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Simba, The Best Trader in the World
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Simba, The Best Trader in the World

  #11 (permalink)
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Yes sir!

We surely do! And that because of our OVER rationalizing analytical ability, that the dog lacks!

And yes I agree with the part of fear! What I simply wanted to state is that, due to the dog's created association which works in patterns, he simply has created a positive expectancy for himself. And yes it is true, that he'd be dependent on who's on the other side of the trade, speaking in trading terms.

But then again, you tell me how else would the dog, or you (meaning a trader), expose him/herself to a rewarding opportunity, if you're not taking the trade or showing up in the kitchen?!



Fat Tails View Post
So what do you want to say? That we simply lack the aspiration to become successful traders?



The dog stays outside of the kitchen, because fear is a stronger feeling than greed, and believe me, you have a greedy dog. The only reason that the dog comes back again and again, is that it does not believe in deferred gratification, but it wants its share of your ice cream right now. If dogs had an economy, their savings rate would be negative all the time.


We all struggle to make tomorrow look like yesterday!
Get rid of your past and let the future unfold from the now.
Past performance is not indicative of future results.
/George
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  #12 (permalink)
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Dogs ain't good traders

The dog takes the trade because it is bored and looks for food (basic need, instant gratification).It only waits because there is no choice. If you let it choose, it will eat as much as it can as soon as possible.

A trader also is bored most of the time, because trading requires patience. You won't get instant gratification, because first you have to wait for your setup, and then let your profits run. Taking your profits is very much like running to the fridge and get something to eat. You are not supposed to do this by following an impulse, you need a plan, because trading is counterintuitive.

I rather like the picture of the cat in my garden, which is attentively lurking for a bird or a mouse to approach close enough to come within its reach. The cat has to hold itself back most of the time to be successful. So it needs patience as well. The dog is hold back by fear, so it is not walking into the kitchen, because it is patient, but because you are watching it, and you are the alpha wolf. Dogs are acting under orders and the explanation "Dog is sitting in front of the kitchen and patiently waiting for food, because it understands that it will be rewarded, if it stays outside the kitchen" could be an illusion.

That's why we like dogs. It is much easier to manipulate them than the market.....


George View Post
But then again, you tell me how else would the dog, or you (meaning a trader), expose him/herself to a rewarding opportunity, if you're not taking the trade or showing up in the kitchen?!


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Fat Tails


Fattails....So dogs that overeat have 'Fat Tails' ?

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My dog was a boxer, and it had no tail at all. Maybe he had lost it, when the door of the fridge was quickly shut. Anyhow the tail was already off, when we got the puppy. It did not need it anyhow, because it was not a trading dog.

Traders need fat tails, because without them the market would be random, and who wants to trade lognormally distributed prices?


jungian View Post
Fattails....So dogs that overeat have 'Fat Tails' ?


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Fat Tails,


Interesting approach!

If I understand you correctly. What you're telling me is that by having enough patience in order to wait for the perfect trade, then you'll get your gratification due to the fact/certainty that you're on the right trade (the right edge)!

I'm with you on this, but the only problem I have here is that you are increasing the probability to the sky, and you make it subjective!

If we would be granted a win by waiting, then I'm pretty sure it would be a very easy task to learn!
But the problem still remains due to the fact, that we don't know which way the market is going to move.
We're always playing with 3 variables
-up
-down
-sideways

So, even if you get your edge by waiting, this is still not going to guaranty you a win! So the gratification theory pretty much fails. And by the way, the gratification is always active in a traders mind. Before he enters a trade, he's always basing it on the pre gratification expectation. Other ways he wouldn't take the trade at all.

The problem the traders gets is when he's not gratified, due to the expectations that are not met. And in those states he's starting to act as a non dog, and he/she goes over rationalizing things.

And yes you're right, trading is the most boring thing that has ever been invented. It's all about finding something that works more often then it doesn't, and repeat, and repeat, and repeat, and ...... you get the picture!





Fat Tails View Post
The dog takes the trade because it is bored and looks for food (basic need, instant gratification).It only waits because there is no choice. If you let it choose, it will eat as much as it can as soon as possible.

A trader also is bored most of the time, because trading requires patience. You won't get instant gratification, because first you have to wait for your setup, and then let your profits run. Taking your profits is very much like running to the fridge and get something to eat. You are not supposed to do this by following an impulse, you need a plan, because trading is counterintuitive.

