Here’s an excerpt from Brett Steenbarger‘s article on pattern recognition and how this sort of "implicit learning" is important in stock trading.
Implicit Learning and the Unattached Mind
Excerpt: "In my books, I’ve described pattern recognition as fundamental to trading, with patterns learned through a process of implicit learning. Implicit learning occurs when we are exposed to multiple examples of patterns and thus become sensitive to the rules or regularities behind those patterns. This process is implicit in that it occurs without conscious calculation. For example, young children can speak in grammatical constructions–having heard so many sentence patterns over time–but they cannot verbalize the rules of proper grammar. Similarly, we know how to act and react in social situations, having experienced them so often, but could never formulate enough rules to capture our sensitivities to other people…
…Rather, bad trading begins with attachments: to one’s ideas, to trading results, to reputation, or to just being right. Once we are attached to what markets can bring us, we’re no longer receptive to what we know implicitly…
This is where much self-help, coaching advice about trading has it all wrong. It’s not about thinking more positively about yourself; it’s about removing the self from pure performance skill. We cannot access what we know implicitly when we are locked into mindless patterns of explicit thought. To stay unattached to the outcomes of our actions when we are surrounded by vast risk and reward: this is why trading is such a vexing–and noble–challenge." More here.
Note: Brett is the author of The Psychology of Trading (Wiley, 2003) and Enhancing Trader Performance (Wiley, 2006). His blog is at TraderFeed.
