I think the ultimate question everyone is asking is
" So what this academic nonsense got to do with how I should trade? "
IMHO, the implications for discretionary trading is obvious, , new discretionary trader are against tremedous odds because of they need to overcome their heuristics biases, they are their own worst enemy. Now, I said odds, I didn't say they are doomed to failure, In kahneman and Tversky 's experiment, a majority ( I think it was 80%) of people were subjected to the biases and chooses the "wrong" answer, It was a overwhelming result but not a 100--0 result. So It's possible for people to make the correct decision either by learning or figuring it out themselves.
But for me, the answer is obvious, just become a dogmatic systematic trader, follow the system with cold discipline and don't let our heuristics get in the way.Since we know such biases exists in the markets , it also means it's possible to developed system to exploit these biases. As I have mention in my previous post, trend-following is the antithesis of the Prospect theory.
Many of you already know that trend-following work, but may be you just found out why it should work. The two golden rules of trading" cut your losses and letting your profit run" is about trading against our own intuition, and against our fellow trader's heruistic biases and framing effects. .
And As long as human nature don't change and there are people still doing discretionary trading( someone with heruistics to counter-trade upon) , trend following will work..
" So what this academic nonsense got to do with how I should trade? "
IMHO, the implications for discretionary trading is obvious, , new discretionary trader are against tremedous odds because of they need to overcome their heuristics biases, they are their own worst enemy. Now, I said odds, I didn't say they are doomed to failure, In kahneman and Tversky 's experiment, a majority ( I think it was 80%) of people were subjected to the biases and chooses the "wrong" answer, It was a overwhelming result but not a 100--0 result. So It's possible for people to make the correct decision either by learning or figuring it out themselves.
But for me, the answer is obvious, just become a dogmatic systematic trader, follow the system with cold discipline and don't let our heuristics get in the way.Since we know such biases exists in the markets , it also means it's possible to developed system to exploit these biases. As I have mention in my previous post, trend-following is the antithesis of the Prospect theory.
Many of you already know that trend-following work, but may be you just found out why it should work. The two golden rules of trading" cut your losses and letting your profit run" is about trading against our own intuition, and against our fellow trader's heruistic biases and framing effects. .
And As long as human nature don't change and there are people still doing discretionary trading( someone with heruistics to counter-trade upon) , trend following will work..
