Information Processing in Trading

Here are some must-read (IMHO) articles related to information processing:

Two Perspectives on a Breakout Move (MS Word Doc) by Brett N. Steenbarger, Ph.D.. Brett illustrates how he processed information about Friday morning's breakout using Market Delta and Trade-Ideas. The article draws some important conclusions, namely (emphasis is mine):

As a trading psychologist, I am vitally concerned with the ways in which we process information. It is interesting that all of us know that we have different learning styles--very different ways of understanding the world--and yet many of us rely on standard charting screens and screen configurations to make sense of the markets. I learned this lesson in a quite personal way when I switched one of my indicators--a measure of leading stocks making breakout moves--to an auditory alert from a standard chart display within Excel. Hearing the indicator updates took some getting used to. The value, however, was tremendous as the beeps allowed me to keep my eye on my market and how it was trading. By following one market (the leading stocks) in one information processing channel and my market in another, I essentially doubled my brain's CPUs.

[SNIP]

There are many features of these programs I have not outlined. Market Delta can display total volume within bars and change from time-based bars to tick-reversal bars (bars that form when price moves a set number of ticks). Trade Ideas runs off its own servers and can monitor events as fine as large changes in the size of bids and offers for the stocks and futures in your lists. Programs such as these may or may not be helpful to you. I use them personally; I have no proprietary stake in them; and I have found them to be beneficial to my trading. This is not only because they display useful information, but because they display it in a form that facilitates rapid decision making. All of us differ in how we process information, and all of us have different trading styles that require different information. If you're using standard tools in standard ways, you may be selling yourself short.

(I should note that I also use various audible alerts and find them incredibly helpful. Knowing the alerts by sound makes it bit quicker for me to figure out what I may need to do to react.)

In that article Brett links to another article of his, entitled 'Information Processing and Trading' (MS Word but here's an HTML version of that article). Here's the intro to that article:

Here is an interesting observation drawn from the past six months of working with a large group of full-time traders: The most successful of the group never change the displays on their screens. Each morning the same information appears in the same place. The less successful traders, on the other hand, tend to experiment. They will look at different indicators each week, different ways of displaying the data, etc.

The guys at Trade-Ideas have followed up on Brett's thoughts with an article entitled ' How to Hunt with the Pack'. That article details how one can configure Trade-Ideas to find trading candidates based on one of Brett's observations about tracking block trades.

(hat tip to another Trade-Ideas post for the link to Brett's article>)