In the 70’s, Stanford professor Walter Mischel created a simple experiment… …one that would determine not only future scholastic and financial success, but a healthier body mass index (BMI) to boot. What he did was put a young child ages 4-5 into a room with an irresistible marshmallow placed in front of them. An instructor would tell the wide-eyed youngsters that if they could wait 15 minutes before eating the fluffy snack, they would be rewarded with a second marshmallow. A small amount of the kids would simply shove the treat into their pie hole, immediately failing the test. Others would agonize over the marshmallow, and eventually succumb to its siren song of sugary delight. About a third of the kids could hold out for 15 minutes, and were given the second marshmallow. These children were followed throughout their life, and the results were stunning. SAT scores of those that were able to delay gratification were 210 points higher than the kid that could only hold out for less than 30 seconds. High SAT scores are absolutely correlated to income and wealth. Those who make $200,000 a year have an average score of 1714 (out of 2400). Those who make $20,000 a year have an average score of 1326. The effect that the test uncovered is the ability to delay gratification. Self-control. Self-control, however, is like a muscle – you can only use so much per day. That’s why even great traders can start making bonehead mistakes…the most common being taking profits too early…being unable to delay gratification. When you have a sudden spike in volatility, you can feel frustrated and miserable. Suddenly your willpower is gone. You might have decided to buy the recent bottom when the Smart Money Indicator went to a buy signal Monday morning…but then you decided to sell already. You couldn’t delay your gratification because your self-control muscle was wiped out. If you’re still hanging on, then congratulations, you’re doing it right. Most traders take small profits, and let their losers keep losing. That’s a recipe for disaster. So what’s the remedy? For me, it’s using well-tested mechanical trading strategies and a bit of desensitization. I only trade strategies with exact signals. There are no gray areas for the buying and selling. With experience, I can take all the signals without fail because I’ve seen every rotten thing (just about) that can happen in the stock market. It’s like watching all the Rambo movies back to back makes you less sensitive to violence, gore, and bad acting. Now if you don't want to personally experience the hard-knocks of trading, you can be a student of the market. You will see that sudden reversals are norm rather than the exception. I tell you this entire story to make you more self-aware. Know thyself. As Confucius said, “Real knowledge is to know the extent of one's ignorance.” In other words, if you understand your limitations as a trader – or anything in life for that matter – you have a much greater chance of overcoming whatever life throws at you. By the way, here’s a video of the Marshmallow Test in action: https://www.youtube.com/watch?v=QX_oy9614HQ Trade smart, Dan "Prince of Proof" Murphy
I could resists a marshmallow, or any candy or treat, when I was a kid. -- But I still consider myself dumb/Average. I played alot of video games and computer games as child alone. That's partially why I'm socially awkward and slightly impatient, specially when trying to sit still to read a book and understand a story or solve math or science problems. I agree, however, with patience is a virtue. Generally speaking. True trading...is part art, part science. -- and it takes a great trader to realize that. and discern between the two, in varying ratios...every day, every trade, every chart. , If a trader tries or attempts to time the market...most likely they will either miss out on a greater trend or profits. and vice versa with losses, or the market moving in your opposite direction. I can't comment on any time frame longer than a day, but for the day...I would say it's safe to say wait 15 minutes for an obvious trend, or reversal. -- Don't assume anything, or think you know the future or are smarter than the market.
The famous Marshmallow test was flawed in so many ways. Which kids were most likely to immediately eat the marshmallow? Poor kids, because they have quickly learned in life that when you get something, use it immediately because it may not be around later. These poor kids already had the deck stacked against them when it came to SAT scores, or high income. The best predictor or high SAT scores is to have parents with high income. The best predictor of making high income is to have parents with high income.
So the test would be perfect with only high income kids, I reason. Then the result would be the same, I believe. The verdict is the same.
That test was perhaps the best predicting test of success in most areas of life when given to young children. Parents who help their kids (starting early) develop the ability to delay gratification along with " grit" have done a marvelous thing. Serriously... In most areas, I would bet big on a 16 year old dreamer busboy if he was extreme with these qualities.
Now a new study demonstrates that being able to delay gratification is influenced as much by the environment as by innate ability. Children who experienced reliable interactions immediately before the marshmallow task waited on average four times longer — 12 versus three minutes — than youngsters in similar but unreliable situations. The test does not measure how much brilliance, innovation, drive, grit, & hustle the kids have. And lets not forget some of the richest (self made) did not even attend college. https://www.laboratoryequipment.com/videos/2012/10/classic-‘marshmallow-test’-flawed
I was finishing school during the 2008 crisis, and became friends with a Peruvian guy whose wealthy father sent him to America to get educated. We bonded because we both had a love for financial markets. As the market was bottoming, we started sifting through the rubble, reading a lot, and looking for bargain stocks. One of the stocks I happened to find was an insurer named "XL Capital". I told my Peruvian buddy that I thought it looked cheap and that we should buy some. So we both bought some, and I sold it a couple months later for a 2-bagger. After we graduated, he went back to Peru and I didn't talk to him for a couple of years. Finally after a couple years he gave me a call, and naturally we started talking about stocks. Well, lo and behold, this guy still owned his entire XL Capital position, which had become an 11-bagger! I was envious. The lesson is, he was patient and disciplined and I wasn't. Last I heard, he was working at a small-IB in Peru. I have no doubt that he will likely be wealthy one day like his father, due to his discipline.
Summarizing: 1. Develop a method that works, do not trade without the working method or with the method that you know (suspect) is not working. 2. Know your method's limitations, when you reach your method's limits - stop trading. 3. Know your own limitations, when you reach your limits - stop trading. 4. Do not try to improve (outplay) your method while in position, all attempts on improvements - on paper only.