Trading is Bad for your Mental Health

Discussion in 'Psychology' started by 4DTrader, Jul 7, 2008.

  1. I never said financial markets were random in any way. There is a perfectly sensible rationale to how they work, but basically I think it takes some kind of serious "edge" to accurately predict their movements, be that inside information, some kind of incredibly wicked news/data feed, or maybe a billion dollars to just move the market yourself.

    The main point of my post was that through all the rhetoric among traders, you ultimately don't know what the price of any given instrument is going to do. You can GUESS, or make an educated GUESS, but this is not a very productive occupation like say, a mechanic who knows how to rebore your engine block or a translator who knows how to communicate about technical subjects in two totally different languages. Given a task, they can tell you up front if they KNOW how to do it. Traders, at best, can give you a GUESS as to the price action of a financial instrument.

    maybe you're very successful at trading, rearden, and given your number of posts I'm sure you've been at it for a while (a lot longer than myself, I'm sure), but wouldn't you agree that uncertainty is the main element of trading as an occupation that differentiates it from others such as those I've mentioned above?
     
    #41     Jul 9, 2008
  2. HKIB

    HKIB

    With a rigorous training in hard science, initially I wish the market was rational and hence predictable so that I would have an advantage over many others.

    However, trading has forced me to learn one thing, that is, unlike God who is rational and predictable, people are very often irrational and unpredictable. The other thing I have learned from trading is that I can control myself, but nothing else. So gradually I realize what really works for me: Being defensive => being able to control myself => nice profit out of the irrationality of the market.

    As in hard science, the things that really work great and yet without too much of your effort are common senses and simple ideas, though the technical part of the trading is much simpler than that of hard science.
     
    #42     Jul 9, 2008
  3. You're technically correct, of course... but a trader's career isn't defined by just one trade! As long as your 'guesses' are +EV you'll do fine over the long run. This is such basic stuff.

    Does the casino 'know' for sure that they won't lose money on the next spin of the roulette wheel? Do they have a true edge over the roulette player, or is the casino 'just gambling'? I'd never define any +EV bet/trade as 'gambling'. More like gam-bling-bling.

    Sure, the casino has a huge element of "uncertainty" regarding the wheel's next spin... but what about their expected outcome from the next one million spins collectively? That's an edge, and that's all that matters. A skilled trader can find the same type of +EV scenarios, which are practically guaranteed to win money over the long haul.
     
    #43     Jul 9, 2008
  4. rearden,

    Thanks for the link. I haven't really tried to wrap my head around the math yet but it looks interesting.

    This is off topic but I'm just curious, as this was something I was trying to research before, do you know anything about time series analysis of financial markets?

    Without trying to do any computations I've noticed there are definite time-related tendencies in currency markets, namely higher volatility at market open in Europe, Asia, America, etc.
     
    #44     Jul 9, 2008
  5. Not familiar with that term, sorry.
    Oh, and I never touch forex... That's gambling! :D
     
    #45     Jul 9, 2008
  6. Trading is extremely difficult psychologically, and also addictive. That's why GA has sections specifically for day traders.

    The only way I have found to end-run around the mental difficulties it presents is to develop a mechanical, non-predictive system. That way, I don't have the stress of "having to be right" about the market direction. A large dose of acceptance of the market's uncertainty also helps.

    The previous poster who mentioned coin-flipping was onto something. I have backtested systems based on pure randomness, and found them to make money. They just don't make <i>as much</i> money as other systems, else I'd be using them.
     
    #46     Jul 9, 2008
  7. ElCubano

    ElCubano


    where can a trader find the "SAME TYPE of +EV" that a casino has??? where the edge there is built into the game....in trading it is only +EV in the rear view mirror...
    :D
     
    #47     Jul 9, 2008
  8. So you still can't figure out anything I am saying to you. that is just how it is.

    How could you ever see the connection between a crayola stroke following price up for LONG SENTIMENT or see how a down crayola stroke signifies SHORT SENTIMENT.

    All those places where you can't keep drawing the stroke because price went the other way mean something. These are sunbeams hitting the T key on the execution platform. T means trade.
     
    #48     Jul 9, 2008
  9. Trading can be a psychological challenge because it means to embrace uncertainty and the notion of tendencies rather than absolutes. Most of us deal sufficiently well with the notion of tendencies when we engage in games that have an element of chance (backgammon, poker, blackjack, etc.). I think this is because we attach less of our ego to the outcome of games than we do to our livelihood.

    Men, perhaps more so than women, draw a fair amount of their identity and their feelings of self-worth from their occupations. Therefore, the uncertainty associated with mere tendencies is a bitter pill for a lot of people, and certainly for most insecure people. And whereas games of chance have mathematical probabilities of outcome, trading does not. Most traders seem to think (or hope?) that trading is about probabilities, but, in fact, there is no bona fide probability distribution of future outcomes at the trader's disposal before he commits to a trade. Instead, what he has before him is uncertainty along with some previously observed tendencies. And these tendencies may or may not remain reasonably stable over time. Although that in itself can be a lot, and more than enough to trade profitably on balance, this uncertainty evidently reaches beyond the comfort level of most people who try their hand in the markets.

    I think that ascribing momentary or illusory probabilities to these observed market tendencies is a mistake. In so doing, a trader may be inclined to draw too much false comfort from such imagined, non-existent numbers. It can be especially problematic for the aggressive trader who wishes to play it to the limit by putting on a large position based on some misguided formula comprising “optimal” position size and “probability.” I think it is more prudent to regard the observed market tendency from a “balance of probability” perspective rather than with numeric specificity. In so doing, the trader will be more inclined to operate with a margin of safety, knowing that there are no real probability numbers to hang his hat on.

    And then there is the trader who has not even spent the time necessary observing the markets to properly identify these tendencies. As with any pupil who has not studied for a test, how can he not be distressed at exam time? Even so, he'll probably do no worse than the guy who thinks that life is all about showing up and therefore didn't bother to study, expecting to do well because he feels the world owes him a living.
     
    #49     Jul 9, 2008
  10. gucci

    gucci

    Work of art. I'm still trying to stop laughing after the Suinbeam part. Thanks Jack.
     
    #50     Jul 9, 2008