Archives of “delusion” tag

rss

Words of Wisdom for Traders

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

Wall Street never changes, the pockets change, the suckers change, the stocks change, but Wall Street never changes, because human nature never changes.” ~ Jesse Livermore

“Wealth and rank are what people desire, but unless they are obtained in the right way they may not be possessed.” ~ Confucius

“Man has the power to act as his own destroyer—and that is the way he has acted through most of his history.” ~ Ayn Rand

“It is no measure of health to be well adjusted to a profoundly sick society.” ~ Jiddu Krishnamurti

“Men in the game are blind to what men looking on see clearly.” ~ Chinese Proverb

“The most exquisite paradox… as soon as you give it all up, you can have it all. As long as you want power, you can’t have it. The minute you don’t want power, you’ll have more than you ever dreamed possible.” ~ Ram Dass

“If thou wilt make a man happy, add not unto his riches but take away from his desires.” ~ Epicurus

“Most of the time common stocks are subject to irrational and excessive price fluctuations in both directions as the consequence of the ingrained tendency of most people to speculate or gamble… to give way to hope, fear and greed.” ~ Benjamin Graham

“The investor’s chief problem – and even his worst enemy – is likely to be himself.” ~ Benjamin Graham

“The ignorant mind, with its infinite afflictions, passions, and evils, is rooted in the three poisons. Greed, anger, and delusion.” Bodhidharma

“Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.” ~ Ayn Rand

“Money often costs too much.” Ralph Waldo Emerson

Personally, I believe it to be futile to fight greed — something that is ingrained in human nature.  We can only acknowledge greed’s existence, choose our own behaviors as individuals, and react to its occurrence — it can not be prevented.  Greed will simply manifest into a different form.

The Chart Angle Delusion

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #

“The lack of intrinsic meaning of angles on a bar chart has significance even for chart-oriented traders who do not employ angles. How sharply a trend slopes on a chart is often a psychological consideration in making a trade. If you fall prey to this influence, you’re letting the chart maker’s practical and aesthetic considerations impinge on your trading. Any trend can be made to look either gentle or steep by adjusting the price scale. ”

– William Eckhardt, New Market Wizards

If you use price action as a filter — and visually interpret charts as part of your process — how do you guard against the chart angle delusion?

One potential remedy is focusing on hard inputs that are independent of chart aesthetics. High and low point successions, moving average crosses, and volatility expansion / contraction (changes in average trading range) are three examples.

Another helpful practice is deliberately viewing more horizontally extended (flattened) charts in tandem with the main view (as such mutes the ‘exciting angle’ temptation)…

Last Suppers for a Lifetime

  
Education, Life
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

I was reading Da Vinci’s notebooks recently, and was intrigued by his method for learning to paint. I thought it might be interesting to try to adapt his model to learning to trade. I’m not sure how useful my little Saturday afternoon research has been but it was fun. Listed below is the sequence Da Vinci recommended for young men to learn how to paint, followed by my own interpretation of the general learning outcomes, and then their trading applications.

Leonardo Da Vinci’s model for learning to paint, from his own notes:

1. Imitate a masters work — best to imitate an antique.
2. Draw objects from relief but not from memory.
3. Familiarity of the human form — seeing each muscle in every possible position.
4. Do stick drawings from nature and expand them at home.
5. “Thus I say to you, whom nature prompts to pursue this art, if you wish to have a sound knowledge of the forms of objects begin with the details of them, and do not go on to the second [step] till you have the first well fixed in memory and in practice.”
6. Keep the company of people who share the outlook of being mirror like in their observations. If such people cannot be found then keep your speculations to yourself.
7. “I myself have proved it to be of no small use, when in bed in the dark, to recall in fancy the external details of forms previously studied, or other noteworthy things conceived by subtle speculation; and this is certainly an admirable exercise, and useful.”
8. “Winter evenings ought to be employed by young students in looking over the things prepared during the summer; that is, all the drawings from the nude done in the summer should be brought together and a choice made of the best [studies of] limbs and body.”
9. He is a poor disciple who does not excel his master.
10. “Some may distinctly assert that those persons are under a delusion who call that painter a good master who can do nothing well but a head or a figure. Certainly this is no great achievement.
11. “Nature has beneficently provided that throughout the world you may find something to imitate.”
12. The mind of the painter must resemble a mirror.
13. “When, Oh draughtsmen, you desire to find relaxation in games you should always practice such things as may be of use in your profession”
14. “The sorest misfortune is when your views are in advance of your work.”


