Traders should work on replacing subjectivity with cut and dry analysis. Keep yourself in a box and stick with what you know. The markets are complicated enough without our tendency to over analyze. All a trader needs is to learn how to read a small number of indicators and trade them well. Find a niche; your own niche. Simplification not complication makes a successful trader. When contemplating a trade think first and foremost about how much you are willing to lose before you attempt to calculate your expected gain. A stock is, at any given time, in the process of testing a specific price level. Questions that make a trading decision valid: WHY are you considering a trade? WHEN will you enter it? WHERE do you see it going? Multiple time frame correlation is important for high probability trades. Let the chart tell you its story. OBEY your rules of engagement…ALWAYS. Be well paid to be a follower. Loss of mental capital (drive, will, confidence) is greater than loss of monetary capital. Let the price action CONFIRM your trade analysis. Example: let a break-out test the break-out first. Trading Errors: The “Fudge” Factor 1. Trying to catch a falling knife. 2. Picking Tops 3. Failure to wait for confirmation. 4. Lack of patience. 5. Lack of a clear strategy. 6. Failure to assume responsibility. 7. Failure to quantify risk. |
Archives of “subjectivity” tag
rssObjectivity 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…)
Evidence Based Trading
The late Ayn Rand emphasized that philosophy was the most practical of disciplines: it governs the ideas that lie behind all we do and think. The philosophical premises we assume affect how we approach trading.
A beautiful example of this is David Aronson’s new book, “Evidence-Based Technical Analysis”. It’s a well-written, thought-provoking text, with many practical examples of how to conduct data analysis in an objective way.
Starting with the premise that knowledge consists of statements that are found to be true, Aronson, writing in the positivist tradition of philosophy, excludes subjectivity as knowledge. He explains:
“The most important consequence of TA adopting the scientific method would be the elimination of subjective approaches. Because they are not testable, subjective methods are shielded from empirical challenge. This makes them worse than wrong. They are meaningless propositions devoid of information. Their elimination would make TA an entirely objective practice.” p. 148
This is bound to rub many traders the wrong way, but it’s an important challenge. What is knowledge? How do we know what we know in the markets? How can we demonstrate that knowledge is such, and not illusion? (more…)
Evidence Based Trading: Why Philosophy Matters
A beautiful example of this is David Aronson’s new book, “Evidence-Based Technical Analysis”. It’s a well-written, thought-provoking text, with many practical examples of how to conduct data analysis in an objective way.
Starting with the premise that knowledge consists of statements that are found to be true, Aronson, writing in the positivist tradition of philosophy, excludes subjectivity as knowledge. He explains:
“The most important consequence of TA adopting the scientific method would be the elimination of subjective approaches. Because they are not testable, subjective methods are shielded from empirical challenge. This makes them worse than wrong. They are meaningless propositions devoid of information. Their elimination would make TA an entirely objective practice.” p. 148
This is bound to rub many traders the wrong way, but it’s an important challenge. What is knowledge? How do we know what we know in the markets? How can we demonstrate that knowledge is such, and not illusion?
Once we start with the premise that all knowledge consists of explicit propositions that can be tested for truth, we necessarily are led toward trading that is rule-based and rigorously backtested.
Is there another, *valid* form of knowledge and trading? Can we prove that?The late Ayn Rand emphasized that philosophy was the most practical of disciplines: it governs the ideas that lie behind all we do and think. The philosophical premises we assume affect how we approach trading.