Suck it and See
The Role of the Senses in Trading
Our senses play an important role in how we use the data taken from what we see, hear, smell, taste, tug, squeeze, tickle, scratch and chafe. There are two types of sensing: introverted (Si) and extroverted (Se). Whilst both functions rely on sensory input, we differ radically in how we process and react to the information that we discover.
Se traders live in the moment. Their attention is drawn to what is happening now and they make decisions on the hoof. For example, if an important footballer gets injured during the game, an Se trader would assess the situation, taking note of the crowd's reaction, the team's immediate response, and any noticeable changes in play, and the injury may be enough for them to adjust or reverse their positions in a matter of seconds. As such, traders who use live images to inform their trading decisions will be high in Se.
There are advantages to Se but it comes with an overnight bag of cognitive biases. Recency bias, for example. Se traders often give too much weight to recent events and shifts in the market, leading them to overreact. If a football game they are trading has a red card, they might react to the situation as though this is the first red card that they have ever seen in a football match and scramble around for some form of action to take. You also see overconfidence bias with Se traders when they believe that their senses give them an edge when, in reality, we all have eyes and ears. Overconfidence can lead to reckless trading decisions.
Si traders, on t'other hand, are guided by their memories and past experiences. They are ever mindful of the past. Rather than focusing on what is happening now, Si traders focus on their recollections of similar situations, analysing how they've unfolded and how the current market conditions compare. For instance, an Si trader, reacting to the same injury as the Se trader, would remember how similar injuries have impacted past matches and betting odds. Si traders value long-term trends over immediate sensory information. And they often wait for more information before taking action.
Si traders face cognitive biases linked to their reliance on past experiences. Confirmation bias for one. Si traders may search for information that reinforces their pre-existing beliefs and ignore new or contradictory information. For instance, if a Si trader has a strategy based on a team's historical performance against certain opponents, they might continue to trade based on this strategy when current conditions or team dynamics have changed. Anchoring bias can also affect Si traders if their decisions rely too heavily on past data. They might assume that because a team performed well in similar conditions last season, they will do so again, without accounting for differences in the current climate.
While Se and Si traders both rely on sensory input, they use it in different ways. Se traders take quick, responsive action, but may be prone to impulsive decisions and overconfidence, whilst Si traders value consistency and historical precedents, but can become trapped in outdated patterns.
Understanding the pitfalls associated with each sensory function can help traders refine their approach and remove errors.
