Trading Wisdom 48: How To Be Right a Lot "Jeff Bezos stopped by our office yesterday and spent about 90 minutes with us talking product strategy. Before he left, he spent about 45 minutes taking general Q&A from everyone at the office. "During one of his answers, he shared an enlightened observation about people who are "right a lot". "He said people who were right a lot of the time were people who often changed their minds. He doesn't think consistency of thought is a particularly positive trait. It's perfectly healthy -- encouraged, even -- to have an idea tomorrow that contradicted your idea today. "He's observed that the smartest people are constantly revising their understanding, reconsidering a problem they thought they'd already solved. They're open to new points of view, new information, new ideas, contradictions, and challenges to their own way of thinking. "This doesn't mean you shouldn't have a well formed point of view, but it means you should consider your point of view as temporary. "What trait signified someone who was wrong a lot of the time? Someone obsessed with details that only support one point of view. If someone can't climb out of the details, and see the bigger picture from multiple angles, they're often wrong most of the time. - Jason Fried, Some Advice From Jeff Bezos JS Comment: Jeff Bezos, the founder of Amazon.com, is a Fortune 100 CEO and e-commerce empire builder, not a trader. Yet his perspective makes perfect sense for traders too: Mental flexibility and viewpoint adaptability are prized. Excess rigidity is frowned upon. Trading legends like George Soros and Paul Tudor Jones embody this mental flexibility. They can have a table-pounding opinion on a market one day... and yet completely change their minds 36 hours later, possibly reversing from long to short or vice versa. Those traders and investors who blow up, on the other hand, often do so by taking a rigid view, refusing to budge an inch, and following the position down like a boat anchor... Are you flexible and open-minded in your market views, with little fear of self-contradiction? How does one cultivate such traits without becoming a wishy washy Charlie Brown type? What are the key differences between a trader who is smart and sharp in their adaptive decision making capability, and the shallow flip-flopper who blows with the wind and rarely has a firm grasp on anything? Get Trading Wisdom via e-mail
Wide Tailz hush..... I shall discourage your secret calling of the perennial troll(z) And anyone who wants to talk fractals as well. This blog is kinda in line with some Hershey morsels though. Oh well. Good posts OP, thanks for your efforts.
dave This is a tough situation for the ET business. sponsors pay the bills and moderators keep the sponsors signed up. sponsors cannot pass the 12 statements in the "Test of Traders" so the test is deleted when I post it in a trader mining thread of a sponsor. Quick readers grab the post before it is deleted. this is also a trader mining thread. I came to the position that actually constructing detailed functional ATS's would be a cool expereince for anyone who wishes to go through. After that the bad guys can "lift" what they want to get what they want. In past years guys like blowinsky would "lift" beginner level approaches and put them on poor platforms. the result was the "lift" was at the top of that platform's perfomance list. now we are coming down the highway with a 60 plus Sharpe Ratio. In five years, it will have changed the financial industry's churning system. The financial industry does induction and getrs its STANDARD from that. Lousy standard. this is the myths and truism thread of the financial industry.
Trading Wisdom 49: Monkeys Wearing Pants "But these facts remain: When taught to use money, a group of capuchin monkeys responded quite rationally to simple incentives; responded irrationally to risky gambles; failed to save; stole when they could; used money for food and, on occasion, sex. In other words, they behaved a good bit like the creature that most of Chen's more traditional colleagues study: Homo sapiens." - Dubner and Levitt, Monkey Business (NY Times 2005) JS comment: As Barry Ritholtz has put it, many investors are little more than "monkeys wearing pants." Clinical research seems to bear this out in reverse -- when it comes to money, monkeys tend to make the same mistakes investors do (and, amusingly, will engage in prostitution if given the chance). The implication here is that many of the behaviors a trader justifies as intuitive -- born of unrefined gut instinct -- actually reside on the "pants-wearing monkey" level. If you have sloppy habits that you tolerate, or go off instinct unvetted by methodological verification, your inner primate may be getting the better of you... good news being that traders, unlike monkeys, have the ability to shape and improve intuition through study and contemplation. Get Trading Wisdom via e-mail
Trading Wisdom 50: Complexity is Not Sophistication "Increasingly, people seem to misinterpret complexity as sophistication, which is baffling -- the incomprehensible should cause suspicion rather than admiration. Possibly this trend results from a mistaken belief that using a somewhat mysterious device confers an aura of power on the user." - Niklaus Wirth, designer of the Pascal programming language JS Comment: Master practitioners, who wrestle with complexity on a regular basis, understand that the goal is always to strip away ambiguity -- to reduce complexity, and amplify clarity, to as great a degree as possible. In keeping with this, all true masters of their craft speak plainly. Bruce Lee, in echo of Wirth, extols simplicity as the "ultimate sophistication." Richard Feynman, one of the greatest physicists of the 20th century, has said if you can't explain it to a six-year-old, you don't really understand it. E.O. Wilson, the founder of sociobiology, writes so clearly his prose is like pinging a crystal glass. And in the trading and investing world, there are multiple examples of crystal clear communication: The annual Berkshire Hathaway and Baupost letters... the Schwager and Drobny interviews... the Howard Marks memos... and so on. Those who practice "mumblespeak," on the other hand, or otherwise hide behind a wall of esoteric jargon, should immediately raise doubts. What are they trying to hide? Who are they trying to fool? Suggestion -- if you haven't read it, check out "Consilience" by E.O. Wilson. A mind-blowing book in its own right, Consilience is the gold standard, or perhaps the platinum standard, for transparent writing. Get Trading Wisdom via e-mail
I've observed this in successful executives and traders that I know. Zigging and zagging and they don't feel bad about it. There's no apology required if you change your mind. What is unacceptable is standing still because you don't have an opinion.
