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Find your stengths


A friend has just sent me the following link:
http://www.literacyworks.org/mi/assessment/findyourstrengths.html
This may help some traders identify their own personal stengths and relate them to trading and perhaps show them why they are struggling in some areas of their trading life.

I scored the following:
5.00 Logic/math
4.71 Social (interpersonal)
4.43 Body/movement (kinesthetic)
4.00 Self (intrapersonal)
3.86 Language (linguistic)
3.71 Nature (naturalist)
3.14 Spatial
1.29 Musical
4.14 Logic/Math
3.43 Body Movement
3.43 Self
3.29 Language
3.14 Spatial
2.43 Social
1.57 Musical
Interestingly similar...
Not entirely a surprise


Out of curiosity, from a personal strength/weaknesses perspective, what would you say was/is your biggest challenge to overcome in your trading ?

Would you say your logic/math orientation helps or hinders your trading ?
My logic/math strength definitely helps my trading - it helps me find the edge and ignore the myth. My biggest challenge would be my trading ego. In normal day life I have no problem admitting when I'm wrong and taking corrective action. When I have a trade in place though which is not behaving as I expected it to (in other words losing) I have a much bigger problem in admitting the mistake and taking the stop.

What about yourself?
The math/logic aptitude is a strength and weakness at the same time.

On the one hand, viewing price patterns and trade setups in terms of probabilities allows me to greatly simplify the preliminary analysis phase of trading, that is figuring out if the trade is a valid setup and worth risking money to find out. I apply a logical process to reduce the setup to a number, for example the pattern is indicating an 80% probability of a trend reversal. This simple technique enables me to act quickly and with a reasonable and consistent level of confidence.

Also, using a statistical perspective in relation to the math behind the long term probabilities associated with a complete and well defined trading method or system is an obvious advantage.

The weakness with having a math/logic aptitude has been the natural tendency or need to describe price action using math analysis or equations (technical indicators). Price action at any given moment is the result of human behavior, which by it's nature is extremely difficult to model numerically with any consistent accuracy. It took me many years to understand and accept the difference between numeric modeling of the markets and the simple act of making money consistently. At some point along the learning curve, my experience with the market reached the level where I understood what the market was doing or trying to do from direct observation of price, time and volume. Understanding the structure of the market and the roles of the primary participants. From this new perspective, the realization that the traditional math solutions are arbitrary derivatives and generally not needed becomes apparent.

In sum, the idea is that one needs to figure out where math is advantageous and where it is a hindrance.
quote:
Originally posted by pt_emini

...At some point along the learning curve, my experience with the market reached the level where I understood what the market was doing or trying to do from direct observation of price, time and volume. Understanding the structure of the market and the roles of the primary participants. From this new perspective, the realization that the traditional math solutions are arbitrary derivatives and generally not needed becomes apparent.

But wouldn't you say that the understanding of the psychological aspect of the market is through and understanding of the math that you cannot quantify in formulas but is apparent through visual recognition stimuli and certain value relationships.

So someone who is good at manipulating an object in their mind in multi dimensions (like rotating a shape through different axis and directions) would be able to "learn" the psychology of the market given enough time.

What I'm trying to say is that the psychology of the market can be placed in a formula but it's just that the formula is a very complex one. It's actually many formulae and an enormous data base.
quote:
Originally posted by day trading

But wouldn't you say that the understanding of the psychological aspect of the market is through and understanding of the math that you cannot quantify in formulas but is apparent through visual recognition stimuli and certain value relationships.


Yes. For me, viewing market behavior with a math perspective (via technical indicators) gave me a consistent way of quantifying the price series. It is a way of looking at, quantifying and interpreting market behavior in a consistent manner. But it still comes down to how you interpret the technical indicators, and in so doing interpret the underlying market behavior from which the indicator is derived. For example one trader might use a stochastic oscillator and interpret the stochastic reading of 90 as an "overbought" condition. I on the other hand might look at the same market situation and perceive the stochastic is confirming a strong price trend. At some point along the way the question becomes, do I really need the stochastic reading of 90 to tell me the market has been in a strong price trend ? Or, based on my experience can I simply see the price trend as it exists ?

quote:
So someone who is good at manipulating an object in their mind in multi dimensions (like rotating a shape through different axis and directions) would be able to "learn" the psychology of the market given enough time.


