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BY IGNORANCE THE TRUTH IS KNOWN

  
Analysis, Education
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Whether we choose to believe it or not we do not know the future, nor can we predict it with any consistency.  When the future does play out exactly as predicted luck must be credited.

We stock traders love to predict.  When we are right (which is not very often) we are quick to pat ourselves on the back, staking our claim on expert technical and/or fundamental analysis.  When we are wrong we are just as quick to deny responsibility, usually blaming the “market” for its ignorance.  All too often we justify our losses because we mistakenly believe the market is wrong.

But if the truth be known we are the ones who are ignorant and we choose to remain so.  Ignorance can only be used as an excuse until the truth is discovered.  The truth is we are wrong. The market is always right.

So, here is the truth.

We are ignorant of randomness and uncertainty.  We are ignorant of the many reasons others have for buying and selling, oftentimes diametrically opposed to our own.  We are ignorant of the hidden forces that move markets both intra-day and day to day.  We are ignorant of unforeseen news and how the “market” will interpret it.  We are ignorant of our many and varied biases, too numerous to mention here.  In a word, we are ignorant.

But in ignorance we find truth; in ignorance we find opportunity.  We traders can use our ignorance as a tool for profitability.  But can we handle it?

Can we accept that our expert analysis can be wrong?  Can we accept uncertainty?  Can we admit that our decision making processes are often flawed because of our psychological makeup? Can we accept that the market is always right? Can we handle the truth?

If we dare confront our ignorance we can then proceed to admit to and accept our flawed biases.   We can admit that luck plays a major role in our success.

We can actually exit losing trades.  We can take profits without getting greedy. We can cease to fear the future.  We can accept, and even learn to embrace, uncertainty.  We can then use technical and fundamental analysis as tools to manage our emotionally based biases, not confirm them.   We can become consistent in our decisions.  We can become profitable.

We can discover the truth by our ignorance.

The Feedback File

  
  Education

As we wrap up the trading week, I offer a few of the  interesting comments I received in the inbox this past week…

As a government securities trader for 12+ years I find your emails both fun and thoughtful. Your passion and commitment to what you do shows.” – A.Mani

  • “Your site is without a doubt the best value on the web. I have probably referred over 200 other readers to your site.” – Seth L.

  • “I have been reading your website since the past one year and though I am not an active trader I find your site very informative, analytical and very useful in keeping up with the market. Also, the content is structured in a very user-friendly manner. Keep up the good work.” – Vivek S.

    • “Thank you for all the work you do and for keeping your website affordable. I love reading your posts.” – Ms.Sonal

  • “Keep the videos coming! Very education to me and worth the membership alone!” – Dentist from Kerala

    • “I have improved my screening and trading primarily from your site. I am very appreciative of the chart analysis you provide and request that once a week you substitute your fundamental analysis of a stock for the chart analysis. Even if you only did this once a month I think it would be very beneficial.” – Dr.Joginder ,Shimla (more…)

    Trade what you Observe – Not what you Believe

      
      Education
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    observe[1]One of the hardest lessons to learn in your quest to become a true trader is to suspend your beliefs and to trade that which you have learned through hours of observation.

    How many times have you stated that company x is overvalued only to watch it go higher? Or undervalued only to watch it continue lower? How many times have you thought that the “market” can’t go any higher and yet it did day after day? Or lower? How many times have you been scratching your head because the “market” is rising on such low volume? When is the last time you were in disbelief because company y has closed higher for 10 days in a row (after shorting it on the third day)? And have you ever acted on a recommendation from Blue Channels/Pink Papers/Website Analysts to watch in disbelief because as soon as you entered it reversed course?

    Bottom line – trading what “you” believe is a recipe for disaster.

    Eventually most folks figure out that the market is so chaotic that they are lost and admit they don’t know how to trade. Many quit in disgust. A few of you press on and begin a journey of real study. (more…)

    What are you certain about the market or trading?

      
      Education
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    If I do not take it will take from me.
    You are only as good as your last trade.
    Rigidity and complacency ends careers.
    Always get paid for taking risk.
    A trend never ends when it should.

    I am certain that the only way for me to have a chance to be a successful trader is to do daily work and not become lazy or use shortcuts.

    I am certain I would rather take every planned trade and lose than not execute a planned trade.

    I am certain I am always uncertain before taking a trade. I am certain when I am most relaxed in my mind is when I am doing the right thing regardless of the outcome.

    I am certain there is no mathematical (technical) formula to beat the market. If there was, there wouldn’t be a market.

    I am certain that opportunities are easier made up for than losses. I add one more: I am certain that the habits or procedures we resist represents our true trading system at that moment.

    I am certain that trying to ‘predict’ will end in failure.

    I am certain that most of my trades that I convince myself to make investments will end up losing money.  I am certain that if I do not plan a trade including stop loss  points I will be sorry.  I am also certain that I will violate both of the above sometime in the next month.

    I am certain that I know myself…. or at least I think I do for the moment.

    I am certain that uncertainty is a concept that most traders need to come to terms with before any sort of success will be attained.

    10 Big Lies Traders always says…

      
      Education
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    1. The losing position wasn’t my fault, the market
        moved against me.

    2. The trade was right and the market wrong.

    3. I just have bad luck.

    4. Eventually the stock will go up (or down)… eventually.

    5. Bigger size equals bigger profits.

    6. No need to close the postion just yet.I can average down.

    7. Because I made so much money on the last trade  I can take on more risk the next.

    8. If the market is going down I can’t make  any money.

    9. I need to trade a larger account in order to be a better trader.

    10. I’ve had many winners in a row, so now I need  a big loser.

    Think Less & Keep It Simple

      
      Education
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    Every once in awhile I read something from another trader who I respect that I really wish I wrote myself. Here’s one such example:

     “One of the most difficult things to get investors and traders to understand is that no matter how much they investigate an investment, they will probably do better if they did less. This is certainly counter-intuitive, but the way that our brains function almost guarantees that this will happen. This kind of failure also happens to those investors frequently regarded as the smartest. In essence, the more information that investors have, the more opportunity that they have to choose the misinformation that suits their emotional purposes.

     

    Speculation is observation, pure and experiential. Thinking isn’t necessary and often just gets in the way. Yet everywhere we turn, we read and hear opinion after opinion and explanation on top of explanation which claim to connect the dots between economic cause and market effect. Most of the marketplace is long on rationale and explanation and short on methods. (more…)

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