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Three Pervasive Myths in the Trading World
- Thread starter Trader28Lite
- Start date
Quote from esc_trader:
I think you're being tough on yourself illiquid. What you may want to ask yourself is What are you getting out of trading? It really doesn't matter what others think of it because how can you make judgements on how someone chooses to live their life.
I think many times the real reasons people trade is obscured.
Not just to try to make a living, which is what everyone claims - but for the thrill of gambling, or even a subconsious (sp?) desire to fail.
Some writers have posited this "desire to fail" and point to a subconscious irrationality, but when you think about it, the subconscious or whatever part of your brain which decides to pull a stop, double down on a loser, or gamble on news events, is actually much more rational and logical than we might think, for the following reason: it may realize that we might just have no edge trading at all, even before we can admit it to ourselves. The brain knows that if we lack edge we are just playing a game of roulette, and in that case will do the smart thing and bet it all on red or black, for it realizes we just cannot win over the long run, perhaps long before we consciously figure it out.
So if you find yourself consistently doing the wrong and dangerous thing, it just might be your own brain quietly telling you that what you are doing just cannot be sustained. True confidence needs to be backed not only by the figures, but a quality of how those profits were obtained -- you cannot hide the truth from yourself for very long. As for the thrill of the gamble, I have long since lost the taste for any games of chance -- I used to enjoy going to the casino but find no desire to go anymore. I really don't believe in chance or even percentages in the market anymore, just right or wrong, if that makes any sense.
What do I get out of trading the markets? One learns most about oneself in extremis, and to learn through the markets is to really find out what makes you who you are. To paraphrase from a book recommended by a fellow ET'er (thx nitro), it's "a view of heaven from a seat in hell."
â¦â¦.. Success is a function of talents (inborn abilities) and skills (acquired competencies). No amount of emotional self-control can turn a person into a successful musician, football player, or traderâ¦..
Excellent article Dr. Brett.
May I ask for a clarification? Can you define some/all of the "inborn talents" that you have noticed in successful traders? What NATURAL ABILITIES do they possess that give them an edge even before they start the game?
Thank you!
Quote from roberk:
#2 is obvious, but every week we get a newbie asking if he should give up his day job. Hilarious.
Hi roberk,
I disagree that it is obvious. A lot of people grow up with adults (parents, teachers) telling them they can do anything they put their mind to. Anything is achievable. While someone can read point #2 and intellectually say, yeah that is obvious, that doesn't mean in the slightest that they have the beliefs and attitudes to embrace point #2. I would estimate that most do not (myself included).
Kind regards,
MK
Quote from KK70:
Excellent article Dr. Brett.
May I ask for a clarification? Can you define some/all of the "inborn talents" that you have noticed in successful traders? What NATURAL ABILITIES do they possess that give them an edge even before they start the game?
Thank you!
I'm not Dr Brett but I once asked Mark Douglas (Trading in the Zone) what was the defining characteristic of the successful trader and he said....
"Confidence"
Quote from Trader28Lite:
Myth 3 is a revelation too and gets you back to the real world... without an edge you are dead in the water, discipline or not
DUH !! Who said it wasn't !! This stuff is all common sense diatribe by this Doctor !! No great world shaking secrets being revealed here by the thread starter.
No one of decent credibility has ever said discipine was the sole ingredient for success in trading.
I will say this ....regardless of how great an Edge you have in Trading , the fact is it willl NOT matter if you do not have discipline. In other wards, you will fail miserably if you have even the greatest edge in a trading system with no long term discipline.
PERIOD !! End of story !!!
NEXT !!!!!!!!!!!!!
Quote from KK70:
Excellent article Dr. Brett.
May I ask for a clarification? Can you define some/all of the "inborn talents" that you have noticed in successful traders? What NATURAL ABILITIES do they possess that give them an edge even before they start the game?
Thank you!
This can't possibly be a sarcastic post... no one could be that naive...
So I will try a serious answer.
Say for basketball:
INBORN
(1) extremely athletic body
(2) exceptional vision
(3) exceptional hand/eye coordination
(4) Exceptional drive to win/succeed
(5) basketball/sports IQ = inate understanding of sports subtleties
Even players on NBA level...
Which is the top 500 players out of 6,000,000,000 people...
Do not have all of the above qualities...
Notably lacking #4 or #5... and riding the pine.
You could go to any class of 50 10 year kids...
And pick out the 2 or 3 that have any realistic potential to be Pro Basketball players.
Say for trading:
INBORN
(1) exceptional math ability
(2) exceptional lateral thinking skills = talent to process 5-10 disparate pieces of information coherently
(Most people lack this... they are linear thinkers).
(3) independent thinker, highly developed critical analysis, usually a REBEL
Conformists cannot "think outside the box" creatively enough to succeed as traders.
That's why a CFA is useless... it is meant for conformists... to brainwash you with Securities Industry dogma.
(4) Exceptional drive to win/succeed
You could go to any class of 50 10 year kids...
And pick out the 2 or 3 that have any realistic potential to be Pro Traders...
Though some of these traits would only become apparent in teens.