Permit me to give you a good example. That of a trader with a strong musical aptitude. This individual visualizes music, seeing in her mind the musical notes and composition. Thus this trader applying this natural and well developed aptitude, visualizes the market price series in the same way, seeing each bar (or candle) of the price series as part of a type of musical composition. Thus, smoothed indicators like the MACD for example tend to block this trader's recognition and interpretation of the more detailed underlying price series. This is an entirely different way of learning and understanding market behavior than most traders experience.

quote:
the psychology of the market can be placed in a formula but it's just that the formula is a very complex one. It's actually many formulae and an enormous data base.

Yes I certainly agree, the behavior patterns of market participants can be modeled numerically. In doing so however, it would be important to understand that your modeling human behavior or more specifically tendencies of classes (or sub-classes) of participants and the interactions of those classes. The point is your not modeling a price series, but rather behavior tendencies of groups and individuals within groups. Given sufficient computational resources this non-linear market psychology can certainly be modeled. I think it is safe to assume some well funded teams are doing so with varying degree's of success. But in the end it still comes down to looking at the past in order to predict the future, which introduces uncertainty and error. I simply see no way around the uncertainty inherent in risking money on a future event or outcome.

The nice thing about a numerical model is that it can be quantified and refined. The bad thing about models is they are not easy to quickly adapt to significant (and usually sudden) changes in market behavior. For example, look at all the models based on the Yen carry trade, suddenly the carry trade window closed, liquidity froze up and those models are now baseless and of no use or value going forward. Is it worth adapting the carry trade model, or do you just toss it and start over looking for a new model ?
I'm not familiar with the Yen carry trade models? What were they and how did they work?

Your music analogy (is it even an analogy?) is a good one. I have tried in the past to watch the day's action at 60 times speed on 1 minute charts. So over a number of minutes I can try and learn the flow of the market for that day.

I have always tired before I have been able to "absorb" enough days. I am wondering if you have done this (at high speed on playback) and the type of success that you have had with it.

I feel that this is very similar to studying music. Given the nature of the market I believe that certain individuals with the right aptitude can master this flow of price. However, I think that the big problem is the speed at which the market moves or the price develops compared to the speed at which you learn it. For example, if you learn the patterns and market at a 60 times market speed (1 hour of minutes passes in front of you in 60 seconds) then can you slow it down in your head when watching it in real time?
quote:
Originally posted by day trading


Your music analogy (is it even an analogy?) is a good one.



This is a trader with whom I worked with many many years ago.

quote:

I have tried in the past to watch the day's action at 60 times speed on 1 minute charts. So over a number of minutes I can try and learn the flow of the market for that day.

I have always tired before I have been able to "absorb" enough days. I am wondering if you have done this (at high speed on playback) and the type of success that you have had with it.


Although I remember you were experimenting with this technique, I have never tried it myself.

This does raise in my mind the idea of flash cards used to speed up memorization. I could envision flash cards of specific trading patterns your method is designed to exploit. Or perhaps flash cards of different points in the development of a type of day, for example what a trend day looks like at 15 minute or 30 minute intervals. This technique would speed up your experience level with specific day types enabling you to get on board with the day type more quickly in the future. You could even create a training CD or some sort with all this on it to aid the learning process of new traders.

quote:
I feel that this is very similar to studying music. Given the nature of the market I believe that certain individuals with the right aptitude can master this flow of price.

I totally believe this to be true. Certain individuals have a natural aptitude for understanding the markets and profitable trading, and this ability is very difficult to teach someone else. Consider all the individuals you know who have been struggling for years to turn a profitable year trading, my heart goes out to them certainly, but at the same time when I encounter someone like this, I always liken it to being tone deaf.
Looking at "flash cards" of day types themselves would not be "too" helpful I think. What you would need to do is to show the first quarter of the day and then try and guess what the rest of the day had in store and do that through flash card association. In other words, recognizing a trend day after the fact is easy but before not.
A technique I found helpful, which was suggested to me by an experienced trader and mentor is: at the end of each trading day, print out chart(s) of each trading session. Then in the evening sit down and really study them, make notes on the charts, also note where you entered and exited your trades (or should have).

I found it helpful to print clean charts, meaning without indicators or price studies. This helped me focus on the actual price action. Of course, if you are trying to learn or understand a specific indicator then you would want to include the indicator on the chart. The idea is to strip away all but the most essential information (actual market data) in order to train your mind to recognize and understand price action.