Trading Wisdom 51: Taking Beatings and Investing in Loss [UFC welterweight champion Pat Miletich, describing his early fighting style:] "I was hardheaded like that. If something wasn't working I'd keep trying it until it worked. I was well rounded but I didn't switch that easy. You gotta think that you're gonna win no matter what, that the other guy will start looking for a way out. You're the predator not the prey. You don't give a flying fuck what he's doing, you're just setting him up for the finish." "He laughed, a short bark. "But there's nothing worse than when you think you're setting a guy up for the finish and the whole time he's ahead of you. That's the cool thing about fighting. That's the final stage, when you can lure a guy in. Like when you start being offensive to counterpunch, you throw the one-two and he thinks he's countering and you counter him. That's the end level, when things get really cool." "I asked him how you got there, and he smiled at me. "There's only one way there -- a lot of ass whuppings." He chuckled nastily, but he meant it. "When you first start fighting, it's tunnel vision, you're freaking out. But as you gain experience things slow down. The combos start to come at you in slow motion. A big part of it is being relaxed. The studies show when police officers' and soldiers' heart rates hit certain levels, they lose motor skills except push and pull, they fall into tunnel vision. they lose decision making. It happens to young fighters, certainly, until they take enough beatings to relax." - Pat Miletich / Sam Sheridan, The Fighter's Mind JS comment: The notion of "taking enough beatings to relax" does not sound palatable to the typical aspiring trader, who secretly longs for the path to be easy. But trading, as with ultimate fighting and high stakes poker, is one of the most competitive endeavors on the planet. Why in the world would it be easy? Nor is trading like other more technical endeavors, where skill is applied to a craft. Trading, like poker and UFC, is combat with other human beings. Miletich's rough point is that, with a backdrop such as this, there is no substitute for experience. To get the necessary experience, which allows you to calmly run situational assessments and make correct decisions in real time, you have to be willing to step into the ring... and make painful mistakes... and then analyze and learn from those mistakes bit by bit, skirmish by skirmish, even as your mind processes and stores various puzzle pieces and puts them together (the means by which "the combos come in slow motion" given enough practice). Tai Chi Chuan master William C.C. Chen refers to this as "investing in loss," which means shedding one's ego... showing a willingness to seek out and experience defeats... and then making a concerted effort to learn and grow from those defeats. To put it more bluntly: If you aren't willing to take beatings along the way, you have zero chance of becoming a champion. "Investing in loss" is, in a very literal sense, the foundational groundwork for future wins. Anyone who tries to paper over this basic requirement is snowing you. And the great thing about trading -- again as with poker and UFC -- is that the "beatings" can be controlled. You don't have to risk getting killed, and you don't have to risk so much money in markets that a bad setback will cripple you. In terms of position sizing and risk capital, the best balance for a beginning to intermediate trader -- in respect to how much capital they put in play in the market -- is thus somewhere between "keeping it small' (often much smaller than they realize) but still "meaningful enough to hurt." If it is play money you won't have the emotional commitment to learning from your errors. But if it is "can't afford to lose" money you may not withstand the training. If you really get this idea, and do not hesitate to apply it -- to "invest in loss" and take the occasional beating in the name of vital experience accumulation, while acknowledging the unavoidable nature of this gauntlet -- you will dramatically increase your odds of becoming a successful trader. And if you are already a successful trader, but not yet at the ultimate level you wish to attain, this concept can be even more important -- because often times, the greatest impediment to reaching new levels of success is a comforting familiarity with the old level... a sense of ego preservation keeping one's skills and risks reined in... and a hesitance to "invest in loss" (and sign up for more beatings at the margins) in the name of further evolution. JS (jack@mercenarytrader.com) Buy The Fighter's Mind on Amazon Get Trading Wisdom via e-mail
So true about experience giving the perspective needed to understand the third order counter. Staying ahead of the competition, faking him when he thinks he's faking you... etc. But even here, it's all about risk. You can throw combinations so tightly and quickly that even if he counters, you're protected by your own arms. The big danger is if you fight a wrestler..... then you're on your back :eek: