trade what you think, not what you see PART 1

Discussion in 'Strategy Building' started by marketsurfer, Sep 5, 2003.

  1. More details can be found here (but it is not from Alexander Kotov) you should see many analogies with trading process:

    "The dynamic
    evaluation of a position, as concluded after the analysis of the best
    move, should match the static evaluation of the position performed
    before the analysis." (Note: static = without moving the pieces;
    dynamic = moving the pieces) In layman's terms, "You should be
    able to find a move which keeps your position about as good as
    you think it is." For example, if you think you are better, you
    should be able to find a move which leaves you better! It is just
    that simple, but this law contains some powerful implications.

    I would be remiss if I did not let the reader know that there is a
    relevant rule in mathematical game theory which says that, "In all
    games of full knowledge and choice (tic-tac-toe, chess, checkers,
    go, etc.), your position cannot be better after you make your move
    than it was before." The reason/proof is simple: before you move,
    your position is exactly as good as your best move can make it -
    make anything less than your best move and your position is not as
    good. For example, it would not make any sense to say that
    "Anand is up a Knight against Kasparov, but Kasparov is winning
    because Anand will blunder and put his Queen en prise!" -
    Evaluation of positions always assume "with best play," so if one
    makes the best play, that evaluation must stay the same!

    I have had people argue that this mathematical theorem is
    untrue(!). They reason that White's position after 1. e4 is "better"
    than it was before 1. e4 because of the extra center control and
    mobility for the Queen and Bishop. But this argument does not
    hold water, because in the initial position White can always play 1.
    e4 if he thinks that is the best move, so his position is at least as
    good as 1. e4 would make it. That extra mobility one gets from
    playing e4 does not make White's position "better"; they do not
    realize that there is a counterbalancing "cost": it costs the tempo
    that was used to play e4 - it is no longer White's move!

    The Steinitz law about dynamic analysis matching static analysis is
    really just a practical way of interpreting the mathematical
    theorem! What Steinitz is saying is that if we understand how to
    statically evaluate a position correctly, then in order to match that
    evaluation there should be a "best move," found by dynamic
    analysis, that preserves that evaluation. Therefore, Steinitz is just
    really re-stating the "best move preserves the evaluation" theorem.

    What practical use it that to us? More than you might think!

    When you are solving a problem from a chess book, you are given
    a goal: White to play and win or Black to play and mate in 6. But
    when you are analyzing a position during a real chess game, your
    goals are not so well defined. However, you can make use of
    Steinitz' law to set a goal.

    For example, suppose you look at the position and say to yourself,
    "Here are my weaknesses and strengths, and here are my
    opponent's weaknesses and strengths; based upon these factors, I
    would judge my position to be superior by X amount." Therefore,
    you should be able to find a move that is "X good" - that is your
    goal!

    Moreover, it is important to note that the above process of
    evaluating strengths and weaknesses should help point out your
    proper plan - it almost always has something to do with moves that
    (1) Take advantage of your strengths and/or your opponent's
    weaknesses; or (2) Try to negate/eliminate your weaknesses and/or
    your opponent's strengths.

    The following is an example of using Steinitz' law. I had a friend
    who was an expert level player who was aware of the static vs.
    dynamic law. I gave him the following "White to play and find the
    best move" position from Adrian deGroot's wonderful Thought
    and Choice in Chess (deGroot's book explaining how he
    performed one of the best scientific studies on how chessplayers
    think) (See Diagram)

    White: Kg1, Qd3, Rc1, Rf1, Nc3, Ne5, Ba2, Bg5; pawns - a3, b2,
    d4, f2, g2, h2
    Black: Kg8, Qb6, Rc8, Rf8, Nd5, Nf6, Bc6, Be7; pawns - a7, b7,
    e6, f7, g6, h7

    DeGroot Position "A": White to Move. My friend statically
    evaluated the position as better for White. However, once he
    started selecting candidate moves and analyzing them, he could not
    find a continuation that matched his static evaluation - i.e., he
    could not find a position where White was ahead as much as he
    thought White should be. At this point he could have done one of
    three things:

    (1) Realized his static evaluation was too high, and lowered his
    expectations. However, to justify this he should find a reason why
    he over-evaluated his position;
    (2) Realized that he hadn't found the best move, and play an
    inferior move because his clock is running and it isn't worth the
    extra time to try and find the better move; or
    (3) Kept searching until he found a move which matched his static
    evaluation.

    Well, since my friend was not playing a real game with a clock, he
    certainly didn't do #2! Instead, he stated out loud - I was tape-
    recording his evaluation - that he was convinced that his static
    evaluation was correct and that he just hadn't found the right
    continuation yet ("There must be a better move!"). He continued to
    search until, mirabile dictu!, he finally found the continuation that
    made him satisfied (and according to deGroot and future computer
    analysis, it was the right move! - For those of you who want the
    answer, the best move is 1. Bxd5!).

    So, what does this mean? It means that your feel as to how good
    your position is can set your expectation for your search. If you are
    losing, you should not expect to find a move that wins. If you feel
    you are better by a certain amount, you should be able to find a
    move that evaluates, after analysis, to be as good by about that
    same amount.

    Of course, we are only human and make mistakes - as do our
    opponents! There are many positions which "look bad", but are
    actually good because they contain a good continuation. And your
    opponent can make a subtle mistake in what was a winning
    position that will let you have a draw or even a win, just through
    tactical (and no apparent positional) means. However, pick up any
    book that has many "play and win" problems and most of the
    positions will look "good" to you. That means that your evaluation
    capability is working correctly: the position looks good; it is now
    up to you to find the continuation that justifies that "goodness." Of
    course, occasionally the author is able to throw in some problems
    where the situation "looks bad", but there is a tactical continuation
    that saves the day.

