The Psychological Gap

[Glenn]

Glenn

"Imho the best policy is to assume that you are wrong every time you enter."

Douglas suggests that this (assume you are going to lose) is a bad loop, as if you are truly trading in the zone, you do not need to worry about being wrong or right or winning or losing. All you do is take your edge, everytime it appears, knowing that over a series of trades you will be up. It is immpossible to tell the outcome of an individual trade, though if you have an edge, you should be sure that over a series of 20+ trades you should be ahead. This is all you need to know.

If you assume you are wrong everytime you enter, then you are preparing yourself and concerned about the outcome and not free to think objectivly. You should not have to set yourself up with protection from a loss.

Quite right. However this thread was about people who do not like to be wrong.
That they cannot countenance ever being wrong is a basic problem which they will have to overcome.
So my suggestion was just to offer a different way of looking at things as a first step.
The end goal is as you describe.
Glenn

 

[ducati998]

ANCHORS...............the stimulus can be of any type of sensory input.Visual, Auditory, Kinesthetic, Olfactory, Gustatory. Your "state" or "emotional status" is driven at any moment in time by your sensory experience, your thought or "cognitive" process, your "sub-conscious" and physiology.

When an anchor is triggered, memories can be released. They may be positive or negative.

In relation to trading, this can ruin a perfectly valid trade, or prompt an irrational trade, invalidating any trading plan that you may have had, through a change in your "emotional state"

Do "Traders" and "Investors" use anchors differently?I would contend that they are used very differently.So differently in point of fact, that it may well determine your choice of methodology.

Personally, and I know there are a number of "psychologists" out there, this example is a classic case of "ANCHOR" triggering.
The answer for "rossored" might be a complete rethink on his methodology.
I am not suggesting a switch to fundamentals, however, hesitation in a daytrader can be and usually is fatal. In a swing trader, or position trader, the danger is far less, but present none the less.

cheers d998

 

[dbphoenix]

dbp,
How does "testing" differ from "belief"?

I'll be happy to help clarify issues if I can for those who've read the books, but I'm not clever enough to distill two books into a message board post that would persuade you. Sorry.

 

[frugi]

Quote:
Douglas also said "the degree to which you think you know, assume you know, or in any way need to know what is going to happen next is equal to the degree to which you will fail as a trader".


And that is rather a contradiction.
If you have no faith in your setup that you have tested, then why place money on it?

You place money on it simply because you know (from your extensive testing) that it has approximately a 60% probability of returning you a profit.

If you believed that it had a 0% probability, then you would not take the trade, or trade in the opposite direction, as that now assumes a 100% probability.

If testing has any validity, then belief becomes a given.

Quote:
Douglas suggests that this (assume you are going to lose) is a bad loop, as if you are truly trading in the zone, you do not need to worry about being wrong or right or winning or losing. All you do is take your edge, everytime it appears, knowing that over a series of trades you will be up. It is immpossible to tell the outcome of an individual trade, though if you have an edge, you should be sure that over a series of 20+ trades you should be ahead. This is all you need to know.

Here is his rebuttal of his previous quote.
The belief resides in "the edge" and "a series of trades you will be up"

The edge is derived from empirical testing, which leads to a belief in its efficacy over a number of trades, as you say. I do not see the contradiction in the second quotation. When you trust your edge you do not care where you think the market may be going on any individual trade because that is irrelevant, and, more importantly, can make you tinker with perfectly good positions because you may think "This time I know better." The edge's potency relies on its being allowed to prove itself, over time.

In a hand of poker you can expect AA to win a large percentage of pots, assuming you play appropriately, but that does not mean that you always expect it to, on a single hand. Suddenly assuming it will and, e.g, raising considerably more than usual would clearly be a mistake, even if you eventually won that particular hand. In fact that would probably be the worst outcome because then you would be more tempted to disregard your system again in the future.

 

[TheBramble]

'belief' and 'testing' are antagonistic.

'Belief 'is the unquestioning acceptance of that given to you by a higher (self-assigned) authority.

'Testing' is the process by which you set about establishing empirical 'truth' from premise(s) through hypothesis(es) to result(s).

The first is dangerous in any endeavour.

The second is useful in any endeavour.

 

[frugi]

Bramble,

IMHO your definition of belief is too narrow and it has room for several shades.

One can have belief in empirically tested scientific theories and still not be sure they are the truth, even if they seem more probable than, say, unquestioning religious beliefs. I do not see a basic distinction between the two. To say one is a belief and the other is not is to assume truth when one may not be in possession of it, despite all evidence to the contrary. I guess this is more of a semantic distinction than anything else.

BTW how's your whip round doing?

 

[dbphoenix]

Those who've read The Disciplined Trader are likely to have a different view of "belief" than those who have not. TDT devotes a considerable amount of space to the issue of how our belief systems determine how we perceive the markets and, in turn, create our particular conceptual constructs. Once one understands how our belief systems can precipitate deterioration and failure of discipline, then understands how to overcome this obstacle, the issue of "belief" becomes extraneous to the task.

 

[hagadol]

When it comes to not being able to pull the trigger....................In my personal experience, it is when I suddenly expect or hope for a certain winner.

"Be certain that certainty does not exist."

However good your edge or however good you think your edge is based on prior patterns, it only takes one trader to put on a postion, which makes the now moment different from anything which has happened before. So however good you think your edge is, anything can happen, on this next trade.

