Five Key Cognitions in Trading: Calibrate Your Trading Navigation

In trading, let's set aside complex theories and pursuit of techniques, and first calibrate our trading navigation.

A Few Words First

When cognition is mentioned, many think it's mystical and useless, preferring direct trading techniques like pattern recognition, entry points, and risk-reward ratios.

I've found that in any industry, impatience for quick success is everyone's problem - everyone wants fast money, but nobody makes it.

Human cognition is inherently flawed because we're fundamentally irrational and emotional, so our nature is fragile, we will make mistakes, and many errors are uncontrollable.

Also, our cognition isn't necessarily correct. We must have the courage and action to adjust our thinking. The adjustment process is painful and difficult because we're fighting our nature.

But precisely because this is difficult and most can't do it, it highlights the few's advantage, enabling the minority to earn the majority's money.

Cognition One: You Can't Have Your Cake and Eat It Too

You must keep one end and let go of the other.

This phenomenon is very common in trading. Everyone understands "you can't have your cake and eat it too," but when making choices themselves, they hesitate and worry about missing both opportunities.

Thinking this way, your trading will remain in perpetual "wanting everything" pain.

This is why I put this cognition first. Most of life's suffering comes from "wanting everything." Trading's first lesson is learning to let go, or face endless losses and pain.

Cognition Two: Trends Will Repeat

Have confidence and patience in your technical methods.

The longer you trade, the more you'll discover that historical trends always repeat - this is a fundamental law of financial markets.

So our goal shouldn't be finding identical leaves, but similar ones - that's enough for abundant profits.

Everyone's problem isn't usually establishing technical standards, but "how to wait." Everyone fears not getting opportunities, fears the unknown future, but patience is often what separates profitable traders from losing ones.

Cognition Three: Have a Cost Mindset

I especially like this saying: Everything we gain in life is obtained by losing something else.

We understand these principles, but they completely change in trading. We always want something for nothing, always want huge gains with minimal risk, always hope for maximum profits without any cost - this can't help but distort trading.

Not just monetary costs - to gain superior trading cognition and techniques, we must pay corresponding costs like learning time and energy, extensive backtesting, thinking time, etc.

In most cases, the greater achievement we seek, the more economic, time, and emotional costs we must pay.

Once you truly learn to pay costs, you'll find many things aren't as complex or difficult as imagined, and your growth potential will rise to another level.

Cognition Four: Group Polarization and Conformity

I've found humans are creatures who lifelong seek belonging and recognition - receiving others' approval makes us more pleased and secure.

However, groups are often irrational - especially when many people agree on a view, it's assumed correct, which is dangerous in trading.

Then in actual trading, gold shifts from short to long, matching your original expectation, but you still believe in shorts because the majority's view gave you that confidence, so you might not even set stop losses, ending in massive losses.

Often when we're in groups, we tend to trust majority opinions more, even changing our views to appear "fitting in."

Cognition Five: Maintain Independent Thinking

Trading is a solitary practice requiring independent thinking ability.

Final Thoughts

These five cognitions seem simple, but truly understanding and practicing them requires long periods and countless trials.

May every trader calibrate their trading navigation and find their own path to profitability.