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Wednesday, 8 July 2015

The importance of creating chunks

Next to my bed there are currently twelve books. The stack gets ever bigger and, dependent upon the subject matter that has my interest, their order tends to change. Right now I'm enjoying a book called the Two Second Advantage. It's main theme is how we might deliver into modern technology the ability to have predictive powers, thoughts almost. Happily, close to it's beginning, there is a sports reference to the Ice Hockey great Wayne Gretsky and his ability to read the game and make incredible moves and passes within it. This ability was considered inherent, a natural, God-given talent. The reality is a lot less romantic but a great deal more encouraging for us lesser mortals. Gretsky had created "chunks".
Our brains work by processing billions of pieces of information, fusing new with old, removing the minutiae then building broad reference points, "chunks". These chunks are simply memories of what has happened in the past, from which we are able to make predictions about the future. The reference to Gretsky is simple; his own constant study of Ice Hockey, both on and off the field, meant he had innumerous "chunks" to refer to. So many in fact that it became automatic, subconscious. Leaving him to consciously focus on how he should behave within the game.  
Our brains are wired to recognise patterns so we can refer to chunks and predict what might happen. When trading markets this is pretty much near impossible, however, what we can recognise are the signals that suggest to us what might happen. It's these signals and their outcome that we must build chunks from. As novice traders, if we move from market to market without creating a frame of reference, we have no anchor point from which to make a decision. The ideal is we get to a point where our autonomous brain says "You've seen this set of circumstances before, this is what happened, this is how you should or shouldn't react". In doing so we cement that mental image. When this same process happens again and again we are building the chunk(s) that eventually become second nature, allowing you to focus on how to behave in the market. For this trader, this aspect, this point, is never mentioned, purely because so few recognise it happens naturally over time, over literally thousands of markets. The difference between us and the really successful traders we know and love is that they all, very likely without knowing it, have created ways of cementing the image, dropping the anchor point. The most common way and, from my own experience, the most successful way to do this - talking to yourself. Tell yourself what is happening, what is the bi-product of that? What is the reaction in the market? Even the silly stuff is helpful, like "I wish these big stake f*ckers would stop road-blocking the market and switching from one side to the other!". It happens, we all see it everyday but what does it mean to us? What should we do with that info? Most importantly, remember it.

Stay green.