Myself... I know this from experience.
I was always #1 in math...
At age 15... I finished #1 in a complex "math contest" out of > 200 people.
I could have been pegged as a potential trader at age 5... age 10... age 15... whatever.
My biggest mistake in life was not getting into trading until early 30s.
Why?
Because I spent 10 years obsessed with beating Las Vegas sports betting...
Not coincidently... another Zero Sum Game.
Some good stuff, but why do Ph.D.'s think they are profound when they use analogy and metaphor, when in fact they are watering down and fluffing their thesis? I count no less than 15 such examples in Mr. Steenbarger's brief analysis.
Quote from Trader28Lite:
Three Pervasive Myths in the Trading World
By Brett N. Steenbarger, Ph.D.
"My work as a trading psychologist has provided me with a fascinating window on the factors that separate successful from unsuccessful traders across a variety of settings, from proprietary firms to investment banks to hedge funds. Having met and worked personally with well over 100 professional traders in the past few years, the main conclusion Iâve come to is that most of the generalizations about trading success are simply not true. In this article, I thought Iâd summarize three of the more pervasive myths about trading success out there and offer my own, different perspectives.
Myth #1: Emotions are at the root of trading problems. Yes, emotions can interfere with concentration and performance, but that doesnât mean that they are a primary cause. Indeed, emotional distress is as often the result of poor trading as the cause. When traders fail to manage risk properly, trading size that is too large for their accounts, they invite outsized emotional responses to their swings in P/L. Similarly, when traders trade untested patterns that possess no objective edge in the marketplace, they are going to lose money over time and experience an understandable degree of emotional frustration. I know many successful traders who are fiercely competitive and highly emotional. I also know many successful traders who are highly analytical and not at all emotional. Trading is a performance field, no less than athletics or the performing arts. Success is a function of talents (inborn abilities) and skills (acquired competencies). No amount of emotional self-control can turn a person into a successful musician, football player, or trader. Once individuals possess the requisite talents and skills for success, however, then psychological factors become important. Psychology dictates how consistent you are with the skills and talents you have; it cannot replace those skills and talents.
Myth #2: Anyone, with dedicated effort, can get to the point of trading for a living. That is nonsense. How many people make their living from acting or musical performance? What proportion of people playing sports can actually make their livelihood from athletics? Many people play chess or poker, but how many can sustain a living from it? Quite simply, to make a living from any performance activity means that you are consistently good at what you do. Not everyone has the talent, skill, or drive to be that successfulâin any field. Across the many traders Iâve met in various settings, from home-based, independent traders to professional ones in firms, the best predictors of trading success have been the size of the traderâs accounts and the resources available to the trader. If a person were to make 25% per year on their accounts year after year, they would be among the worldâs most successful money managers. Most money managers of mutual funds, hedge funds, and pension funds cannot sustain such performance. If, however, a trader begins with $50,000 of capital, he or she may not be content with $12,500 of profit. This leads the trader to accept huge leverage and court a risk of ruin when an inevitable string of losing trades occurs. Indeed, such excess leverage is a main cause of emotional distress in trading. Take a look at how the Turtles made their money: they learned a trading method, learned to be consistent with that method, and were given enough money by Richard Dennis that they could trade multiple markets with enough size to scale into positions in each. Even with those resources, not all of the Turtle students could succeed. Talent, skill, and opportunity are the ingredients of success, and these are relatively normally distributed in the trading population, just as they are relatively normally distributed in the population at large.
Myth #3: The main cause of trading failure is a loss of discipline. This is a myth perpetuated by âtrading coachâ and âguruâ types that: a) donât trade themselves and b) have a vested interest in your belief that their services are all that stand between you and success. The main cause of trading failure is a lack of an objective edge in the marketplace, trading random patterns that have never been tested out for success. We would never consider buying a car simply by looking at it. Weâd want to research it, test-drive it, and peer under the hood. Amazingly, however, many traders will risk far more money trading patterns that they never research or test-drive. Many times, the reason they stray from those methods is that, intuitively, they realize that those methods are not working. In any performance field, we find a hard-and-fast truth: the great performers spend more time practicing their performances than actually performing. That is just as true for the Broadway actress as for the Olympic athlete. Many traders, however, think that on-the-job training will be enough. Unfortunately, their accounts often donât survive their learning curves. A well-placed executive within a trading firm confided to me last year that the average time it takes the average trader to blow through their entire account is seven months. That is why brokerage firms are always on the hunt for new customers. Itâs not that these traders are all deficient in discipline: they simply havenât engaged in sufficient practice to figure out the right markets and trading styles for them and to hone their skills. In every other performance field, you can find relatively easy levels of competition: you can join a community theater, play rounds of golf at the par-3 course, or set the challenge level on your chess computer. There is no easy level of competition in trading, however. When you place a trade on a major exchange, you are up against the pros from day one. No wonder it is so difficult to succeed! Discipline is necessary for trading success, but there is much more to success than discipline. It takes concerted practice and the cultivation of skills at reading and acting upon market patterns.
