Three Pervasive Myths in the Trading World

To be honest I am one of those that "for all practical purposes" should have gave it up years ago. On the surface, especially from the outside, it was not difficult to believe I was just wasting my money and time; even the people closest to me feared I was an addict, a market junkie, always saying that the turn was coming just around the next corner. I had it once, I can get it back again, etc. After they hear the story a few times, all they can do is shake their heads. I had to learn to live with this on top of the roller coaster ride the markets took me on.

When you don't come from or work with others in the business, it's doubly hard. Fact is, no matter how much I make this year those closest to me would still have their doubts: it's happened before, who's to say it won't disappear next month, next year, etc. They fear to hope, so to speak, but in a sense, that is the way it should be. You can never turn your back or take your eye off the ball, no matter how far you go, that is the nature of the game. What you have sacrficed in choosing this profession is certainty, kiss it goodnight and farewell, the day you settle back to survey and bask in all that you have conquered is the day you hang it up.

 

#4 Trading can make money - big money.

 

I think you're being tough on yourself illiquid. What you may want to ask yourself is What are you getting out of trading? It really doesn't matter what others think of it because how can you make judgements on how someone chooses to live their life.

I think many times the real reasons people trade is obscured.
Not just to try to make a living, which is what everyone claims - but for the thrill of gambling, or even a subconsious (sp?) desire to fail.

Now if you're married and you blow the kids college $, you can make a value judgement and say that is wrong. But if you have no dependents like many of the young single guys who trade - and deep down you care more about the thrill than the money, than by blowing out your account you are not a failure, you are getting what you need from it. Nothing wrong with that.

 

While there are some points of value in Steenbarger’s analysis, it is mainly junk that lulls your brain into a kind of vague assenting fog.

………Myth #1: Emotions are at the root of trading problems. Yes, emotions can interfere with concentration and performance, but that doesn’t mean that they are a primary cause. …….

Already we have problems. “At the root of trading problems” has morphed into “a primary cause”. Now who here doesn’t believe that lack of emotional control is a primary cause of trading problems? Who here has not had to battle with the emotional need to “get back” trading losses as quickly as possible?

……….Indeed, emotional distress is as often the result of poor trading as the cause………..

That poor trading can cause emotional distress does not discredit the claim that emotions (including euphoria) can cause bad trading.

……..When traders fail to manage risk properly, trading size that is too large for their accounts, they invite outsized emotional responses to their swings in P/L. …….

Which often happens when emotions are not in check.


…….Similarly, when traders trade untested patterns that possess no objective edge in the marketplace, they are going to lose money over time and experience an understandable degree of emotional frustration. ……

He’s on a different topic here: Stupidity.

…….I know many successful traders who are fiercely competitive and highly emotional. ……

True, and I happen to know severy pretty damned emotional and successful traders myself. They’d be the first to tell you that control of emotions is extremely important. They’ve come up with a bunch of rules to counter their basic and faulty gut instincts: Take a bunch of time off when total equity goes down by 5%, etc etc. Once again, Steenbarger shows he doesn’t have a grasp of simple logic. That many successful traders are emotional does nothing to negate the proposition that inadequate control of emotions is a primary cause poor trading.

……. Trading is a performance field, no less than athletics or the performing arts. …….

What a bunch of crap.

…….. Success is a function of talents (inborn abilities) and skills (acquired competencies). No amount of emotional self-control can turn a person into a successful musician, football player, or trader…..

Not much to argue with here, because nothing much is being said. Also, who argued that control of emotions will automatically lead to trading success? The proposition on the table is that control of emotions is necessary to successful trading. Steenbarger has confused “necessary” with “sufficient”. I hate to say it (no I don’t), but this sort of hazy nonthinking is typical of the humanities and soft sciences.

 

Absolutely correct. Making a decent living performing music is orders of magnitude more difficult than trading. Don't even get me started on athletics. I'm starting to doubt Steenbarger knows anything about music, athletics or trading.

 

That sounds closer to it. It's hard work, takes some knack, takes some experience, but lots of people can do it, although many more cannot.

 

Can you elaborate on that please - in what way is that a bunch of crap? BTW I hope you are right - there might be hope for me yet.

 

One reason might be that trading is more of a zero sum game - minus commissions, so actually a slightly negative sum game. In investing you ride the coattails of the economy, which has a good record over the long term.

 

i do not agree with the source, on a couple of points:

what use is an edge, if you do not have staying power ?

The ability to stick to a properly researched method and trade by your rules, instead of emotions, is paramount in trading. Failing to exercise discipline, is a recipe for disaster; especially as the trader grows in size ...

I have trained quite a few traders myself. The patterns of failure were remarkably consistent:

1) arrogance
2) failure to abide by the system rules for profit-taking or loss control
3) revenge trading
4) changing rapidly between methods due to "hot hands".

i will note that all 4 have components of myth #1; 3 of the 4 have elements of myth #3.

I do agree with the good Dr. re myth #2; however, i would add the caveat that most fail because they do not last long enough to see their work come to fruition. The reason: they implode their accounts due to myths 1 or 3.

as in all things worth doing, success in trading is accomplished by avoiding failure ... and failure is quantifiable.

 

dagobaz wrote........

i do not agree with the source, on a couple of points:

what use is an edge, if you do not have staying power ?

The ability to stick to a properly researched method and trade by your rules, instead of emotions, is paramount in trading. Failing to exercise discipline, is a recipe for disaster; especially as the trader grows in size ...

I have trained quite a few traders myself. The patterns of failure were remarkably consistent:

1) arrogance
2) failure to abide by the system rules for profit-taking or loss control
3) revenge trading
4) changing rapidly between methods due to "hot hands".

i will note that all 4 have components of myth #1; 3 of the 4 have elements of myth #3.

I do agree with the good Dr. re myth #2; however, i would add the caveat that most fail because they do not last long enough to see their work come to fruition. The reason: they implode their accounts due to myths 1 or 3.

as in all things worth doing, success in trading is accomplished by avoiding failure ... and failure is quantifiable.
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Excellent Commentary

These are excellent points........

The psychology.....confidence in the system....to the extent that trading becomes a dependable job.....is a mental zone that is paramount in trading.....