I believe that changing the words we use when thinking about or discussing our trading could have a big impact on psychology and performance. The language we use shapes the way we think, and may even determine our actions. For an introduction to this concept, here is a good TED talk on the topic: How language shapes the way we think | Lera Boroditsky | TED.
I’ve been a computer programmer for 30+ years, and I’ve seen how the success or failure of a computer program can come down to the names given to describe the different parts of the program. In technical terms, the names given to the various functions, data structures and classes are known as the API (Application Programming Interface).
I’m currently writing journaling software and I’ve got to the part where I need to code a ‘trade’. For example, Buy 1 @ $50, Sell 1 @ $52 would be a trade. Similarly, Buy 1 @ $50, Buy 1 @ $52, Buy 1 @ $54, Sell 3 @ $56 would also be a trade.
I had to decide if “Trade” was the right word to use to describe the process of buying and selling. I came to the conclusion that No, “Trade” is the wrong word and would cause confusion.
“Trade” is already used to mean a single transaction between two parties. For example, if you watch the Time and Sales, each entry is a “Trade” consisting of time, volume and price. It would be confusing to reuse the term “Trade” to also represent the process of buying and selling.
However, when I talk to other traders, I’ll call the process a Trade. For example, I’ll say “Look at this trade, I just made 100 ticks”. Or, to the wife, “I can’t do [insert chore here], I’ve just got into a trade”.
Being a logical person, I don’t like having such discrepancies. Why is it OK to call the process “a trade” in my everyday thoughts and speech, yet confusing to use the term in my journal software? Is this having some negative psychological impact? Would it be better to say “I’m testing a thesis” rather than “I’m in a trade?”
Referring to the process as “I’m in a trade” skews the emphasis towards winning or losing that single trade. In a probability based environment, anything that classes a single outcome as a win or loss is best avoided. It also implies that because I entered the trade, I’m more responsible for the outcome than I should be, and that can be psychologically draining.
However, if I refer to the process as “testing a thesis”, this has a different psychological response. It implies multiple tests are required to form an opinion, and it moves the focus to the thesis itself rather than each individual outcome.
What are your thoughts on this? What other words and phrases do traders use that could be having a negative impact? Are there better words we should we be using to describe the market and what we do?