General Learning Statements:

1. Copy the work of someone who has done great work before.
2. Copy the actions of a master.
3. Look at each part of the work and see every permutation and how it fits with the other parts.
4. Do basic models of the whole process, to practice.
5. If you wish to have a sound knowledge of the task or subject then study the details and memorize them and practice them.
6. Don’t become clouded by other peoples views and thinking processes.
7. “I myself have proved it to be of no small use, when in bed in the dark, to recall in fancy the external details of forms previously studied, or other noteworthy things conceived by subtle speculation; and this is certainly an admirable exercise, and useful.
8. When ‘out of season’ you should study past actions and commit them to memory and learn from them.
9. Look to excel past the people you learn from, but without arrogance.
10. Always learn and practice all elements of your skill.
11. Look in other areas of your life and world opportunities to learn and transfer observations to your study.
12. Only observe.
13. Make games that will help you learn better your skill.
14. “The sorest misfortune is when your views are in advance of your work.”


Stock Market Learning:

1. Read the works of Soros, Jesse Livermore, William O’Neill, Warren Buffett and Nick Darvis.
2. Choose one and copy exactly what they do.
3. See each stage they go through to reach their conclusions and the actions they take and the inferrences they derive from the outcomes.
4. Pick stocks and plan out the course of action and all the permutations of what will happen in all price scenarios and put them into practice.
5. Memorise the details of the great coups and all the rules the masters have made in trading.
6. Keep all your trading a secret and don’t let others’ views interfere with your own. Keep your mind totally on the facts at hand and the details of what you see.
7. Before going to sleep look at the coups of other traders and of your own. Talk with the masters you are studying and meet them in your mind for interviews.
8. When the markets are not open or the market isn’t acting right for you then study past trades and memorise the actions you took and piece together the trade again looking for the lesson.
9. Be a better trader than your teachers and ask yourself how you can do better.
10. When you have practiced and ‘perfected’ position entry, move to exits, patterns, money management, probability theory, etc..
11. Look at situations and look at them as you would a trade. What would you do? Are there any interesting things to learn here that can be used in the markets?
12. See what’s happening rather than guess.
13. Play games like the one played in Liar’s Poker, where you invent scenarios and ask each other what you would do in that situation. E.g. nuclear explosion in Tokyo…
14. Be aware of views you are taking on a trade. Look at it always as if it’s the first time you have seen it and review an open trade every day as if you have just placed it.

Opinion no value at all

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

The market does not care about your opinion and what you think it ought to do.  The market cannot be tamed, placed in a box, or coerced into your way of thinking.  The market does not care about your technical analysis based on past history not does it care about your projections for the future.  The market does not care about this edge or that one.  The market does not care about what I think, about what the most popular flavor of the month guru thinks, or what the latest ANALyst on Blue Channel thinks.  The market does not care about your dreams, goals, and aspirations no matter how well grounded and planned.  The market does not care about the latest economic news.  The market only cares about the present. Remember this the next time you get into a trade believing, hoping, and praying that it HAS TO WORK.  The market does not care if it hurts you, so if you choose to believe, instead of see, what is right there in front of you, then that which you fear the most will come to be. I am not alone when I say this.

“Professional traders make good risk/reward trades and are not concerned with the outcome.   Nor are they under the delusion that they really know where a stock or the market is headed.  Those who will be pushing paper around at some dead end job in the near future are new traders who trade seeking to fulfill some narcissist need to be correct.    Or smarter than the market.  Or your trading neighbor.  Or a friend.  Get over yourself. You have no idea where the market or stocks are really going in six months. All there is are favorable risk/reward trades to make with the outcome uncertain and controlling your risk paramount.”

“This is one of the paradoxes of trading and investing: you need distinct views to put your money at risk, and you need to persist with these views in order to ride winners. At the same time, you can’t become married to these views; you need to quickly revise and even abandon your outlooks in order to limit losses. We can trade and invest for ego needs, and we can trade and invest to make money: over the long haul, we can’t do both. It takes a strong ego to formulate and act upon one’s ideas; an even stronger one to step back from those ideas in the face of non-confirmation.”

