I DON’T KNOW

I suppose this is the most worthwile sentence in trading. I have met hundreds of trader they were always sure about the direction if oil, EURUSD or S&P and I never heard from them I don’t know. They were convinced and sure about their forecasts and that is the reason why all of them are loser traders. We have to be brave enough in investment business to say many times if we are asked about the market – I don’t know.

This is one of our biggest bias is the Dunning-Kruger effect. This phenomenon explains we are not able to recognize how incompetent we are in many things, specially in trading. It is not a question of intelligence or school how to handel this bias, but honestly I do believe the being educated means being able to differentiate between what you know and what you don’t and the ability to say sometimes - I don’t know. Poor performers in the investment business they tend to forecast and stick to that after all facts show he or she was wrong, but they add more and don’t stop arguing with the tape and the market. Their incompetence is blessed with an inappropriate confidence. In the D-K effect we attend to overestimate our skills and intelligence.

It is so easy to judge the idiocy of others, but so hard to judge us. Typically in investment not knowing something (ie. future) drives us into losses, funny enough, but knowing something creates the biggest losses on our portfolio. So don’t try to predict the price of oil, S&P just says - you don’t know. In this case you wouldn’t have any mental commitment to your positions which will help you close the losing positions earlier, before your account crumble like a tissue in the fire.

The BFM Assets Team.