I think the ultimate question everyone is asking is " So what this academic nonsense got to do with how I should trade? " IMHO, the implications for discretionary trading is obvious, , new discretionary trader are against tremedous odds because of they need to overcome their heuristics biases, they are their own worst enemy. Now, I said odds, I didn't say they are doomed to failure, In kahneman and Tversky 's experiment, a majority ( I think it was 80%) of people were subjected to the biases and chooses the "wrong" answer, It was a overwhelming result but not a 100--0 result. So It's possible for people to make the correct decision either by learning or figuring it out themselves. But for me, the answer is obvious, just become a dogmatic systematic trader, follow the system with cold discipline and don't let our heuristics get in the way.Since we know such biases exists in the markets , it also means it's possible to developed system to exploit these biases. As I have mention in my previous post, trend-following is the antithesis of the Prospect theory. Many of you already know that trend-following work, but may be you just found out why it should work. The two golden rules of trading" cut your losses and letting your profit run" is about trading against our own intuition, and against our fellow trader's heruistic biases and framing effects. . And As long as human nature don't change and there are people still doing discretionary trading( someone with heruistics to counter-trade upon) , trend following will work..
To you the market is inscrutible, apparently. To apply PT to the market is not. The market happens to be a very operational place for moving huge sums of money away from people who don't understand it to people who do. The simple precept that people deal differently under two separate generalized conditions (cases) was clearly established; once that was done, all that was needed was to work through the remaining case and make practical applications to be able to make the market. It is unimaginable to me that nothing was done to complete the analogy successfully by adding the remaining unstudied case and then making a practical application to, of all things, trading.
GG, as you believe firmly in yourself, surely you will achieve your goal one day. Q There are some amazing stories here: *A trader who, after wiping out several times early in his career, turn a $30,000 account into $80 million --- Market Wizards (by Jack Schwager) UQ Just be careful!
I am very simple guy with simple thoughts when it pertains to trading (at least try to be.) I have been studying and courting trading since 1999, so still very new to the markets. Since the beginning of my study, I have been told emotions are four letter words in trading and after seeing this thread (have not read the theory, only this thread) it appears in my simple mind that this theory may bring emotions to trading.?! Is that a fair assessment? I have pondered if one started with emotions (and for definition- intuition) and did not have "pre-determined" behaviors in early trading education, would one be more likely to achieve desired results by using intuition? Could it be possible the that intuition, or some use of emotions be an edge to trading? I have had is in my thoughts for a few months and wonder if would be appropriate? Its almost like trying to disprove gravity or something Ok, not meant to babble, but at least in my head it seems relevant to this discussion. Good Trading to you all.
imo: Most heavy-weight studies related to financial markets would be mainly related to instituional players. Personally I wonder whther the heavy-weight studies would be very much applicable/suitable to many private traders. I think neither intuition nor emotions would have anything to do with institutional players. Neither one would provide an edge to private traders, and they might be even quite harmful.
As defined in the presentation I summarized, intuition would be exactly what was operating in an experienced discretionary trader. When one achieves master level of any excercise (the speaker's example was chess) they no longer must rely on the laborious task of reason and calculation. With enough repetition our minds takeover, and "thinking" takes on a new level. Emotions on the other hand are reactions. They must always be derived from some primary data. One might say that greed and fear are exceptions. I would say that greed and fear are instincts. Either way, I am not sure they could ever be of much use to a trader. -RLB
That would be quite right - mainly for very competent traders, but it could still have certain hidden risks on some occasions, I would say. :eek:
Prospect theory essentially says that humans are either Natured or Nutured to be Saddo-Machistic. They are: Risk-Averse when presented with Rewarding Choices/Experiences And Risk-Seeking when presented with Losing Choices/Experiences Hallelujah!!! Finally an empirical data to support/explain human depravity.