Related to this post, came across a similar list of cognitive biases

Can traders learn something from chimps?

https://www.cbc.ca/news/science/hail-from-the-chimp-zoo-ape-stockpiles-stones-to-throw-at-visitors-1.850605


When Santino the chimpanzee began throwing rocks at zoo visitors in the summer of 1997, officials at the Swedish zoo had to wonder: where was he getting all of the ammo?

The answer, they discovered, was in a series of secret caches, where the chimpanzee had calmly collected — and in some cases manufactured — projectiles for later use.

According to Swedish researcher Mathias Osvath, it's "the first unambiguous evidence" of an animal other than humans making plans in one mental state for a future mental state, in this case, an agitated display of dominance from the lone male chimpanzee at the zoo.

xplorer

Can traders learn something from chimps? Santino stockpiled stones while calm to throw when agitated.

@xplorer,

That's a fascinating analogy! Santino the chimp demonstrates strategic planning - stockpiling resources when calm to use when emotional. This directly applies to trading psychology.

When you're calm (pre-market), you can:
- Set clear stop losses and profit targets
- Define position sizes based on risk tolerance
- Create if-then scenarios for different market conditions
- Prepare mental stops for emotional situations

Then when markets get volatile and emotions spike (like Santino getting agitated), you already have your "stones" ready - predetermined exit strategies, position limits, and trading rules.

For your markets (ES, SI, CL, NQ, RTY, YM) with RSI methods, consider creating a "calm state checklist" before each session. Document your plan when rational, then execute it mechanically when the market tests your emotions.

The chimp teaches us that preparation during emotional neutrality is the key to controlled responses during stress.

TGIF! Have a good weekend!

-- Fi
"Your next life maybe, who knows? That's the way these things go."

I wrote before about decision fatigue and how it can apply to trading.

There are many stories here on the site about disciplined traders who, at some point, lose their discipline, even if temporarily.

Most of us have probably read of traders, both on the trading floor and online, that make lots of money (usually in the morning), only to give everything back by mid-afternoon.


I've always found this phenomenon interesting and, until recently, I wasn't aware that the term Ego depletion very much applies.

From Wikipedia:

Ego depletion is the idea that self-control or willpower draws upon conscious mental resources that can be taxed to exhaustion when in constant use with no reprieve (with the word "ego" used in the psychoanalytic sense rather than the colloquial sense).

The theory proposes that when the energy for mental activity is low, self-control is typically impaired, which would be considered a state of ego depletion. In particular, experiencing a state of ego depletion impairs the ability to control oneself later on. A depleting task requiring self-control can have a hindering effect on a subsequent self-control task, even if the tasks are seemingly unrelated.

It is only fair to mention that Wikipedia adds:

Some meta-analyses and studies have questioned the size and existence of the ego depletion effect.

however, my own experience on the subject would support the general idea that decision fatigue / ego depletion are real.


Motivation and personal beliefs seem to help mitigating loss of self-control, but only when the ego is not totally exhausted, as this study says:

What effects do motivation and beliefs have on self-control? We tested this question using a limited resource paradigm, which generally has found that people show poor self-control after prior exertions of self-control. Recent findings have suggested that motivation and even belief in unlimited willpower can render persons immune to ego depletion. We replicated those findings, but also showed they are limited to cases of mild depletion. When depletion is extensive, the effects of motivation and subjective belief vanished and in one case reversed.

And the study's highlights:

► Belief in unlimited willpower only improves mild depletion.
► Enhanced motivation only improves mild depletion.
► Several self-control acts worsen later self-control regardless of lay beliefs.
► Several self-control acts worsen later self-control regardless of motivation.

xplorer 

I've always found this phenomenon interesting and, until recently, I wasn't aware that the term Ego depletion very much applies. Some meta-analyses and studies have questioned the size and existence of the ego depletion effect. however, my own experience on the subject would support the general idea that decision fatigue / ego depletion are real. ► Belief in unlimited willpower only improves mild depletion. ► Enhanced motivation only improves mild depletion. ► Several self-control acts worsen later self-control regardless of lay beliefs. ► Several self-control acts worsen later self-control regardless of motivation.

