Foundational Truths: Why Principles Matter

I mentioned before that most classical TA is based on non-principle-based human behavior.

Since humans have limited data processing capability, we cannot process the actual data package of an ever-expanding future. Instead, we have a flawed perception of comparing future events with the past and inventing similarities where there are none.

This data reduction method is partly responsible for pattern repetition in charting and becomes a self-fulfilling prophecy. However, it is much less potent as a trading edge than truly principle-based edges, which inherently represent an actual truth.

Recognizing that biases often cloud human perception is a powerful tool. By actively weeding through these biases, we can access a more powerful and sustainable data package than typical unreflected

'intuition.'

Allow me to point out a few possible pitfalls in how we interpret our surroundings that could influence our trading in a non-principle-based manner.

We more likely than not do the opposite of what we are told

As traders, it is imperative to avoid seeking outside counsel for other people's trades.

In stressful situations, which are common in trading, we tend to take a pessimistic, negative outcome view. This, in turn, as a filter, affects a trader's objectivity when evaluating trade setups and similar situations.

Even worse for the trader, we have a bias toward pain avoidance over pleasure seeking from an evolutionary point of survival aspect, which makes us more focused on avoiding negative outcomes.

Again, a bias that influences a trader unfavorable towards a decision-making process that needs to be neutral in emotion.

As humans, we are wired to follow the herd. We try to avoid a black sheep stance. Yet, in trading, the contrarian opinion provides the best trade opportunities more often than not, and trading alongside overall consensus is typically a losing proposition.

An extreme human bias is to filter everything through our beliefs. Yet many of these beliefs are not principle-based but instilled limitations that falsify the truth.

One example would be that a belief system that includes a part of unworthiness, a quite typical overleaf for many humans, would "forbid" a trader to be truly successful and subconsciously self-sabotage proper trading behavior.

Worse, when our beliefs get challenged, we typically insist on them even stronger.

We consistently look for evidence to support our beliefs. As such, this area of a trader's mindset deserves much reflective focus and examination.

Another significant limitation is that we have a tendency to blame others for our shortcomings while overemphasizing the cause for our successes to be self-directed.

For trading, we need the exact opposite behavior: taking full responsibility for our mistakes, which is the only way to improve from our errors, and taking a humble stand for our successes so that we do not trade from an emotional euphoric state.

As humans, we also get overly optimistic in adverse situations. While this is useful in real life, it is the most common cause of running stops and employing similar trade success-debilitating actions in the trading arena.

As traders, we have a natural tendency to throw good money after bad based on the human trait that once we have invested time or capital, or any effort, really, into a certain project, we have a hard time letting go. This is partially the reason why we use limiting strategies like martingale behavior, double-ups, and similar strategies.

These are just some examples of how we perceive our surroundings in a limiting way from a principle perspective and how awareness of such principle-based actions can get us in a heap of trouble in the marketplace.

With an associative mind, we tend to follow our first impressions rather than gauge events by a hierarchy sheet in a neutral manner. Our "daily call" principle helps prep us for upcoming trading sessions.

Clear rule sheets like the daily call or the Quad exit help us prevent falling prey to human behavior that leads us astray in a counterintuitive environment that requires a specific mindset conducive to establishing actions that lead to consistent profits.