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Becoming a Mature Trader

Growing up (which takes a lifetime) is like finding out what kind of canoe you’re in – and learning how to row it safely and effectively – and learning to accept yours is not the best in the race.

The genetic factor in IQ is well established, which doesn’t (and shouldn’t) stop anyone from attempting to improve their knowledge and skill at reasoning. That said, people with no facility at math shouldn’t aspire to be physicists, and good-looking, loquacious, charming people shouldn’t sit all day behind a computer.

There is evidence that this analysis pertains to optimism/pessimism. Some investors may find they do very well in exuberant bull markets but crash when things go bad; others miss out on “irrational” bull runs, but cautiously avoid crashes. How would society look if everyone had the same rosy disposition, and philosophy that everything bad is temporary and will ultimately and triumphantly reverse by dint of inherent human goodness, the American way, and our G-dly chosen-ness amongst a universe of 10^100^100 habitable planets?

Pessimism (skepticism, risk-aversion, worry, etc) has its place. Some fraction of Jews living in pre-Nazi Europe fled at a time when others deemed flight too fearful and overwrought, with well known results. The survival/perpetuation of fear and pessimism in the population is evidence that it has value. And the difficulty buying when the world is on fire, and holding when money is free illustrates why the rich are in the minority, most heroes are dead, and Gini ratios naturally go up until acted on by the hands of governments or G-ds.

DON’T FIGHT THE MARKET

Fighting the market is not good for two reasons.  First, we lose money.  How much we lose depends on how well we are managing our money and controlling our risk.  Second, fighting the market affects our judgment, and causes us to try to confirm that our judgment is correct. Some very high level market analyst will persist in fighting a trend so that we will eventually be proved to be correct.  They figure that if we persist long enough, no matter how long it takes, we will eventually be right. In some cases the “technical price” level is so far away that by the time the forecast is negated, the inventor following the advice will have lost a large sum and missed a fine opportunity on the other side of the forecast!

By analogy, there is a reason for leaving your car downstream, launching your canoe upstream, and paddling downstream.  It is much easier and eminently more fun to go with the flow and paddle downstream.  We could do the opposite and paddle upstream, eventually we may even get to our destination, but the cost would be substantial.  It would take much more time, more physical and emotional stamina, and we would be constantly fighting the current.  Reaching the goal would not be worth the cost.

From a system trading point of view, it is seen from a different set of constraints. The technical or priced based strategy that gets you into a trade also has a priced based signal that says “the strategy is wrong get out ” or “the strategy is wrong reverse your positions”. The problem with relaying on price to tell you that you’re wrong is that the market does not care. So like the unmoved market analyst that says “it’s only a bear market rally”, at some point money management, risk manage has to come into play, It is a necessary evil.