Why hindsight trading is so easy compared to real-time trading

Why hindsight trading is so easy compared to real-time trading


hindsight trading

Trading is always so “obvious” after the fact. Why?

Hindsight makes everything seem so easy and obvious, but why is that? The problem is the trader itself. Just think about how you analyze your charts with the benefits of hindsight. If you are like most traders, you look left and then pick trading tools and indicators to see which one would have predicted the outcome correctly.

Traders can choose from so many trading tools that at any given moment, you will always be able to find many reasonable explanations why you should have entered at a particular price level.

Ask yourself another question. How often do you look for past price action and try to find losing trades? Almost no one ever tries to find losing trades or times when tools wouldn’t have worked. This creates a very biased view. Consider looking for bad and good trades in your analysis.


Trading in real-time is hard

The reason traders believe that real-time trading and making decisions under uncertainty is hard ia because of the way they have used hindsight in their analysis.

The hindsight-traders have never actually followed a consistent approach, and during their hindsight analysis, they have continuously changed tools and indicators. When it comes to making decisions under uncertainty, they have no confidence in their abilities or their system because their approach lacks specific guidelines.

If you are regularly applying new and different tools and indicators on past price data to find profitable (hindsight) trading opportunities, you lack the knowledge what to pick going forward.

It is evident why the trader who does not have a consistent approach and changes his tools all the time lacks confidence and often experiences major fear when it comes to making real trading decisions.

4 tips for better trading without hindsight trading

When it comes to overcoming the hindsight problem there are four specific tips that can help traders make the next big step in their trading:


1 – One approach. Become the expert

The first point is the key to trading success and not only when it comes to dealing with the hindsight problem. To become truly good at something you need focus; you can’t be all over the place. A professional football player is rarely also a professional tennis player. A good doctor is not also trying to practice law and be a top lawyer.

When it comes to trading, you have to be clear about your approach. What is your trading style, your method, which tools do you use, etc? Professional traders typically only follow one single approach and system, and they become the experts in their chosen field


2 – Create rules

Traders always use the excuses of “staying flexible” when they are not using a set of fixed rules. However, what then usually happens is that their trading is sporadic while experiencing inconsistent results.

You have to create a set of fixed rules. Even better, create a checklist that states all your entry criteria and describes how your whole trade looks like. Even professional traders often use physical checklists in their trading. A list holds you accountable and helps you stay focused.


3 – Look for past losers

Once you are clear about your trading method as a whole and how your method defines entries, you are much better equipped to perform a good hindsight-analysis. Now, when you look back on past trading data, also try to find scenarios when your trading method did not work.

Seeing that your method doesn’t work all the time can be liberating because losing then becomes a “regular” thing. A trader who accepts that not all trades will be winners and who knows that over the longer term, his edge will let him come out ahead, can trade more freely.


4 – Save screenshot of missed trades and your hindsight analysis

When doing your hindsight-analysis, save the screenshot of trading scenarios you think you missed and should have participated in. Then, analyze those charts and see if they fit into your rules. Once a trader has completed steps 1 and 2 he will then be able to see how flawed his hindsight analysis is and that most trades he thinks he has missed, aren’t fitting into his trading style.

There is a substantial risk of loss in futures trading. Past performance is not indicative of future results.

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