@xplorer

I think the phenomenon manifests differently depending on the trading strategy and presents unique challenges in each case. Here’s how I see it:

Take scalpers, order flow traders, or pure option sellers, for example the scale of the challenge becomes immediately clear. These traders make an extreme number of decisions over just a few hours, constantly suppressing impulses (like FOMO or panic) and processing highly dynamic stimuli. It’s only natural, almost biologically inevitable, that their cognitive “battery” drains by midday or after an unexpected drawdown, and discipline starts to crumble. It’s no surprise that some traders in this forum explicitly say they only trade the first hour or stick to the morning session. This approach makes a lot more sense now, even if there are certainly other reasons for it.

As someone with experience in hedging and position trading, where I manage trades (which I now only do occasionally) over days or weeks, the dynamics look a bit different for me. The issue of ego depletion doesn’t disappear; it just shifts. Here’s another perspective:

• Frequency vs. Psychological Load: While active day traders experience fatigue from the sheer volume of micro decisions, my exhaustion comes less from frequency and more from the weight of individual, high stakes decisions (e.g., enduring an unexpected drawdown or rebalancing as correlations shift).

• The Danger of ‘Action Bias’: For me, the classic pitfalls like over trading or revenge trading out of frustration are less of an issue. The subtler trap is the temptation to “tinker” with a fundamentally sound, long/term position.

To counter this, I rely heavily on what behavioral economics calls the “Ulysses Pact” (pre commitment). In practice, this means I make decisions about entries, stops, and hedge ratios in a calm, cognitively fresh state (e.g., the evening before or before the market opens or mid of the day) and then strictly stick to them. Essentially, I try to shift willpower from real time execution to preparation. Of course, this is just one of many possible approaches.

Ironically, I’m currently diving deep into order flow trading myself (though after nearly 100 lessons, I’m still in the theoretical phase before moving on to strategy and testing). Even though I’m retired and no longer driven by financial necessity, just pure curiosity and passion for the subject, my motivation is clear: I want to learn how to time entries so precisely that I’m no longer “trapped” in trades for days or weeks. My goal is to be in the market only when I choose to be, and to have peace of mind otherwise.

In my previous hedging and position trading, the "Ulysses Pact" (pre commitment via fixed limit and stop loss orders) was my most important tool for avoiding ego depletion. But one of the big open questions for me in order flow theory still is: Can this principle of rigid pre commitment even be meaningfully applied in such a fast, dynamic environment? Or does it require a completely different psychological approach to avoid hitting cognitive limits?

This very uncertainty already confirms to me how right you are as a scalper by your self: You can’t just “talk yourself” into discipline when your mental battery is drained. You have to design your system (whatever it may be) from the start to respect this human limitation.

Symple

Many thanks Symple, for the detailed reply.

Quoting 

As someone with experience in hedging and position trading, where I manage trades (which I now only do occasionally) over days or weeks, the dynamics look a bit different for me. The issue of ego depletion doesn’t disappear; it just shifts my exhaustion comes less from frequency and more from the weight of individual, high stakes decisions (e.g., enduring an unexpected drawdown or rebalancing as correlations shift). The Danger of ‘Action Bias’: For me, the classic pitfalls like over trading or revenge trading out of frustration are less of an issue. The subtler trap is the temptation to “tinker” with a fundamentally sound, long/term position.

I understand you're drawing parallels between short-term/day trade psychology and longer-term, multiple days/weeks position-based trading.

It's good to have this additional perspective - are we not talking about the same thing, though?

If we go by Wikipedia's definition ("self-control or willpower draws upon conscious mental resources that can be taxed to exhaustion when in constant use with no reprieve"), wouldn't this apply to longer-term trading too?

If I open a position today with the expectation to carry it over the weekend and way into next week, and then the position starts going against me later on today, would I not be subject to the same psychological pressures, only on a more extended time horizon?

You seem to be suggesting a similar cognitive stress yourself when you mention "my exhaustion comes less from frequency and more from the weight of individual, high stakes decisions (e.g., enduring an unexpected drawdown or rebalancing as correlations shift)."

