Thursday, 12 February 2009

Lessons in Reality from the Trading Floor

I've been trading for awhile now, and it was whilst studying a price pattern chart the other day that it dawned on me how trading can teach us a few lessons about life itself.

In particular, many trading systems involve the use of plotting indicators on the price chart - moving averages, stochastics, MACDs, ADXs and RSIs. Some people do very well with these indicators. Others don't. Some swear by them, others swear at them. And price keeps doing whatever it is doing regardless of what your indicators tell you. Note that one could just as easily substitute the word "price" for "life". So I learnt my first lesson:

"Whatever you think or believe or rely on, Life will keep doing exactly as it pleases, as it has always done. Deal with it."

The second observation I had was a saying by Van Tharp that "one always trades a belief". To me, each indicator represents a belief. When it gives a signal, it is really saying that given that belief about the market, you might wish to exter or exit. When generalised to life, this is what I got:

"One always interacts with life through the filter of one's own beliefs, and it is easy to become so habituated to the belief that one follows it without question. This may or may not be a good thing."

A truism in charting is that as you keep plotting more and more indicators on your chart, it tended to get so busy that it gets difficult to see or "predict" (not that I believe trading is particularly about predicting) where the chart is going next. In fact, most of the time, the charts will give contrasting signals, which is hardly surprising when you trade different beliefs. They are premised on different foundations after all. So:
"The more beliefs one carries about, the more potential problems and mind freeze can occur when they do not agree with each other i.e. when they are not congruent."

Some traders argue that by the very virtue of having so many indicators agree with each other, you have an extremely high probability trade. I refer them to observation 1, and also note that as the number of indicators increase, the number of trades decreases. That might be acceptable in a trading system, but it does pose a rather perplexing problem in life:

"The more conditions you impose on reality before you are willing to participate, the more withdrawn from life you will become."

I am certainly not advocating being constantly in the market. Some people do very well with their systems. It might well stem from the fact that they understand their beliefs very well, and the blind spots those beliefs engender, and have come to learn how to deal with it. Which says:

"It is less about the belief itself, and more about how the belief colours experience. If you know how the belief biases you, for better or worse, you can take the appropriate actions."

It also tells me:

"Beware the man who is constantly discarding belief systems and jumping around, for he knows not what he does."

I could go on, but I think that's more than enough food for thought.

Photo courtesy of

No comments: