Situational Awareness..

Well. What is it?? How does it relate to trading? Is it only related to trading or is it applicable to other fields?? This article will provide answers to the above questions.

Wikipedia explains it as follows-

“Situation awareness is the perception of environmental elements with respect to time or space, the comprehension of their meaning, and the projection of their status after some variable has changed, such as time, or some other variable, such as a predetermined event. It is also a field of study concerned with the perception of the environment critical to decision-makers in complex, dynamic areas from aviation, air traffic control, ship navigation, power plant operations, military command and control, and emergency services such as fire fighting and policing; to more ordinary but nevertheless complex tasks such as driving an automobile or riding a bicycle.”

When I first read this, I was not sure what he is trying to convey with this long description. Understanding this has completely opened up the gates of my trading career.

Here is how I explain this-

Situational awareness involves three steps, namely-

Interpreting the information at present,
Comparing it with the data available from the past and
Projecting the likely future by the above comparison.
To make it a bit clear, consider this example. While reading this blog, how does it feel if a lizard comes from nowhere and slowly crawls onto your foot? I will definitely throw all the things in my hand if I am in that situation and shake my body like hell. But here is the thing, A lizard itself is not poisonous with its bite and everybody knows that. I admit that people hate how its body is built up and shape/structure of it, but almost 90 percent of the reaction when you realize that some alien body is touching your foot comes from the surprise as you don’t know before that there is a chance of having a lizard there. That is the reason why you reacted surprisingly, in my case, throwing away the things in my hand and shaking my body to get away from that feel etc., these are all the reactions that are resulted from your emotions (especially fear) and are highly dangerous when you are dealing with something important.

That being said, now consider this scenario, where you have seen that there is a lizard crawling on the wall that was right beside you and the walls are so slippery that there is a chance of lizard falling on the floor. You now have some information which you can use to take action. You can either run it out of your room before you sit in front of the computer or if you cannot dare to do that, you can at least decide not to go into the room until that lizard disappears from the room. Whatever it is, there is a great chance of you avoiding the emotional reactions when faced with surprises. This is Situational awareness, a must-have quality for each and every individual no matter what he is working for.

A boxer needs to have situational awareness to know where his opponent is going to punch him in the next move so that he can defend and don’t go aggressive when being hit.
A pilot must have situational awareness so that he won’t keep the passengers in danger. As the famous saying in pilot training says,” If you don’t know where you will be in the next 5 minutes, don’t go there -copied from the book YTC price action trader“.
An army general must have situational awareness to know where his enemy is going to attack.
The list can go long as there is no end to it. No matter what field you choose for your living, you must have this quality of maintaining situational awareness to stay ahead of your competitors. In the 21st century where there is no room for the average and below-average performers, you definitely need this to stay head and shoulders above your opponents.

If you have not made your hands dirty in trading yet, let me tell you, this is a very very tough business where each and every emotional weakness of your psych is tested to its maximum level. You might have read a lot of failure stories in this business and 99% of those failures happened due to aggressive decision making, trying to recoup the losses that are made, trying to get rich quick, overconfidence, etc. These are due to the actions that had taken when the emotions came into play. We are humans and we cannot live without emotions. But we can control how we react when things don’t happen the way we want by maintaining situational awareness.

When the results of an event cannot shake you out, when the results can neither make you happy nor depress you down, when you have seen the things happening now already in the past, you can use the brain to the complete potential to interpret new data that is going to come after this moment and use it for your advantage as you are not going to react with emotions and surprises. This is called “Objective Thinking“.

The summary is, You can succeed in your career if you train your brain to think Objectively. This can only be achieved by maintaining Situational awareness and that is how I trade the markets on shorter time frames. This blog is designed to explain each and every detail of how I see the market and how I find low-risk high probability trades so that you can take the ideas and prepare your own plan.