I 100% your thought process is wanting all kinds of trading tools and functionality within your trading platform. I am with you in thinking that trading computers with several monitors and dozens of technical charts look awesome! However, is having all kinds of choices and options as a trader as productive and freeing as it may seem? This is a very common bridge that many traders fail to cross (myself included when I was starting) in a safe way. You would think that in order to have success as a trader you should be operating at maximum flexibility and freedom in terms of choices available, but what does the world of psychology think about this? Believe it or not, jam can help us gain insight into this world of decision making and human psychology. If you are struggling as a trader and just can’t quite seem to pinpoint what the problem is, you better be considering what science has to say about this topic of “choice”. Let’s get to it!
This is The Stock Trading Reality Podcast, Episode 331.
This is The Stock Trading Reality Podcast where you get to see the realistic side of a trader’s journey. Get inspired and stay motivated by everyday normal people who are currently on their journey to trading success. And this is your host, he wants you to remember it’s not about the trading platform, ClayTrader.
Yeah, it is not about the platform. Maybe this has been a fun fact in the past and I just haven’t … or maybe some derivative of it, but I wanted to just reiterate it because I continue to see it come up over and over again. And I wish I could say I was this good, but it just happens to be a coincidence that what I am talking about in today’s solo episode perfectly is a backdrop to this fact that, yeah, at the end of the day, it’s not about the platform. It’s about what’s going on between your two ears. You could have the best platform that money can buy with all sorts of functionality and tools, which as you’ll see could be argued would not make it the best, would potentially make it the worst based on the data but we’ll get to that here in a second.
But at the core, what I’m trying to get across here is just remember, there’s nothing magical about a broker. There’s nothing magical about a platform or magical about scanners. What’s magical and what’s going to ultimately cause and create long-term consistent gains is the stuff that’s going on, like I said, between those two ears, your knowledge of trading, your knowledge of how to manage risk. So get that stuff figured out first and then you can focus more on the platform and broker, but at the end of the day, it’s really just not about that stuff really at all.
Now, as for the show today, we’re talking jam, and who knew that jam could be so beneficial and so relevant to us as traders, but that’s what we have here. And this all came from a comment that I got on YouTube, and I read the comment and I thought, I totally see why this person is making that comment, why the person’s boss made the comment to them. And I understand it, but when it comes to trading and quite frankly, many other areas in life, that’s just not true.
And there’s a whole bunch of research out there that fortifies that statement and offers a whole lot of credence and credibility to it. And science, psychology, sociology, whatever you want to call it, there is some valuable data. Now, of course you don’t want to just blindly follow stuff. And just because something comes from a prestigious university, it doesn’t mean that, oh, that means that it’s for sure guaranteed to be fact of the matter, especially if it’s just one study, but, one, there is lots of data points out there. One, there are lots of different suggestions and studies, and all those studies are essentially saying the same thing. Well then, yeah, I think that it’s worth keeping in mind.
But setting all that aside, and I realize what I’m about to say is just anecdotal evidence, I can totally relate to this. I can totally support the research and say that is my experience with it. That’s completely how things have played out with me. And maybe you can relate. And if you can relate, well then, hopefully the idea of this is just to make you aware of this scientific research out there that maybe it’s not you in the sense of, geez, I’m just not smart enough. No, no, no. Maybe you’re just not operating. Maybe you’re doing things that your brain doesn’t actually want you to do and doesn’t like for you to do. And that’s what we have here, and that’s what the jam experience actually reveals to us.
So in order to just give a little backdrop here of the idea for this, I had a comment on a YouTube and the comment says, and this comes from Andy, “I had a boss years ago tell me you can’t have too many tools or too fast a computer.” And then he says, “There is no such thing as overkill.” So the premise here is, hey, listen, you can’t have too many tools. There’s no such thing as overkill. And on the surface, that makes sense, right? The more choices you have, the better. The more tools you have, the better. So there’s nothing irrational here at all, but let’s actually look now at some of this research, and I should note that you’re more than welcome to do more research on it. You’re more than welcome to climb down any rabbit holes that you might want to climb down, but I’m going to try to just keep this relatively surface deep so that you can just be aware of it and maybe even do a self audit.
Is this occurring with me? Is this something that I have noticed, or maybe you haven’t noticed but now you can actually pinpoint things like, oh, okay. Maybe that’s why I’m struggling. Maybe that’s why things haven’t exactly gone as smooth as what they seemingly should be, because I have this platform. I have all these tools. Yet, I don’t know, things just feel so bumpy. So in this situation, consider what this research is stating.