I rather like the picture of the cat in my garden, which is attentively lurking for a bird or a mouse to approach close enough to come within its reach. The cat has to hold itself back most of the time to be successful. So it needs patience as well. The dog is hold back by fear, so it is not walking into the kitchen, because it is patient, but because you are watching it, and you are the alpha wolf. Dogs are acting under orders and the explanation "Dog is sitting in front of the kitchen and patiently waiting for food, because it understands that it will be rewarded, if it stays outside the kitchen" could be an illusion.

That's why we like dogs. It is much easier to manipulate them than the market.....


We all struggle to make tomorrow look like yesterday!
Get rid of your past and let the future unfold from the now.
Past performance is not indicative of future results.
/George
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  #16 (permalink)
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I dunno, these analogies seem incomplete to me. You enter the maze. Then you pick a direction, and the first thing that happens is your broker pops out from the ceiling and slaps you in the face. Then, no matter which direction you picked, you see a huge delicious cake, and beside it stands the market with a knife and a smile. As you approach, he'll either start slicing you pieces of cake, or start stabbing you in the gut. Sometimes a bit of both. You've heard stories about people sticking around and getting the *whole cake*, but all the blood stains on the ground make you wonder if anyone's truly done it. Anyway, you can stop and leave the maze at any time. When you do, your broker will pop out from the floor and slap you in the face again on your way out.

You might quickly decide that it's not worth it, and that it's best to just sit still at the maze entrance. But then your wife calls out to you asking why you haven't brought her back any cake lately...

I wonder how rats would do, if we put them through something like that?

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The Paradox of Choice

I will refer to Barry Schwartz's book again "The Paradox of Choice"

http://thoughtpiece.com/reviews/The%20Paradox%20of%20Choice.pdf?PHPSESSID=a2782ad0f9e9f333fb997340d4a165ad


The important concept of the MAXIMIZER and the SATISFICER are brought up.

He brings up a very simple psychological experiment that speaks volumes as far as trading goes in my opinion....

"People tend to avoid taking risks-they are "risk averse"-when they are deciding among potential gains, potential positive outcomes. (Page 69) Given the option to choose a gain of $100 or the chance to flip a coin for either $200 or nothing, most people choose the sure thing; however, if the choice is to flip a coin to determine whether to lose $200 or nothing, or take a sure loss of $100, most will flip the coin and hope for no loss. "



There are two types of decision-makers.

Maximizers are people that employ strategies to get the very best by examining all possible alternatives.

Satisficers are satisfied with "good enough". They may have standards that are quite high but once they meet those criteria they select that option.

Maximizers are often quite successful and high achieving but they also tend to be less optimistic, less satisfied, have lower self-esteem, and are less happy than satisficers. (Wow!)

Schwartz believes we can only be anything we want to be in an environment where constraint is possible.



Even with a winning system with a positive expectancy, keep in mind the most common trading problems (since we are humans/not dogs/not algorithms). I am sure EVERY trader has (had) atleast 1 or more of the following
problems:


1. Letting loser go to far.
2. Cutting winners short.
3. Hesitation in taking signals after a string of losses.
4. Overtrading or revenge trading.
5. Looking for the holy grail, or a 'better way'
6. Regret Syndrome which is so important I include it twice (see 2) 'The coulda woulda shoulda held on longer syndrome'

I think all of these problems are what makes trading such a tough game.


QUOTE from a commentary on Schwartz's book:

"Good decision-making involves knowing your goal(s), evaluating the importance of each goal, arraying the options, evaluating how each option will meet the goal(s), picking an option and later using the consequences of your choice to modify the way you evaluate future options. (Page 47) While the process seems straightforward, the abundance of information available-some good and some not so good-makes it more difficult to evaluate options. We are bombarded with information, whose purpose is to make us believe that one product, service or point-of-view is superior. It's more difficult to determine which is most relevant to our specific goal(s) because there so much to consider.

Schwartz describes two types of decision-makers, the maximizers that look for the best and the satisficers who seek a good-enough solution. The maximizers tend to be less satisfied with their decisions because they are always concerned that there is a better option they have overlooked. Satisficers, however, are content with an excellent option, and do not worry that a better option exists somewhere beyond their field of vision.