    One should not get too carried away with this new found
    knowledge. Being aware of this Steinitz' law is theoretically
    important, but sometimes in practice it is not as much use as we
    would like it to be. As John Watson points out in his great new
    book, Secrets of Modern Chess Strategy, the best modern players
    primarily evaluate the position on what their dynamic evaluation
    tells them, and are not held back by fears of static drawbacks. In
    other words, "If it works, play it!"

     
    #31     Sep 6, 2003
  2. is a "bias". It is what you "see", not think! It certainly isn't history... in the sense of being totally in the past. And seeing a healthy trend gives rise to "thinking" it could or might continue...

    Thus I think you trade both what you think and see (so to speak) in different proportions secondary to your style and trading methodology.

    Regards,

    ICe
    :cool:

    p.s. how you been marketsurfer?
     
    #32     Sep 6, 2003
  3. The Power of Now Eckhart Tolle :D Don't get fooled by the mind baby! There is no wrong or right answer to this uestion/satement.. It is just whatever works, period. In my opinion people have a hard time with the market because they make it out to be very complicated, and it can be, just like life. But there are important similarities and one should apply them. What I have seen is this, whatever drama one has got going on, it will be magnified and played out in the market and be reflective in trading results. That is why the rich keep getting richer :p Oh I digress. For me....here comes the methaphor.... personally I figured out that there is a big difference between sport fishing for Sword Fish and commercial fishing to feed the family and or city...country blah blah. That is why I cast a large net through our analytics tool and then it is all about money management. That is why I am stoked about the recent run, but don't really care if we go up or down or wiggle around from here. There is always something going on somwhere and it is good to be a trader today! Surf's up in Del Mar!
     
    #33     Sep 6, 2003

  4. good stuff... !

    ICe
    :cool:
     
    #34     Sep 6, 2003
  5. I agree with you, especially in the day trading arena.

    For those using intraday charts, by the time they see an uptrend, it's obviously partially over. And by the time they recognize it has ended, you've given back part of it. What's left inbetween can be quite paltry if successful in an intraday time frame. If unsucessful, it can be quite costly.

    "Thinking" successfully is highly rewarded in the markets. "Reacting" at best will not equal successful thinking.

    Look forward to your amplifying your thoughts.

    OldTrader
     
    #35     Sep 6, 2003
  6. For the sake of this discussion there should be a definite distinction made between the various types of actions participants are engaging in.

    A player working micro timeframes simply has no time to think, it is either do or do not, and the decisions should be made within the span of seven breaths. These decisions are very intuitive in fashion ie, the left side of our brain will instantly send a 'message' to our right side without the participant consciously walking the path in which led them to it. This is not 'shooting from the hip', but the carryout of planning and the fruits of our training paying off. This is trading what you see and think, just not consciously think; for the thinking was done while not in the midst of action and the brain/muscles are simply responding to what it is seeing.

    A player who is working longer tf's has the time to think and strategize, it is no longer a game of reaction/responding. He/she could walk through 10 moves in a similar fashion to a chess master. They have this time and imo should very well use it. They see, then consciously think, but when it comes time to execute every detail should be planned and again the action should be performed void of thought...

    She's like a function -- she returns a value, in the form of our collective opinions. It's up to us to cast it into a void or not; be it in a conscious or unconscious manner. Every interaction should have been led by thought at one time or another.

    Since when did it become in vogue not to think? I think Douglas and his 'find a mechanical edge and become the house' might something to do with it...

    PEACE and good-speculating...
     
    #36     Sep 6, 2003
  7. Also let's be concrete : concepts are good only if applicable - not like politicians promises :D .

    Let's take what is said in the Chess article and see how to apply it :

    "The dynamic
    evaluation of a position, as concluded after the analysis of the best
    move, should match the static evaluation of the position performed
    before the analysis."

    Since I posted the chart below about globex in another thread ("Globex is not erratic" http://www.elitetrader.com/vb/showthread.php?s=&threadid=21938) I will profit to use it.

    Static analysis (can be done before globex opening):

    The trend is bearish on hourly scale (scale 1).

    Dynamic analysis:

    We have broken the seed wave, the plan is followed.

    We have failed after retest of 9576 this is a confirmation. In that case the dynamic analysis matches the static analysis.

    If ever the bullish presignal is touched at 9597 it can be invalidated (but as the market evolves it can be lowered but I won't detail since it is not the subject here). In that case the dynamic analysis doesn't match the static analysis.

    <IMG SRC=http://www.elitetrader.com/vb/attachment.php?s=&postid=325887>



     
    #37     Sep 6, 2003
  8. Pabst

    Pabst

    One of the most awesome lines ever written to describe the process of price discovery !
     
    #38     Sep 6, 2003
  9. GeeTO69

    GeeTO69

    LOL. First post barely out of author's mouth and thread's already 8 pages deep in muck. GO HARRY GO! :)

    Just once I'd like to see author's unadulterated point of view without the usual thread-cloggers jumping in at a moments notice like vultures.

    Let the author develop his idea b4 you all jump in with your BS comments.
     
    #39     Sep 6, 2003
  10. Price discovery can't if market is efficient :D

     
    #40     Sep 7, 2003