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Trading Wisdom for Aspiring Hedge Fund Managers
- Thread starter darkhorse
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Quote from Brass:
Do you believe you can identify such situations in advance and, therefore, play them differently?
Yes. Not all of them, obviously, but certain identifiable situations exist where the probability distribution favors a large break rather than a small break. Depending on situational specifics, you can structure a trade to fit the non-normal distribution.
Quote from darkhorse:
Also, re, what everybody knows "in general"... does it not strike you as a rich irony, then, given how much everyone generally "knows," how "everyone" is generally shitty at trading?
Absolutely, it does.
That's because bad traders "know" things at such a high level as to be worthless. People who know that you have to "buy low and sell high" were probably buying hand over fist when the NASDAQ started to break down in 2000. They probably thought that the 20% "discount" they were getting from the all-time high made it a bargain. That they were proven wrong doesn't negate the fact that "buy low, sell high" IS good advice. It's just that the formulation of that advice is far removed from any tangible way to implement it profitably.
Livermore said that good trading is, in some ways, contrary to human nature and I agree with that (at the risk of contradicting myself on my dislike of generalities).
Quote from logic_man:
Absolutely, it does.
That's because bad traders "know" things at such a high level as to be worthless. People who know that you have to "buy low and sell high" were probably buying hand over fist when the NASDAQ started to break down in 2000. They probably thought that the 20% "discount" they were getting from the all-time high made it a bargain. That they were proven wrong doesn't negate the fact that "buy low, sell high" IS good advice. It's just that the formulation of that advice is far removed from any tangible way to implement it profitably.
Livermore said that good trading is, in some ways, contrary to human nature and I agree with that (at the risk of contradicting myself on my dislike of generalities).
Yes. This speaks to a basic observation: The average individual, whether in markets or out of markets, does not know how to think critically.
Critical thinking skills are just that, skills. As with any skillset, training and practice are required. in some ways, analytical capability is comparable to physical strength - you build physical strength through a consistent routine requiring exercise and effort. You build analytical chops the same way.
Modern society is structured as such that the average individual does not have to think much at all. Most of what we call 'education' is actually rote memorization. Committing a list of facts to memory, or plugging in algebra formulas in step by step fashion for a math test, is not thinking critically. It is the brain's equivalent to following instructions on an assembly line.
Similarly, most modern life activities are rote-routine based. You do not have to think, not really, to balance a checkbook, drive a car, or handle most routine-based jobs where an ability to understand and follow instructions constitutes 90% of performance.
The problem is not alleviated at higher levels of education. There are legions of ivy league rote routine followers, many of whom are paid very large amounts, and who have memorized larger and more complex bodies of facts, or practiced more complex routines - but still, the bulk of these individuals have not learned to think for themselves.
This is one reason why the markets are humbling for so many. If you cannot or will not think for yourself, your best hope is to latch on to someone else's system or methodology, and hope that it works for as long as possible. The alternative is being forced to think critically, which most people are simply terrible at doing. They have very little practice at it, and feel resentful when forced to do it. As Bertrand Russell has said, many men would rather die than think, and in fact do so.
Quote from darkhorse:
Yes. This speaks to a basic observation: The average individual, whether in markets or out of markets, does not know how to think critically.
Critical thinking skills are just that, skills. As with any skillset, training and practice are required. in some ways, analytical capability is comparable to physical strength - you build physical strength through a consistent routine requiring exercise and effort. You build analytical chops the same way.
Modern society is structured as such that the average individual does not have to think much at all. Most of what we call 'education' is actually rote memorization. Committing a list of facts to memory, or plugging in algebra formulas in step by step fashion for a math test, is not thinking critically. It is the brain's equivalent to following instructions on an assembly line.
Similarly, most modern life activities are rote-routine based. You do not have to think, not really, to balance a checkbook, drive a car, or handle most routine-based jobs where an ability to understand and follow instructions constitutes 90% of performance.
The problem is not alleviated at higher levels of education. There are legions of ivy league rote routine followers, many of whom are paid very large amounts, and who have memorized larger and more complex bodies of facts, or practiced more complex routines - but still, the bulk of these individuals have not learned to think for themselves.
This is one reason why the markets are humbling for so many. If you cannot or will not think for yourself, your best hope is to latch on to someone else's system or methodology, and hope that it works for as long as possible. The alternative is being forced to think critically, which most people are simply terrible at doing. They have very little practice at it, and feel resentful when forced to do it. As Bertrand Russell has said, many men would rather die than think, and in fact do so.
I disagree, all that gobbly gook about critical thinking has it's place but it's trumped by avoiding behavioral finance traps and mastering one's emotions.
If you are using critical thinking skills properly, you would naturally avoid all of the behavioral traps anyway and emotions would not come into play. Of course, in addition to just critical thinking, understanding the numerical aspect of the business is just as important. If you have both of these skills, you can reach for the sky.Quote from PHOENIX TRADING:
I disagree, all that gobbly gook about critical thinking has it's place but it's trumped by avoiding behavioral finance traps and mastering one's emotions.
Quote from sle:
If you are using critical thinking skills properly, you would naturally avoid all of the behavioral traps anyway and emotions would not come into play. Of course, in addition to just critical thinking, understanding the numerical aspect of the business is just as important. If you have both of these skills, you can reach for the sky.
IMHO, I think the history of trading and financial markets casts serious doubts on your assertions.
Quote from PHOENIX TRADING:
IMHO, I think the history of trading and financial markets casts serious doubts on your assertions.
There is no association in the CW between trading and financial markets and what is called in ET, critical thinking.
This thread has a few "CW type truisms" and none of them come from critical thinking (nor to they get any significant results) in the intellectual sense of thinking.
People who have blown up (including quants at LTCM, which is a fashionable topic) have exhibited either some sort of fallacy in their numerical analysis or in their critical thinking. Dumb luck and access notwithstanding (which pretty much excludes all market makers), people who were and are making money posses both critical thinking and the numerical skill set in one or another form.Quote from PHOENIX TRADING:
IMHO, I think the history of trading and financial markets casts serious doubts on your assertions.
Quote from PHOENIX TRADING:
I disagree, all that gobbly gook about critical thinking has it's place but it's trumped by avoiding behavioral finance traps and mastering one's emotions.
You didn't even manage to disagree with me properly. If you don't have critical thinking skills, your odds of avoiding the behavioral finance traps will be slim.
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