12/28/2009

What is situational awareness and why is it important to trade successfully




What is situational awareness
Why is it important
When to press your luck and when to fold.
This is important.
Situational awareness in trading is about changing
your strategies of emphasis based on change in situation.
More refined skill is to think of situations before they develop.
If situational awareness tells you in short run there is likelihood of bearishness,
should you press your luck.
Today I am coming with bearish bias so I am not pressing my luck.
What happens when you have a streak of winning tradesYou are most vulnerable after a string of wins.
You become overconfident, you trade larger size, you open too many positions.
And then you get hit hard by a small move in the market.
What was your bias for today
What is the source of that bias
I was bearish based on action in leading stocks.
Also because we were up 6 days or so in a row.
The MM  indicators are approaching bearish zone.
Plus I could see speculative junk making big moves.
T2108 is around 78.
Do you habitually make money and give it up in tradingIf that is your problem then situational awareness is what you are lacking. 





What is situational awareness.


The key role of a trader  is to operate successfully in  a complex and ever changing market environment by making appropriate decisions and taking effective action. 
This includes not only responding to opportunities in the market  but also to proactively anticipate markets next move.


The Psychological or technical name for a skill like that is called  Situational awareness (SA).


(SA) refers to all the situation-specific information and inferences represented in a person’s mind which he or she uses to make such decisions.


Or in simple words SA is “knowing what is going on so you can figure out what to do” . It is what  you need to know not to be surprised” 


SA  consists of whatever answers one currently has in mind to such questions as: 

What is happening in the market?
Why is it happening? 
What will happen next? 
What does it mean in terms of my trading objectives? 
What can I do about it?

 
SA is a military and aviation terminology. Pilots and fighters are trained in SA so that they can make quick adjustments in their strategies in a complex war situation or in case of pilot emergencies.
 

Research on experts in different field shows that experts have higher SA as compared to novice. 
 
This link will give you a brief overview on SA from aviation perspective:
 
 
As far as we can establish, the concept of SA was born within the specialist and rather secretive world of military ergonomics and air accident investigation in the mid-1970s, as an attempt to explain the large number of individual variables known to affect the cognitive performance of military and civilian aircrew. However, it did not go public in the civilian literature until about ten years later [the earliest PsycINFO reference when we checked 26th February 2003 was Spiker, Rogers, and Cicinelli (1986)]. It is best introduced by looking at some of the attempts to define it .....
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