“Most people, let’s face it, must be right. They live to have other people know they’re right. They don’t even want success. They don’t even want to win. They don’t want money. They just want to be right. The winners, on the other hand, just want to win.”

“Life happens when you’re making other plans. This is true and no matter how much we visualize future success, set goals and create plans for achieving them, there will be things that happen over the course of the coming year beyond your control that will impede, slow, stop or even reverse your progress. This is to be expected and, if at all possible, planned for. Frequently the difference between success and failure is being able to accept those challenges head on as they occur and keep working toward your goals even when you experience complete failure and hardship. Anyone who has achieved anything worthwhile has failed in doing so, if not many times. But, that’s part of how we grow and get better.”

“The less I cared about whether or not I was wrong, the clearer things became, making it much easier to move in and out of positions, cutting my losses shot to make myself mentally available to take the next opportunity.”

If you enter a trade and the stock doesn’t go the way you predicted, go ahead and take that loss immediately. Don’t sit their like a twit and try to justify a bad trade as you lose more money, dump it. Move on. Forget the need to be right.”

“In reality, the market puts us in a contest with ourselves.  Until we let go of the false ideas of what makes the market tick and simply respond as the market unfolds, we will continue to be punished.”

The degree by which you think you know, assume you know, or in any way need to know what is going to happen next, is equal to the degree to which you will fail as a trader.

NASSIM NICHOLAS TALEB AND THE BED OF PROCRUSTES- Quotes

  
  Education
#  #  #  #  #  #  #  #  #  #  #

Nassim Nicholas Taleb, the former trader and well known author of The Black Swan and Fooled By Randomness, has put together a new book of aphorisms, entitled The Bed of Procrustes.  The Procrustes of Greek mythology was a cruel fellow who stretched or shortened people to make them fit his inflexible bed. Mr. Taleb’s new book addresses the modern day ways in which “we humans, facing limits of knowledge, and things we do not observe, the unseen and the unknown, resolve the tension by squeezing life and the world into crisp commoditized ideas, reductive categories, specific vocabularies, and prepackaged narratives, which, on the occasion, has explosive consequences.”  In other words, we live under self-imposed delusions.  Here are a few of the aphorisms that expose our delusionary thinking, many of which can be applied to trading.  But, in order to understand their application, we must first step out of our delusional state.

The stock market, in brief: participants are calmly waiting in line to be slaughtered while thinking it is for a Broadway show.
You are rich if and only if money you refuse tastes better than money you accept.
The best test of whether someone is extremely stupid (or extremely wise) is whether financial and political news makes sense to him.
You can be certain that the head of a corporation has a lot to worry about when he announces publicly that “there is nothing to worry about.”
The main difference between government bailouts and smoking is that in some rare cases the statement “this is my last cigarette” holds true. (more…)

Paralysis By Analysis

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

When too much information is amassed, a person is unable to internalize pertinent data necessary for rapid fire decision making. When one is unable to process the mass amounts of information, inaction occurs.

Common Problems:

  1. Not prioritizing
  2. Confusion
  3. Postponement of decision making
  4. Bad judgement
  5. Time mismanagement
  6. Lack of critical thinking
  7. Feeling psychologically stressed and overwhelmed
  8. Working hard, but feeling behind

Common Causes:

  • The delusion of a infinite range of possibilities to make money.
  • Insistence on completing all analysis before initializing action.
  • Too many variables all at once causing incessant revisiting of original signal.
  • Lack of daily objectives.
  • Choosing quantity over quality
  • Increasingly conflicting trading methods.
  • Creative speculation, that is, you can outguess the guessers.
  • Big Project Syndrome: this system will do it all, will use the latest tools, will use a new paradigm, will start with a clean slate.
  • Risk avoidance, fear of making a mistake.

Viable Solutions:

  • Keep trading system simple. Never integrate varying styles. Building a bigger model doesn’t add clarity – it creates confusion.
  • Do enough analysis to convince yourself the odds are in your favor – and then stop!
  • Refuse to review technical complexities, instead, review working functionality. If you’re not seeing simplicity in trading system design, move on.
  • Start your system design with one requirement based on sound principles, i.e, an architectural prototype. A trading system without a prototype is like a candle without a wick, which is how analysis paralysis really happens.
Go to top