So before anything else, I do want to just cite that overall paper because there’s all sorts of articles out there and I’m going to reference one of these articles because they do a little bit better job of explaining it in layman terms for people like me that aren’t that smart, so I need things broken down a little bit easier as opposed to people way smarter than I am using words and sentence structures that are very impressive. But for me, I don’t know, I think that could have been said in a little bit more clearer of terms, but still nonetheless, very impressive with their wizardry with words. But this is all coming from a paper, so if you do want to go out there and read the paper, hey, more power to you. I fully realize and understand that some of you, you love a good research paper. You love to get into the nitty-gritty details of scientific studies. Awesome. Good for you.
So the name of this paper is When Choice is Demotivating: Can One Desire Too Much of a Good Thing? So that’s the name of the paper. I’m not even going to try to pronounce the people’s names, but like I said, if you do want to do a Google search on it, find the paper. Again, the name of this paper: When Choice is Demotivating: Can One Desire Too Much of a Good Thing?
And let’s go to another article here because like I said, this is doing a better job of explaining it, but it’s just a very famous study here called The Jam Experiment. And really, it’s all about choices, options. If people have … It operates under the assumption, and all the articles started off basically saying, you would think, and in fact, this article, first line of the entire article says: more choice equals freedom. Right? So going back to Andy that left the comment. I understand where his boss is coming from. I understand where Andy is coming from. Hey, you can’t have too much overkill. You can’t have too many choices because like this article says, more choices equals freedom. Right? And on the surface, yeah, that does sound good. A lot of choices means you have freedom. The more freedom you have, the better things are. A completely logical and rational thought process to have.
But as this article goes on to say, well, yes, but there’s a good body of evidence that the more choices presented to us, the less happy we are with the one we make. And this is where the jam experiment comes into play. Like I said, you’re more than welcome to get into all the nitty-gritty details of the jam experiment. But basically just to break it down, there was an experiment set up. And in one set of the … In the first part, there were 24 choices of jam. And at the end of the day, with 24 choices, 3% of shoppers bought the jam. And then they ran same exact thing, the difference being six choices of jam. So in other words, less choices.
So again, according to logic, you would think, well, definitely the more choices that are available, the better odds you are going to have of finding somebody that likes at least something you’re offering. Yeah, of course. If it was 3% … If there’s only 6%, then odds are you’re missing some demographics. Odds are people are not going to find something that they like. So I would expect you would say, well, it’s going to be lower than 3%. But with six choices, 30% of shoppers bought jam. 30% with only six choices.
Now, as the article goes on to say since then … because again, to be fair, that’s one research paper. That’s one scientific study. I’m not a statistician, but I do at least understand that a sample size of one, not exactly something that you should just go all in on, and there have, as the article says, there have been lots of other studies that have done this with subjects ranging from chocolate to 401(k) plans.
So just to talk about the 401(k) plan real quick. And just so you know, who was doing the 401(k) in terms of too many choices, this is coming from Columbia Business School and the University of Chicago Booth School of Business. And basically, the core is this. Study: too many choices impair 401(k) decisions. When individuals are faced with too many options, they become paralyzed and don’t make the best decision, even when it comes to 401(k) options according to a new study coauthored by Columbia Business School and the University of Chicago Booth School of Business.
So let’s start to break this down and start to translate it over to the world of trading, of platforms and all of that. As the research is continuing, less choices is better, less is more. And one of the articles I read, it lessens confidence. It creates almost a buyer’s remorse in the sense of … or for us as traders, almost a decision remorse. And the reason for that is when you have a bunch of different decisions, the more decisions that are out there, you start to question, oh, I don’t know. Was this the best choice? Because I had all those other ones. Well, what about that or what about that? What if I had chosen that one or that one or this one? And you start to second guess yourself because you had all these other choices, yet the one you choose, it could be what was the best, but what happens if one of these other ones would have been the best choice to have made?
So the more that are out there, the less confidence you actually have just because you’re very, very hesitant. Whereas, in the other side of things and have you … And this is where it literally boils down to it, but have you heard of paralysis by analysis? You have this tool and that tool. You have that indicator combined with this and then you bring in this and then you factor in these other things. And before you know it, as a trader, you just aren’t trading. You can’t even make a decision. And if you do make a decision, you’re just not that confident in it. So is that you? Well, yes, it’s you in the sense of you’re overloading yourself with all that stuff, but it’s not you in the sense of you’re not acting in an irrational manner because rational, you would think the more stuff I have, the more freedom I have. The more freedom I have, the better the opportunity I have to succeed.
But that’s just, again, one of the ways that I would argue is just yet more scientific data on how and why trading is so difficult, because you would assume, behaving, you would assume, loading yourself with all sorts of tools and indicators and scanners. Can you picture it on Instagram? Have you ever seen the computer setups with 15 different monitors and you have all this stuff? Well, according to the research, according to how our brains are wired, you’re going to do yourself more harm than good because you just got so much stuff going on.
