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Objectivity and Subjectivty in Trading

Trading forces us to interact with the market, where price is objective – everyone can see the same thing. But human nature makes us subjective, that’s just part of being human, seeing the world (and the market) through our own filter of beliefs, hopes, and fears.  

The way to maximize performance in a situation where the objectivity of the market interacts with human subjectivity is to understand how your own subjective filter operates.

We have to do this for a number of reasons, with the big one being that the market will trigger our psychological vulnerabilities – sometimes I refer to them as our unmet developmental needs….the need  for approval, etc.  As traders  we must  understand how our personal filter operates and how it shapes our view of the market. (more…)

Philosophical speculation

I used to do a lot of philosophical speculation as a young man. I wasted a large part of my youth regurgitating certain ideas. Then I discovered that one can learn a great deal more through action than through contemplation. So I became an active thinker where my thinking played an important role in deciding what actions to take and my actions play an important role in improving my thinking. This two-way interaction between thinking and action became the hallmark of my philosophy and the hallmark of my life. – George Soros

speculation

Book Review: Think, Act, and Invest Like Warren Buffett

This is a tough book to review, because I generally respect the author, but there are many things I don’t like about the book.  Let’s start with the main one:

My friend Alice Schroeder came to speak to the Baltimore CFA Society early in November.  It was a great talk, and afterward, I took her back to the Amtrak station.  What was our main topic of conversation?  The many authors with limited or no dealings with Warren Buffett who invoke his name in order to get better sales.  I won’t name names.  I have relationships with a number of them.

I will review “The Snowball” soon.  Alice Schroeder spent around five years creating that lengthy book, and I can see why she would be upset over those that use Buffett for their own personal gain.

This book is another example of that.  Only chapters 1 and 2 have anything to do with Buffett, and there he is quoted extensively to the point where he should be listed as a secondary author, and get a cut of the royalties.  But in the next nine sections have almost nothing from Buffett; it is all the philosophy of Larry Swedroe. (more…)

Words of Wisdom For Traders

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

“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 (more…)

Lessons from Martin Schwartz

To succeed in trading one must learn from the best, so it is wise to consider the advice of Martin Schwartz.
I highly recommend you read his book Pit Bull – Lessons from Wall Street’s Champion Trader.
“I took $40,000 and ran it up to about $20 million with never more than a 3 percent drawdown.” (Month-end data)

“By living the philosophy that my winners are always in front of me, it is not so painful to take a loss. If I make a mistake, so what!”
My trading style was to take a lot of small profits rather than go for one big one.
“After a devastating loss, I always play very small and try to get black ink, black ink. It’s not how much money I make, but just getting my rhythm and confidence back.”
“The market does not know if you are long or short and could not care less. You are the only one emotionally involved with your position. The market is just reacting to supply and demand and if you are cheering it one way, there is always somebody else cheering it just as hard that it will go the other way.” (more…)

What Is The Value Of Trading?

It’s a question that arises for many traders. So many occupations derive their nobility from contributing to the welfare of others in direct ways. Where is the nobility in trading?
In my reply, echoing Ayn Rand, I challenged the notion that nobility is solely or primarily a function of assisting others. 
In mastering risk and uncertainty; in learning to pursue opportunity in effortful ways; in making ourselves better as decision makers; in becoming more disciplined actors; we improve ourselves as human beings. That carries over to many areas of life, so that we can become better business partners, spouses, parents, and friends. 
Indeed, this might be the most important distinction between trading well and trading poorly: When we trade well, we make ourselves stronger, better; we tap into the best within us. When we trade poorly, we succumb to our lowest common denominators.
The value of trading is the value of any competitive performance activity: in its mastery, we become just a bit closer to our ideals–and that ripples throughout our lives.

1+10 Rules for Critical Thinking

  1. All beliefs in whatever realm are theories at some level. (Stephen Schneider)
  2. Do not condemn the judgment of another because it differs from your own. You may both be wrong. (Dandemis)
  3. Read not to contradict and confute; nor to believe and take for granted; nor to find talk and discourse; but to weigh and consider. (Francis Bacon)
  4. Never fall in love with your hypothesis. (Peter Medawar)
  5. It is a capital mistake to theorize before one has data. Insensibly one begins to twist facts to suit theories instead of theories to suit facts. (Arthur Conan Doyle)
  6. A theory should not attempt to explain all the facts, because some of the facts are wrong. (Francis Crick)
  7. The thing that doesn’t fit is the thing that is most interesting. (Richard Feynman)
  8. To kill an error is as good a service as, and sometimes even better than, the establishing of a new truth or fact. (Charles Darwin)
  9. It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so. (Mark Twain)
  10. Ignorance is preferable to error; and he is less remote from the truth who believes nothing, than he who believes what is wrong. (Thomas Jefferson)
  11. All truth passes through three stages. First, it is ridiculed, second, it is violently opposed, and third, it is accepted as self-evident. (Arthur Schopenhauer)

Trading should be boring

Perfect description of what trading should be all about. As you might have heard from lots of great and successful traders, trading should be boring. Don’t get me wrong. You need to be passionate about trading in order to succeed. That applies to all things in life. For me, the research I do, all the stuff I read in order to improve my trading, increase my knowledge and my technical skills is what I am passionate about. The process of putting on trades and doing what the charts tell me to do is what is boring.

My trading philosophy is really simple. If I had to put it in one sentence it would be the following: ‘There is no way I am going to argue with price.’ The gist of it really is that opinions do not matter. I do have very strong opinions but when the charts tell me otherwise I change my mind. No hard feelings. A great quote dealing with the subject is the following:

When the facts change, I change my mind. What do you do Sir? – Lord Maynard Keynes

So why the ’same old, same old’ title? Because today was one of those days where I did what I have to do. My job as a trader is to be objective in my analysis of what is going on. The most important part is looking at my portfolio positions and sort them in descending order. The first one on the list is the one with the highest profit. The last one is the worst performer. I change the order in the streaming watch list of my broker whenever the ranking changes. Doing this manually is a ‘conscious and active’ process, as it literally forces me to ignore my opinions and therefore forces me to acknowledge the strength or weakness of  a stock. Remember:

There are no good or bad stocks. There are only stocks that make you money and stocks that don’t.

Great Trading Wisdom from 2,400 years ago

If you are a trader, you will relate

When an archer is shooting for nothing . . . he has all his skill.

If he shoots for a brass buckle . . . he is already nervous.
If he shoots for a prize of gold . . . he goes blind;
or sees two targets . . . he is out of his mind!
His skill has not changed.  But the prize . . . divides him.  He cares.
He thinks more of winning than of shooting . . . 
and the need to win drains him of power.
            – Chuang Tzu, 400 B.C..
 
If you do not relate, then you are not likely a trader.