Trader’s decision making process is one of the most important concepts in trading for me. Why?

Results depend on a good process.

What is the decision-making process?

Generally, it’s all the thinking and analytical processes and the decisions you make based on them, from the initial analysis (“idea”) to closing and analyzing a position.

The entire thought process that goes on in your head.

This approach came to my mind, even imposed itself when I was wondering how AI will make decisions – the best possible ones.

Then the same principles were already obvious in application to traders. And even later it turned out that the best ones have specific elements of decision-making process practically absent in other traders.

So much history, now what came out of it? Let’s break down your decision-making process into elements.

1. It starts with analyzing the markets and choosing an instrument (specific stocks, specific currencies from the available pool – for example)
What factors drive your choice, why did you choose this instrument and not another?

Here we have the first decisions. On what basis do you make them?

This is important, because if you start to think about how to improve your decision-making process in order to have better results – you will realize that … maybe you can choose better.

Let me tell you how the best do it: The best learn to choose the best inputs from those available to them. In the sense that if they specialize in a sector of companies, they choose the shorts or longs with the best prospects for profits.

The best traders try to pick the best of the many opportunities that are available to them.

The best traders try to pick the best opportunities from among the many that are available in the markets they trade.

What does that mean for you?

It means that it is possible and even worthwhile to work on the criteria of selecting the instrument on which it will be the easiest to choose, on which we will earn the most (potentially).

The criteria may be different for different traders, but the idea is the same:
You can choose the instrument, the market situation that is best for you.
In the case of AI systems, their development will initially go in this direction: searching for the best opportunities from what is available. It will take, for example, 0.5 seconds to search five thousand companies in this respect. And from this enormity it will choose e.g. 100 for further analysis and playing.

I am mentioning this to start slowly realize what kind of analytical and decision-making power we will have to deal with.

But let’s go back to the decision-making process.

2. We have selected pools of top companies, what next? Let’s assume that we want to enter as long as the criteria are right.

And here is another question: where, among the selected are the best situations?

A simple example: we want to play longs on companies with good fundamentals.
Our selection factor at this stage of the decision-making process will be (for example) volume behavior.

The idea is to enter such movements, where the volume is clearly increasing – which suggests that the interest of buyers is growing.

At this stage we will rank our companies according to the best situations of increasing volume.

Somewhere it is too low, somewhere it is too high and the price is not growing much (which can be suspicious, because it means that someone is buying a lot and someone else is selling, if in a good technical situation someone is selling it cannot be a beginner, it is rather a professional, which can mean that they know more than us and get rid of the stock).

At this stage we have a few companies with the best situation.

Here we used volume, but we can analyze more elements: candlestick patterns, Fibonacci levels, MACD, CCI and thousands of other indicators.

How about using the confluence of indicators and situations?

For example, the price reaches the average 200 from the top, is close to resistance and at the Fibonacci level of 62%. Here you meet several things at once that other traders are looking at.

I want to emphasize that at this stage of the decision-making process we also have several options to choose from.

Let’s ask ourselves which indicators are best for our purposes?

It may not be the volume, but for example the relation between the Bid and Ask order volume.

The Bid is falling – the number of sellers is decreasing, which may mean that the market is slowing down. After a while the expected situation occurs – Bid orders appear, large orders.

I have seen situations where traders enter both the expiring Bid (upcoming ASKs are a signal to confirm the positions, when there are no ASKs the trader runs away from the position) and the upcoming large Ask orders.

To summarize: we can choose the best market situation according to many indicators, many criteria.


Now it’s time to decide how much capital we will put on which one. Let’s stop our discussion for a moment and summarize the important points:

To summarize the knowledge so far:

The decision-making process is a series of analyses and decisions.

Each distinct element of the decision-making process can be improved, approached from different angles, analyzed and refined according to different criteria.

This gives you the opportunity to improve the results – by improving each element on which the results depend.

A recipe for performance improvement:

Break down the way you make decisions into elements.

Learn as much as you can about how you can improve each of them.

Of course, there’s more, but I don’t want to write too much here, so it’s worth leaving traders with this interesting idea – pointing out the process that will improve their results.

Someday I’ll write more about the stages and best practices that can be used there.

And about the fact that the psyche plays a huge role in this process (which cannot be seen from my rational and mechanical description).

Let me give just one example:

Getting to TP – due to the pressure of the markets traders often run away from positions, emotions, pressure on the psyche is too strong. The psyche is the filter through which all decisions pass. And it can disrupt each decision and each step – from the initial analysis to the execution of the entry.

These are some topics for our future meetings.

Emotion as a key element in market decision making

The decision-making process consists of two components: rational (analytical) and emotional.

The more experienced a trader is, the more importance he attaches to the emotional component – but in a specific sense.

This does not mean that emotions dictate what to do.

Very experienced traders treat their emotional state as an additional source of information, and can stand by and hear the “gut feel” above and beyond the emotional noise.

To quote one experienced trader:

“If I am feeling the pressure in this situation it means that others in the market are also feeling it. The one who can withstand it better will win.”

In the same situation, inexperienced traders may unwaveringly believe in the high quality of decisions made on the basis of “nose”.  That’s how one retail trader I know lost more than €750,000 in a few months.

The best traders use various techniques to objectify their decisions – knowing that emotions can and will get in the way of their sober assessment of the developing situation and their ability to make good decisions.

According to a study of institutional traders – in the same situation less experienced traders use strategies to avoid emotions.

This makes a difference and a barrier for beginner and intermediate traders. The best traders are able to withstand large, sustained pressure by entering into it consciously, while the less experienced traders will at some point succumb and run away from the same position.

Both groups of traders differ not only in their experience, but also in their strategies of dealing with emotions. Because it turns out that experience is not the only thing that matters. Research shows that traders with a lot of experience (e.g. more than 20 years) who do not use the same strategies for dealing with their emotions as the best traders do, tend to underperform.

The way of dealing with emotions is a clear differentiator for the best traders. It allows you to survive chaos, volatility, uncertainty and panic, it allows you to continue to enter the market when others have long given up, and it opens new doors to results.

We are preparing quite a training on this topic of how the best deal with emotions.

Contact us if you are interested: magazine[@]


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