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Irrationality


came across a very interesting paper regarding human irrationality and self-defeating behaviors.

http://www.cepr.org/meets/wkcn/3/3503/papers/Baumeister.pdf

do be advised that the paper does have a very 'special' formatting quirk - every 10-12 words, two words will be joined. so every line or so, you'll see something likethis. just wanted to give a heads up.

enjoy!

quote:
Originally posted by day trading

He sounds like a genius. Perhaps he should be trading for you...?




well, right now he still says he wants to be a trader when he grows up. i gotta quit slappin' him everytime he says that ... just kidding
but i seriously think you are on the right track. in fact, as he gets settled into first grade, i am going to start teaching him about trading. i am certain that he has an unhindered ability to recognize, evaluate, and act on any number of patterns/setups.

my lil genius
now if only i could find out who his father is and thank him


btw: dunno how much you have looked into it, but there is a decent sampling of material on synthetic or artificial market creation. though i have been aware of it, i honestly have not read any of the papers or research. i know there was (is?) an artificial market called the Sante Fe project. i'm sure there are others, but seemed to be quite a trail-blazer for a while. maybe it was just the most hyped, who knows ...

I just did a quick google on the santa fe stuff but it seems mostly dead now. I wish I had more time to read up on that stuff.
I'm sure that I remember reading about a small band of programmers that were developing an automated trading system. There was a write-up on them on the Internet somewhere but I can't find it now. If I remember correctly, they were running their operation/research out of these adobe buildings in New Mexico and there were about 3 or 4 of them. I think that they had previously been involved in taking money off the casinos using some programmatic and mathematical techniques.

You don't remember who I'm talking about do you? Have you heard of these guys?
quote:
Originally posted by day trading

An experienced trader will know what he will do, where he will do it and why he is going to do it way ahead of the trade he enters. The newbie is still trying to work out what to do, where and why. So the newbie is using the grey matter while the seasoned trader has already used his mental energy years ago to get to this state and is now freewheeling...




One problem I have seen is new traders under-estimate the magnitude of the learning curve involved in developing proficiency trading, and at the same time over-estimate their own ability / aptitude to trade profitably. This mis-understanding of reality leads to all sorts of self-destructive behavior.

With that said, I agree with your basic observation. The trick is to have a stable trading method/strategy that you apply day in and day out. And to have the patience, discipline and confidence to stick with it and let it work for you over the long term. (This assumes your method & strategy is mathematically sound.) Where the trouble starts for a novice trader is when they hit a losing streak and abandon the method, ie. keep starting over with new indicators or strategies. Or after a couple of losses in a row, they start improvising on the fly ( situational curve fitting ). The fact is, no method will be right all the time, every method will have occassional periods of equity drawdown.

The more live market experience you have with your trading method and strategy, the easier it will be to apply it accurately and in a timely and stress-free fashion. The reduction in stress/emotion (and resulting improvement in rational thought) comes from the confidence gained from experiencing (and surviving) the best and worst the method and market can throw at you.
Sound thoughts as always pt_emini.

As a new trader you are under enormous pressure to juggle a million things that the seasoned trader takes in his/her stride. For example, just setting up your charts or your trading platform and the hazzards associated with that are things that the seasoned trader rarely needs to worry about.
i dug up a quote that conveys the basic problem faced by novice traders...

"It's not the mathematical skill that's critical to winning, it's the discipline of being able to stick to the system. There are very few people who can develop the skills to get the edge, and far fewer still who can withstand the losses emotionally and stick with the system. Probably one in five hundred people have the necessary discipline to be successful."

Blair Hull, former professional gambler and now famous and very successful trader, in response to the question of what he feels enabled him to find success in gambling and trading.
Is this Blair Hull from Matlock Capital? www.matcap.com ?

That's a good quote by the way.

I couldn't get to sleep last night and so I rummaged through the library and found an Anthony Robinson book that I have read the first few pages of (Awaken the Giant Within) and have always intended to read but just not got to it.

I flipped through a few chapters and came across a section called the Alpo Diet. Apparently Alpo is a brand of dog food. The story goes on to tell of a couple of women who had failed every diet and finally succeeded when they committed to eating a can of this dog food if they strayed from the diet. Whenever they thought about eating something not on their diet plan or giving up on it they'd pick up this can and read the ingredients which included chunks of horse meat. Apparently the diet worked.

So coming back to what pt_emini quoted Blair Hull saying, we need the discipline and if we do not have the discipline then we need something to trap/force/cajole us into a disciplined mindset. One from which we won't stray.

I know that I've discussed this before but I feel that a paper trading system could be made far more effective if you could associate some sort of punishment with any break of discipline or rules in the paper/practise trading. I've often joked about wiring the trader up and shocking them which is obviously not practical and dangerous.

Perhaps a timeout chair/corner. I you break discipline you commit yourself to this chair and meditate over what you did and why you did it.

Unfortunately there's nothing forcing you into that corner. No big stick waving over your head and no dog food to eat...