"Losses hurt more than gains satisfy," according to research cited by Schwartz. Buyers take greater risk to avoid a loss than they will take to achieve a gain. "People tend to avoid taking risks-they are "risk averse"-when they are deciding among potential gains, potential positive outcomes. (Page 69) Given the option to choose a gain of $100 or the chance to flip a coin for either $200 or nothing, most people choose the sure thing; however, if the choice is to flip a coin to determine whether to lose $200 or nothing, or take a sure loss of $100, most will flip the coin and hope for no loss.

Schwartz notes that as options increase and the effort involved in making decisions increases, mistakes hurt more. Too many options means the decisions require more effort, mistakes are made more often and the psychological consequences of mistakes are more severe. (Page 74)"



Cheers
Jungian

PS
If you want to know if you are a MAXIMIZER, just a hint:

If you looked at the MFE (Maximum Favourable Excursion) on each of your trades..chances are good you are one!

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  #18 (permalink)
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I just wanted to say that the most difficult thing with trading is patience. Brett Steenbarger - in his trader feed blog - mentioned that he had a much higher probability to fail, if he entered a trade during the first 15 minutes of his session. I had the same experience. When the market opens, I am eager to trade, but I have to hold back myself and wait for an appropriate setup.

I am a discretionary trader, that means that my setup and trigger bars are defined, but depending on other criteria, I might not take the trade. Patience is what refrains me from overtrading, and patience is what lets my winners run. Gratification comes from finally entering a trade after that waiting period and exiting the trade, when booking profits.

The cat only has an edge, if the bird comes close enough, and there is some discretion to define what is close enough. My countertrade setups have some discretion to define a high volume churn bar, the volume churn can be outstanding (the bird is really close) or just meet the defined criteria, which would be the highest volume per range during the lookback period of 20 bars (the bird is actually close enough to try, but it might be a failure).

What I wanted to say: The dog looks for instant gratification. As a trader you should not do that, because the need for instant gratification will lure you into bad trades and let you exit good trades early! This is why trading is counterintuitive.

So actually I need to rationalize, because this is the only way to fight my intuition, which tells me "that trade looks good, just enter it" or some time later "quick, quick, take your profits before you lose it again". Yes, I am suffering from from two ailments -> pattern completion (brain anticipating or completing something that is n't there) and -> loss aversion. The most difficult part of trading is to overcome them and follow your rules.


George View Post
So, even if you get your edge by waiting, this is still not going to guaranty you a win! So the gratification theory pretty much fails. And by the way, the gratification is always active in a traders mind. Before he enters a trade, he's always basing it on the pre gratification expectation. Other ways he wouldn't take the trade at all.

The problem the traders gets is when he's not gratified, due to the expectations that are not met. And in those states he's starting to act as a non dog, and he/she goes over rationalizing things.

And yes you're right, trading is the most boring thing that has ever been invented. It's all about finding something that works more often then it doesn't, and repeat, and repeat, and repeat, and ...... you get the picture!


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Richard View Post
I dunno, these analogies seem incomplete to me. You enter the maze. Then you pick a direction, and the first thing that happens is your broker pops out from the ceiling and slaps you in the face. Then, no matter which direction you picked, you see a huge delicious cake, and beside it stands the market with a knife and a smile. As you approach, he'll either start slicing you pieces of cake, or start stabbing you in the gut. Sometimes a bit of both. You've heard stories about people sticking around and getting the *whole cake*, but all the blood stains on the ground make you wonder if anyone's truly done it. Anyway, you can stop and leave the maze at any time. When you do, your broker will pop out from the floor and slap you in the face again on your way out.

You might quickly decide that it's not worth it, and that it's best to just sit still at the maze entrance. But then your wife calls out to you asking why you haven't brought her back any cake lately...

I wonder how rats would do, if we put them through something like that?

The rat always turns left.........rats are better traders than humans.

The idea of consciousness: synapses ... - Google Books
http://itre.cis.upenn.edu/~myl/languagelog/archives/002700.html

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Jeff Castille View Post

The rat thing was already covered on post #8 in this thread, and while it's cute to say that it makes them better traders, my point was to question whether that even makes sense. Trading does not feature 60% winning mechanical setups that makes wealth a matter as simple as "always turning left." Too many traders waste all their time chasing the slightly less-holy probabilistic grail.

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