And like I said, well, Clay, this is more consumer psychology. This is based on people looking to buy something. Well, that’s true, but that’s also what trading is, right? What are you doing? You’re looking to either buy or short a stock. So you’re still making decisions. You’re putting your money where your mouth is. But again, as I already talked about, there is also the study about just too many choices when it comes to what to do with your money from a 401(k) standpoint, that’s going to impair your decisions. People get way overwhelmed.
And just to wrap it back, because the core premise of that entire research was that too many options, the researchers found can impair a person’s ability to make reasoned choices. And as traders, I think we can all agree or as investors, we want to make reasoned decisions. If you’re making unreasoned decisions, that means it’s just randomness, right? And randomness means you’re gambling, and gambling is not going to be a sustainable long-term process. So yes, we do want to make reasoned decisions, but when that is impaired, okay, well, what’s going to impair me for making a reasoned decision? Oh, too many options, too many choices.
So let’s bring this all the way back to the platform and the broker and the core learning lesson here. Maybe you’re just using too much stuff. Maybe you have way too many indicators on your chart. Now, maybe you don’t. Maybe none of this is the reason why you’re struggling. Maybe none of this is the reason why things aren’t going as smoothly as you think they are. But according to the research, it’s at least something to consider. It’s at least something to, like I said earlier, run a self audit to see, all right, yeah, this is getting maybe a little out of hand. So just ask yourself, how many indicators, how many tools, how many scanners, how many monitors, how many charts, how many cashflow statement sheet? For those of you that maybe are doing fundamental analysis, maybe, just maybe, are you looking at way too many things and then you start to second guess yourself and you lose all confidence? You don’t really know what you’re …
You know what you’re doing, but in a weird sense, you almost don’t know what you’re doing because, why? I don’t know. Now I’ve lost confidence because what about that? Should I have considered that? Which goes back to the too many choices, right? If there’s too many choices, then you’re going to second guess yourself because, I don’t know, should I have considered that too or am I not considering this enough? And you second guess yourself. You’ll lose confidence. And without confidence, you’re not going to be able to stick in a trade for very long, and it’s just going to get very messy very quick.
So at the end of the day, you’re not irrational. You’re not stupid. You’re not behaving in a manner that would say why would you ever think that? Why would you ever do that? In fact, you are acting in a rational and logical manner. You’re giving yourself choices. You’re using a bunch of tools that according to research, that’s going to impair you. That’s not going to help you out.
And I can speak from personal experience. All I know is that I used to have this indicator and that indicator and this indicator, and by the time I deciphered stuff and said, okay, I think everything aligns the way I think it. Oh yeah, I missed the trade five minutes ago. But when I just reduced the stuff, reduced the tools, or in other words, reduce the choices that I have, reduce the options that I have to choose from, it’s amazing how much quicker you can make decisions and how much confidence you can have in those decisions. Now, that of course doesn’t guarantee that all your decisions are going to be profitable decisions in the world of markets, but as far as just executing, having confidence, having faith in your plan and strategy, I’ve noticed it has become a lot better.
Again, I fully realize that’s just anecdotal evidence. That’s just me talking about my experience, but I have a sneaky suspicion. And if you’ve been a long time listener of this show, it’s been a theme that’s come up a whole lot, is the less people put on their charts, the less rules, the less well, I need to see this and then I need to see that and then these other things need to happen. But the less of that that occurred, things just got better for the traders.
So like I said, nothing fancy, nothing complicated here, but like I said, please, by all means, go learn about these studies, do more research into them. If you just run a simple Google search on The Jam Experiment, that’ll bring up all this stuff too instead of trying to remember the name of the paper I gave earlier. But like I said, I think that’s probably the best way. The Jam Experiment. Run a Google search on that and have fun with all the data, with all the research that’s out there. And hopefully, this can maybe answer some questions on why you’re maybe struggling. Or maybe you’re not struggling. Maybe you’re brand new, but at least now you know, okay, while it may seem rational that I need to give myself as many tools, as many choices as possible, maybe rethink that a little bit.
So if you found this helpful, hopefully you enjoyed. As always, if you do enjoy the podcast, please, especially if you’re listening on iTunes, leave us a rating, five stars preferably. Little things like that go a long way. Or even better yet, if you could leave us a written review, those go and are very, very helpful. And it’s just a good way to communicate to us here that you enjoyed the podcast. And as long as I know that people continue to enjoy the podcast, then I have no problem continuing to put them together, finding guests, doing these solo episodes. So just communicate that to me, which, like I said, very easy to do. Just leave us rating or a better yet, a written review, and that does go a long way. So thanks for listening. And yeah, just remember, less is more.
This has been The Stock Trading Reality Podcast. Thanks for taking the time to hang out. To learn more about Clay and the ClayTrader community, including the trading team, premium training and more, visit claytrader.com.