doing I just needed to do it. I learned to overcome my inbuilt thought processes which were causing a whole multitude of errors, to become a fearless executor. I also overcame my fear of losing money, which can be a huge hindrance to new traders.

So that’s why I’m currently obsessed with understanding how to help others to do the same. I made the transition from hopeless loss maker to near perfect execution, so I’m sure others can do so as well, or at least set off on that path. I just need to work out a structure that allows that to happen. I know why people do things, I just need to work on how to change an errant mindset.

Summary

I’m now really confident that I know how and why people make decisions. You start to reflect this in your day to day life and it makes things easier to understand and come to terms with. You see somebody and know what they are going to do and why. At this point, you realise you have reached under the bonnet and looked at the engine. It gives you really great insight into human behavior.

It’s really curious but you can give people a hard-earned fact and people will disagree with you are they are blue in the face. Despite the fact you spent years discovering it and executing against it. I always summarise it as though you are at the top of a cliff trying to convince somebody that they can’t actually fly and therefore it would be advisable not to jump off the cliff. Like a lemming, they jump anyhow. ‘Just to prove you wrong’. People just can’t stop doing this and do it in the market every day.

What I have found is that you can tell people they have made a sub-optimal decision, but the process of them coming to terms with that and reshaping, is a whole different ball game. So far I can’t find an immediate answer apart from a lot of education.

So that is why I’m recommending these books. They will help you understand why you are an idiot a lot of the time. Why some decisions don’t come easy, why some do and why you will often fall into the general trap that the human mind leads you into. It’s not your fault, you were brought up that way. But, as I learned, there is a way to overcome that.

The books

I’ve read a lot of books, but these two stand out in terms of how they have reshaped my thinking.

Blink – Malcom Gladwell

Teaches you how your brain can think ahead of you and make decisions without you knowing it. It will give you the ability to trust your instinct. But don’t forget, like a Tennis player, you need to train that instinct.

Thinking fast and slow – Daniel Kahneman

Nobel prize winning Kahneman talks you through a very wide range of discussions that will make you look at the world with a completely different perspective and fills in the gaps that Gladwell didn’t, or couldn’t cover in Blink.

No affiliate links were used in the promotion of these books 🙂 I just think you should read them.

Tags: mindset, trading, two books

Category: Psychology