"Play like the casino."

Remember that casinos are raking in millions from individual events with an uncertain outcome. As you enter a position, remind yourself that you are the casino, not the player, assuming you have establshed you have an edge.

I doubt that it is a sensible use of energy to prepare yourself for loss, because if you have a valid edge, the loss does not concern you. Of course easier said than done. The secret is to transfer this interlectual knowledge into your absolute belief.

(Hope this makes sense. Written after 3 pints of dodgy Israeli beer)

 

[TheBramble]

If you believe my definition of 'belief' to be too narrow then a wider definition is obviously available (from you, as you've challenged it) , but if my definition serves as a convenient enough model for us to work with then it meets your own criteria for probable usefulness.

The whip round has been postponed due to inclement weather - lashings of pain (sorry) rain.

 

[frugi]

The casino's edge is a mathematical given over a number of "trades". Unfortunately the market does not provide such concrete assurance, although at least humans en masse tend to be reasonably, if not so absolutely, predictable, and therein can lie a weaker, but still effective, edge, especially when allied with considerable experience, IMHO. Well I hope so or I'd better open a themed casino with Bramble I think we're actually agreeing, hagadol, despite a confluence of beer and wine, respectively

 

[TheBramble]

Those who've read The Disciplined Trader are likely to have a different view of "belief" than those who have not. TDT devotes a considerable amount of space to the issue of how our belief systems determine how we perceive the markets and, in turn, create our particular conceptual constructs. Once one understands how our belief systems can precipitate deterioration and failure of discipline, then understands how to overcome this obstacle, the issue of "belief" becomes extraneous to the task.

dbp - I understand what you are trying to say here, but it requires a belief in the subject matter to which you refer for it to be meaningful.

Mark Douglas' opinions on trader psychology are either believed, or not.

Not picking a fight at all - just highlighting the difficulty in working from the same platform in which the problem exists in any attempt to resolve the problem itself.

 

[dbphoenix]

The casino's edge is a mathematical given over a number of "trades". Unfortunately the market does not provide such concrete assurance, although at least humans en masse tend to be reasonably, if not so absolutely, predictable, and therein can lie a weaker. but still effective, edge, especially when allied with considerable experience, IMHO.

Weaker, perhaps, but still powerful, at least powerful enough to provide a living for those who choose this particular path.

You ought to read the books some time.

 

[TheBramble]

You ought to read the books some time.

Which books?

 

[frugi]

Disregarding rationalism and our personal definitions of belief, do we agree that a belief (specifically in so far as it affects one's choice of setups) supported by rigorous empirical testing is better than blind hope based on no testing at all?

 

[dbphoenix]

dbp - I understand what you are trying to say here, but it requires a belief in the subject matter to which you refer for it to be meaningful.

Mark Douglas' opinions on trader psychology are either believed, or not.

Which is why I focus my effort on helping to clarify issues for those who are interested in the subject and want to understand it more thoroughly. If one isn't interested in it or thinks it's all hogwash, I have no interest in trying to persuade him. If he's happy with whatever it is he's doing, that's okay by me.

Even so, a belief that our perception of reality is determined by what we believe it to be would seem to be on a plane with a "belief" in gravity. But then what Douglas proposes is perfectly in line with what I know about concept development, so I don't have any trouble with it.

 

[hagadol]

Frugi

If you don't have an edge (like a casino) what is the point of trading with real money, in an attempt to profit, assuming profit is your aim ?

Surely you have to absolutely know you have an edge (like a casino) or what is the point of the exercise ?


Hagadol

 

[dbphoenix]

Which books?

Douglas's books.

 

[dbphoenix]

Disregarding rationalism and our personal definitions of belief, do we agree that a belief (specifically in so far as it affects one's choice of setups) supported by rigorous empirical testing is better than blind hope based on no testing at all?

That would depend on what you mean by "belief". One does not "believe" that a particular drug works. Either it does or it doesn't. That's the point of testing. If one has to resort to belief, he'd better look elsewhere.

 

[frugi]

I've read TDT and enjoyed it, dbp, especially the theory of storage of memory as neg pos/energy of varying amplitude and the consequent disguised affect on our future actions. There's some good stuff in there, no mistake, though many seem to disagree. From the little I've heard about it, TITZ has been accused of repeating a lot of what Douglas already said in TDT and is dreadfully written, but I will try and dig it out of the library regardless. Never judge a book by its review and all that.

 

[TheBramble]

Even so, a belief that our perception of reality is determined by what we believe it to be would seem to be on a plane with a "belief" in gravity. But then what Douglas proposes is perfectly in line with what I know about concept development, so I don't have any trouble with it.

Sorry mate, but you're ducking the issue.

You HAVE to have a belief in something to start with otherwise there's no frame of reference.

You mention gravity. It's a convenient model which we choose to call a belief. Until a better explanation comes along.

The 'fact' that "what Douglas proposes is perfectly in line with what I know about concept development" means nothing to anyone but you - and the people that 'believe' in you.

You simply can't argue belief from the same context or level on which that belief exists.

You have to take a position (as you have) that 'there exists an unimpeachable source which we must all believe in as a basic premise' - which, of course, there isn't.

This is major hair-splitting and quite pointless for trading endeavours, and addresses in no way RR's initial post, but does provide a useful antidote to going to bed.