Thinking in Bets
A very underrated skill in trading is thinking objectively.
I'd propose it is one of the core elements of consistency.
So how do you gain or improve this skill?
It is the combination of two pyschological principals that can be applied to trading.
Accepting Variability & Thinking in Bets
Understanding the fundamental nature of trading is necessary before understanding this way of thinking. Active trading is a game of probabilities.
If true, then that means even your best setups can fail. Many novice traders seem to be on a strategy hopping quest to find the perfect strategy. What if I told you it doesn't exist? Adapting to edge presented in the market is more important. What worked today might not work tomorrow. Our human nature craves consistency. We are groomed to put 40hrs in and get X out. This isn't how trading works.
So are you getting upset when trades fail? If yes, you probably aren't thinking probabilistically.
Accepting variability means that we have an inner peace and acceptance that once a trade is placed, it can both succeed and fail. We assume the risk and the reward. That is what makes us show up to the table.
This core principal is important to learn first. So as you build out your playbook, you give yourself grace to get through enough reps to discover whether you have edge or not.. Ideally with minimal risk.
Then similarly, thinking in bets follows suit to maintain a high level of consistent performance. This is more applicable to someone who already has a playbook and understands their edge. At this stage, you already accept the variability of outcome but now you begin focusing more on the aggregate data.
When you have a large data set of results within a specific set of plays, you can approach the table with a "thinking in bets" mindset. You know you have strong odds if you get dealt a strong hand. But you also know that it can fail and if it does, it won't negatively affect your mindset. You know that out of 10 your data suggests you'll win 7. Or based on EV, maybe your data suggest that setup only needs to win 4/10 times and still has positive expectancy.
Point being, if you are dealt A-J in poker, you know your odds are elevated if you play the hand. But you can still lose... You'll still play that hand everytime because you're confident in the aggregate you will win.
When we are able to accept variability of outcome + learn to think in bets we create an objective mindset.
Major benefits of an objective mindset include
⭐️ avoiding unnecessarily large losses
⭐️ maintain consistency
⭐️ boost to mental health
⭐️ minimize the impact of decision fatigue
If you liked this article, give it a like & repost. Let me know in the comments if thinking objectively is something that has helped your trading career or a skill you want to improve. 🐼
Also shoutout to Annie Duke for writing the book “Thinking in Bets”. Recommend reading / listening to the audio book. (no affiliation).