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MURPHY’S LAWS FOR TRADERS

  
  Education
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1. It is morally wrong to allow a sucker to keep his money 
2. Everyone has a trading strategy that won’t work 
3. For every expert who says prices are going up, there is one who says  they are going down 
4. If you can drink it, don’t trade it 
5. The market is not logical; it is psychological 
6. The successful speculator is one who dies before his time comes 
7. If you drop a dead cat far enough, it will bounce 
8. The market goes your way the day after your stop was hit 
ITS COROLLARY 
9. The big move begins the day after your option expires 
10. He who sells uncovered options goes broke 
11. If you feel like doubling up a profitable position, slam your dialing  finger in the drawer until the feeling goes away 
12. The perfect strategy works every time until you start using it 
13. If your strategy seems to be working well, you haven’t been using it  long enough 
14. The guy who owns the horse when it dies is the loser 
15. When it comes to luck or skill, you can’t beat luck  (more…)

7 Deadly Sins

  
  Education
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  1. Trying to pick top or bottom
  2. My gut tells me that we’re going to break out (Professionals love fading breakouts)
  3. No confirmation from my Volume indicators (wait for everything to line up)
  4. Hesitating on entry (typically when the trade is “hard” to take)
  5. Canceling my stop (OMG, the biggest Sin of them all !)
  6. Moving my profit target (got to let the winners run)
  7. Letting a profitable trade turn into a loser (luckily, a rarity)

This explains almost everything…

  
  Education
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Are we addicted to being right? Is being thought of as being right more important to us than actually being right?

You tell me…

From the Harvard Business Review:

In situations of high stress, fear or distrust, the hormone and neurotransmitter cortisol floods the brain. Executive functions that help us with advanced thought processes like strategy, trust building, and compassion shut down. And the amygdala, our instinctive brain, takes over. The body makes a chemical choice about how best to protect itself — in this case from the shame and loss of power associated with being wrong — and as a result is unable to regulate its emotions or handle the gaps between expectations and reality. So we default to one of four responses: fight (keep arguing the point), flight (revert to, and hide behind, group consensus), freeze (disengage from the argument by shutting up) or appease (make nice with your adversary by simply agreeing with him).

All are harmful because they prevent the honest and productive sharing of information and opinion. But, as a consultant who has spent decades working with executives on their communication skills, I can tell you that the fight response is by far the most damaging to work relationships. It is also, unfortunately, the most common.

Trading is toil

  
  Education
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toilTrading is toil, especially because it’s already hard work in the first place to find a model, a “setup”, a strategy that actually works, but then you must adapt it, which is the very hardest part. Once you have a “love” (something that makes your trading profitable), whether it is a strategy, model, parameter, or setup, it becomes very painful to watch your love fade and die.

I know we shouldn’t personalize trading, but the fact is we (or I) develop an emotional relationship to our precious tools — every time I come across something worthwhile, after much toil, I feel so glad. I feel a sense of work well done. It’s a very pleasant feeling. And I cannot refrain from emotional pain when a market relationship I was profitably trading becomes weaker and eventually non-existent.

To adapt,  one must have the emotional strength to, after much toil, model a strategy, and say to yourself: “you may have no value in the future.”

Trading is strange, because it demands skills one would probably not wish to nurture if it wasn’t necessary.

3 Thoughts On Freud And Trading

  
  Education
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1) We internalize our sense of self from our significant relationship experiences.Relationships serve as a kind of psychological mirror, by which we can experience ourselves through others. If our relationships are positive and healthy, we’re more apt to internalize a positive sense of self. It’s only a small step from this insight to the realization that we have a relationship with *all* of our life activities. We experience ourselves through our trading: over time trading without an edge and without proper risk control virtually ensures that our trading will take a personal toll.

2) We defend ourselves against sources of anxiety. These defense mechanisms may keep us from becoming anxious, but they often are maladaptive and create problems in social and work situations. If we’re feeling inadequate or vulnerable, we might defend against these feelings by jumping into trades or by avoiding markets altogether. What we do to manage our feelings often is the opposite of what we need to do to properly manage our money and positions.

3) We tend to replay conflicts in past relationships in our current relationships. These unresolved problems reappear in different situations until we find resolution. Many trading problems occur when we act out our needs for recognition and self-worth in our trades. The trader who breaks rules when trading and takes undue risk often is needing the markets to provide desired emotional experiences, not just profits. To the degree that we act out our personal issues in markets, we can’t be fully focused on those markets.

A summary of Freud’s view would be the dictum that those who fail to learn from history are condemned to repeat it. It is our repetitive patterns across situations of uncertainty and gain/loss that can take us away from doing what we know to be best.

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