The Psychology of Mastery and Decison-Making

One of the areas I seek to improve is my decision-making ability. I assume that the better I make trading decisions, the better will be my bottom line. And, I believe this to be true for both the mechanical and the discretionary trader. For the mechanical trader the decision-making process lies at the heart of the system design; for the discretionary, it lies over the spectrum of the trade.

Recently, I read two pieces that are worth reading. The first is an article by Philip E. Ross called “The Expert Mind”. The question raised by Ross is important to traders: how do experts acquire their extraordinary skills? His conclusion is that experts are made not born; so, what path do we have to take to become an expert trader?

Before I develop the piece, I want to draw a distinction between an expert and a ‘genius’. While I agree that experts are made, I believe geniuses are born e.g. with enough of the right training even I can become a maths expert (this is from someone who failed all his maths exams in secondary school in Hong Kong!); on the other hand, no amount of training will raise my ability to the level of an Einstein.

The keys to acquiring expertise are now well established. We acquire it through a commitment of deliberative practice and time spent i.e. time that is spent not only at real-time trading but also at deliberative practice.

What is deliberative practice? It has a number of elements:

  1. we break down the desired goal/goals into the component parts.
  2. each goal is just outside our comfort zone.
  3. we set and take the action that will achieve the goal.
  4. we review the results of the action with the view of taking another step towards acquisition of the skill. This may mean abandoning or altering our past actions.
  5. we drill the actions so that skills become habits.

Item (5) is particularly important. As we’ll see Monday, long-term learning requires we integrate the new knowledge into an already existing mental model (schema) or build an entirely new schema. In the process we need to ensure that ‘cognitive dissonance does not operate to distort the new knowledge.

That last sentence may require an explanation. The human mind is unable to deal with the complexity and uncertainty of reality. To manage we construct simple mental models whose goal is to allow us to navigate life successfully. When we received new information, information that conflicts with our mental model, we either adapt our model or deny, distort or generalize the information so that the conflict is resolved. If we adopt the latter course, the model will eventually fail.

The better course would be to adapt the model – but since this involves the pain of change, and since we are hard-wired to move away from pain and towards pleasure, we tend to stay within our comfort zone. This human tendency explains why so many want-to-be traders fail to make the grade.

Expertise comes from deliberative practice and time spent in real-time trading and deliberative practice. But since deliberative practice means ‘actions outside our comfort zones’, most traders prefer to fail than change.

In trading what does deliberative practice involve? You know the answers:

  • Plan your trades, including risk: reward assessment.
  • Execute consistently
  • Keep equity and psychological journals for the purpose of identifying empowering and disempowering patterns.
  • Experiment with remedial action including visualization and simulation (

Assuming we take time to engage in deliberative practice, what skills need we adopt to improve our decision making? We’ll consider this on Monday.

6 thoughts on “The Psychology of Mastery and Decison-Making”

  1. Ray

    Psychology is my pet subject although I am not trained as one except that I did a branch of Psychology for my Business Studies.

    I would like to quote Dr Brett who said at TraderFeed on Wed May 7 2008 at
    Points #
    10) Practice does not make perfect in trading or anything else; perfect practice makes perfect. Training must gradually build competencies and correct deficiencies in a manner that sustains a positive mindset and optimal concentration and motivation.

    I guess by repeating a series of wrong practice will lead to no improvement, whereas if we practice correctly, we will become perfect.

  2. Hi Ray, There s also another saying…An expert is someone who knows more and more about less and less.!!! But seriously i think the key is our mental model as you suggest.I think we can proove this by looking at our reactions to fundalmental news ie farms. it blows my stops because my mental model is not in accord with the new information.Perhaps a trend can be described as a majority of mental models in accord,temporarily, similar to fashion.Any how was just another of my theories.Have a nice weekend Ray and all your readers too. cheers Baz

Leave a Reply

Your email address will not be published. Required fields are marked *