In an ideal world, I wouldnât have to challenge these myths. Youâd be able to obtain very realistic messages about trading success from brokerage firms, vendors, trading gurus, books, and magazines. The reality, however, is that most of these commercial entities have a vested interest in perpetuating a dream that is, in reality, a cruel fantasy: that, without real, sustained effort, anyone can make it big as a trader.
Does that make me a Scrooge during this holiday season, saying âBah, humbug!â to the aspirations of thousands of traders? I think not. The reason I wrote my most recent book, Enhancing Trader Performance, was to show that there is a common process beneath the development of elite performance in any field. That process involves several components:
* Finding a Niche â Identifying a performance field that takes maximum advantage of your skills, talents, and interests;
* Deliberative Practice â Rehearsing skills in increasingly realistic settings to prepare for the challenges of actual performance;
* Constant Feedback â Intensive review of performance to identify strengths and weaknesses, so that you can capitalize on the former and address the latter.
The successful traders Iâve known have found a market (or set of markets) and a trading style that capitalizes on their abilities. They have been relentless in working on their skills, using videotaping to review markets and performance and using simulators to rehearse under different market conditions. To sustain such effort requires a love of the markets themselves, something not all traders have. Some traders love the action, some love the dream of making money, some love the opportunity to work for themselvesâbut many donât love the work itself: the effort of mastering patterns in demand and supply.
Success is possible in trading as it is in any performance field. If anyone tells you, however, that the path to trading success is different than it is for the surgeon or Olympian, you know that youâre hearing a myth. If you choose the path of the elite performer, trading can be wonderfully challenging and rewarding. If trading is not your ideal path for self-development, however, you are far better off finding your passion elsewhere and managing your money prudently. The goal is to develop the best within you, whether that is as a trader or as something else. Your life deserves nothing less."
> why do Ph.D.'s think they are
> profound when they use analogy
> and metaphor?.
He is trying to communicate complex conclusions...
To people less intelligent than himself...
And to people who DO NOT want to hear what he is saying.
Because...
> The reality, however, is that most of these commercial entities (brokers)
> have a vested interest in perpetuating a dream
> that is, in reality, a cruel fantasy:
> that, without real, sustained effort, anyone can make it big as a trader.
This line really sums up the reality:
> When you place a trade on a major exchange
> you are up against the pros from Day One
People understand that to be an NBA player...
You will have to go one-on-one with Allen Iverson.
But the same people think the financial markets are different...
That you are somehow taking money away from Grandma.
NO.
You are directly up against the top 5,000-10,000 Pro Traders in the world...
All of whom have talent, experience, killer instinct, capital.
To succeed... you will have to TAKE AWAY money from these guys...
Just like going one-on-one against Iverson.
> profound when they use analogy
> and metaphor?.
He is trying to communicate complex conclusions...
To people less intelligent than himself...
And to people who DO NOT want to hear what he is saying.
Because...
> The reality, however, is that most of these commercial entities (brokers)
> have a vested interest in perpetuating a dream
> that is, in reality, a cruel fantasy:
> that, without real, sustained effort, anyone can make it big as a trader.
This line really sums up the reality:
> When you place a trade on a major exchange
> you are up against the pros from Day One
People understand that to be an NBA player...
You will have to go one-on-one with Allen Iverson.
But the same people think the financial markets are different...
That you are somehow taking money away from Grandma.
NO.
You are directly up against the top 5,000-10,000 Pro Traders in the world...
All of whom have talent, experience, killer instinct, capital.
To succeed... you will have to TAKE AWAY money from these guys...
Just like going one-on-one against Iverson.
Thanks for that analogy... without the mention of NBA players I, being of lesser intelligence, could not possibly have understood your point that I am competing against the top traders in the world.
I get it now. THANK-YOU!!!!!!!!!
If I just imagine trying to strip AI when he tries to break my ankles with a double cross-over, then I can know exactly how difficult it is to make it as a pro-trader. Thank you for clearing that up.
I get it now. THANK-YOU!!!!!!!!!
If I just imagine trying to strip AI when he tries to break my ankles with a double cross-over, then I can know exactly how difficult it is to make it as a pro-trader. Thank you for clearing that up.
Quote from HoundDogOne:
> why do Ph.D.'s think they are
> profound when they use analogy
> and metaphor?.
He is trying to communicate complex conclusions...
To people less intelligent than himself...
And to people who DO NOT want to hear what he is saying.
Because...
> The reality, however, is that most of these commercial entities (brokers)
> have a vested interest in perpetuating a dream
> that is, in reality, a cruel fantasy:
> that, without real, sustained effort, anyone can make it big as a trader.
This line really sums up the reality:
> When you place a trade on a major exchange
> you are up against the pros from Day One
People understand that to be an NBA player...
You will have to go one-on-one with Allen Iverson.
But the same people think the financial markets are different...
That you are somehow taking money away from Grandma.
NO.
You are directly up against the top 5,000-10,000 Pro Traders in the world...
All of whom have talent, experience, killer instinct, capital.
To succeed... you will have to TAKE AWAY money from these guys...
Just like going one-on-one against Iverson.