It sounds to me that longer term trading is even more straining from a cognitive point of view. In fact, this is one of the reasons I had decided for day trading way back when: being able to sleep at night!

I understand the "Ulysses Pact" pre-commitment reference, and I would say this is fairly similar to rules that one can (and does) apply to day trading (e.g. take only trades with x:y risk/reward, do not risk more than x ticks/points on any given trade, stop when reaching a daily target of x or a maximum daily loss of y, etc.).

I think the real challenge, as you seem to be confirming, is not so much coming up with sound decisions when one is in a level-headed state of mind, it is actually abiding by those decisions when the pressure is on. I have always seen this as one of the hardest psychological hurdles that most traders face.

But I'd say this specific aspect we're discussing is even harder, because it applies to people (or traders) who already consider themselves disciplined.

In other words, it's about understanding oneself as someone with a degree of self-control which is high, but not limitless.

One of the toughest aspects in my opinion is (1) recognising when one is nearing, or at the stage where good decision-making is no longer possible and, most of all (2) prevent one's self from making the situation worse.

This may sound easier than it is because many people do not realise when they have already reached that state (the videos in the link suggest breathing in a certain way to aid one's cognitive processes) and they keep going as if nothing has changed.

xplorer 

I think the real challenge, as you seem to be confirming, is not so much coming up with sound decisions when one is in a level-headed state of mind, it is actually abiding by those decisions when the pressure is on. I have always seen this as one of the hardest psychological hurdles that most traders face. But I'd say this specific aspect we're discussing is even harder, because it applies to people (or traders) who already consider themselves disciplined. In other words, it's about understanding oneself as someone with a degree of self-control which is high, but not limitless. One of the toughest aspects in my opinion is (1) recognising when one is nearing, or at the stage where good decision-making is no longer possible and, most of all (2) prevent one's self from making the situation worse. This may sound harder than it is because many people do not realise when they have already reached that state (the videos in the link suggest breathing in a certain way to aid one's cognitive processes) and they keep going as if nothing has changed.

@xplorer

You are welcome and also thanks to you for your detailed replay. I think we're actually looking at two sides of the same problem here.

I found your Watkins reference interesting, because it adds another layer to the discussion. If I understand his point correctly, it's not only that self control becomes impaired under pressure, but that our physiological and cognitive state can change without us necessarily noticing it. And if that's the case, our ability to recognize that we're no longer making good decisions may itself be compromised.

That makes me think the two approaches are probably complementary. On the one hand, we can work on ourselves - fitness, sleep, stress management, breathing, whatever works for the individual - and hopefully increase our capacity to deal with pressure. On the other hand, I still think there is a strong case for designing the trading process around the assumption that this capacity is not unlimited.

Even if we become better at regulating ourselves, I don't think we should build a trading approach that depends on us being in the perfect state of mind all the time.

Perhaps that's the real common ground between the different approaches: improve the trader, regulate the state where possible, but let the system provide the safety net when willpower isn't enough.

Anyway, I think that's probably enough psychology for the moment. Thanks for the interesting discussion.

Symple

Symple 

I found your Watkins reference interesting, because it adds another layer to the discussion. If I understand his point correctly, it's not only that self control becomes impaired under pressure, but that our physiological and cognitive state can change without us necessarily noticing it. And if that's the case, our ability to recognize that we're no longer making good decisions may itself be compromised.

Absolutely. That's the point. We no longer can tell that we're impaired.

Quoting 

That makes me think the two approaches are probably complementary. On the one hand, we can work on ourselves - fitness, sleep, stress management, breathing, whatever works for the individual - and hopefully increase our capacity to deal with pressure. On the other hand, I still think there is a strong case for designing the trading process around the assumption that this capacity is not unlimited. Even if we become better at regulating ourselves, I don't think we should build a trading approach that depends on us being in the perfect state of mind all the time. Perhaps that's the real common ground between the different approaches: improve the trader, regulate the state where possible, but let the system provide the safety net when willpower isn't enough.

100% in agreement.