dbphoenix
Guest Author
- Messages
- 6,954
- Likes
- 1,266
chump said:I'm a bit wary of hindsight charts ..I know what you mean about their use ,but I still remember how much earlier I did my very best work with them ..best in the sense I chased my tail.
Hindsight charts are fine for illustrating principles. In fact, they're nearly essential. However, one must then take the next step and translate those principles into a trading strategy that enables him to make decisions based on those principles in real time, e.g., "failure to breach".
Also note that there's no volume window on these charts. The "volume bar", like an indicator, is useful for confirming what price is saying, but one must first listen to what's being said (understanding what's being said is part of the function of hindsight charts).
Db
(in)correct calls and stops
"in the light of the successfull exploit of a strategy, what dataset (presentation) of marketbehavior will encourage the correct strategic viewpoint?"
Given a strategy, amongst other freedoms, there is unlimited freedom in the selection of a datasets and the tools of presentation. Key to me is the relevance to making live marketcalls and the placement of entry- or exit-stops.
Currently I use 6 tools: keylevels, candlesticks(time and price), ma's, volume, orderbook.
At the same time, Im fully aware that relevance is key and that less might be more.
For instance: I do use creditcards, but only if its the "best" option to pay.
Regards
My understanding of your line:chump said:
"in the light of the successfull exploit of a strategy, what dataset (presentation) of marketbehavior will encourage the correct strategic viewpoint?"
Given a strategy, amongst other freedoms, there is unlimited freedom in the selection of a datasets and the tools of presentation. Key to me is the relevance to making live marketcalls and the placement of entry- or exit-stops.
Currently I use 6 tools: keylevels, candlesticks(time and price), ma's, volume, orderbook.
At the same time, Im fully aware that relevance is key and that less might be more.
For instance: I do use creditcards, but only if its the "best" option to pay.
Regards
Last edited:
dbphoenix
Guest Author
- Messages
- 6,954
- Likes
- 1,266
chump said:
To some extent, this is what Magee refers to as the map and the territory. If we draw our map directly from the territory, it will likely be a reliable map. But when we focus on the map instead of the territory, we tend to move farther and farther from the latter, and the longer we fail to check our maps against the territory, the more likely we are to be in real trouble. All of which is why I decided some time ago to focus on price.
This is not to say that indicators can't be useful. But they are useful only to the extent that they confirm (or don't) what one sees in price action. If one begins to rely on them for signals regardless of what price is doing, he is likely to end up in trouble. Maybe not this week or this month or this year, but eventually.
Db
Thanks
The two ma's, I mentioned earlier, are reserved for quick glance assesments of two sister intermarket instruments of SMH.
By the way:
"and the bit I like inparticular ..what must happen to price from here (not 'will happen') ..only what must happen to price from here to create a specific situation that I can recognise without hesitation. A place that delivers knowing ...a knowing of quick ,cheap strategic failure , or conversely results in the opposite side of the market recognising that they are in the wrong position and being forced to react to that delivering the immediate strategic advantage which can be managed to a conclusive positive outcome. ...it's chess for money"
is a strong contender for the most important piece of tekst I have read on t2w in 2006.
Rest assure not one ma on SMH, the only vehicel I trade. For SMH only candles, keylines, volume and the almighty orderbook dynamic.chump said:
The two ma's, I mentioned earlier, are reserved for quick glance assesments of two sister intermarket instruments of SMH.
By the way:
"and the bit I like inparticular ..what must happen to price from here (not 'will happen') ..only what must happen to price from here to create a specific situation that I can recognise without hesitation. A place that delivers knowing ...a knowing of quick ,cheap strategic failure , or conversely results in the opposite side of the market recognising that they are in the wrong position and being forced to react to that delivering the immediate strategic advantage which can be managed to a conclusive positive outcome. ...it's chess for money"
is a strong contender for the most important piece of tekst I have read on t2w in 2006.
dbphoenix
Guest Author
- Messages
- 6,954
- Likes
- 1,266
chump said:Curtis
You're welcome , I've had help myself from all over the place ...not a lead me by the nose to the right answer type of help ..just comments ,charts , or text that make you think and help direct your working efforts.
DBP,
I always wondered what was meant by "mapping the territory" .After looking at so many charts I don't think drawing ma's would add any 'value' for me anyway now, as I know from looking at a chart where they are , not precisely ,but rough enough (up,down or sideways) given I am not interested in them for signal purposes. Some of the UK sectors I don't have charts for at all, but I log the data in just number form and that seems sufficient as well. Not advocating that particularly by the way as doing without computer drawn charts just for the sake of it does not seem to offer any real benefits to me. It takes a bit longer to take in the data when itt is not in visual format.
Charts are a visual record of price movement. If one isn't interested in price movement, one may not find much of value in them. As a map, however, they are about as close to the "territory" of price movement as you're going to get, one degree of separation, if you will.
But then we begin to fiddle with it: time bars, volume bars, tic bars, range bars, equivolume bars, candles, lines, histograms, etc, etc. Then we lay on the Fib and the Gann and the Wolfe and the Pivot Points. Plus all the infinite number of indicators with all their variations. Eventually price is nearly lost, and we can't even determine the trend, much less where we are in it. This is analogous to travelling someplace and drawing a map of that place, then moving on to some other place, checking off that particular task, believing that it's "done", relying on the map one has drawn for far too long. Revisiting that place after a number of years, one finds that the territory has changed dramatically, that landmarks and signposts are no longer there, that one's map bears little relation to what is, only to what was.
In the market, the transaction and the agreed-upon price is the "territory" and everything begins there. If we massage it, or ignore it entirely, we become disconnected with what the market is doing. In order to know what to do at the time that one needs to do it, one has to be connected with what is happening in front of him, not on a fanciful representation of it. He has to walk the territory, not just trace a route on a map, a route that may not even exist in the present.
Db
dbphoenix
Guest Author
- Messages
- 6,954
- Likes
- 1,266
About maps. Here's an excerpt from Magee's book:
Jones buys 100 shares of Fruehauf Trailer at 24. He will tell you with all the enthusiasm of the true believer what a fine company Fruehauf is, and what excellent prospects they have for the coming 12 months. He will tell you everything he knows that is good about the stock, but he will not tell you anything that is bad. For him there is no bad. His mind is made up. He does not want to be confused with facts. He is not looking for the truth; he has found it. And like a politician or a minister or a trial lawyer, he is not trying to see reality as it is. He is trying to keep himself convinced that his map of Fruehauf is actually a good one. He wants to hear nothing that will upset his all-out judgment.
What he wants and needs is argument to bolster his shaky judgment and make him feel a little more secure. Therefore, he will not read, or he will forget, anything that appears in the Wall Street Journal that threatens his faith that Fruehauf is all good. And he will clip and treasure the favorable comments or reports that tend to show that he was in fact right. The data he collects are no doubt true, but they present a very one-sided picture.
Suppose, now, that Fruehauf stock sells off to 18. Will he re-examine the territory and see whether there have been essential changes in the situation “out there”? Or will he, more often than not, cling to the old map of his original opinion and simply go on a search for more evidence to confirm his rightness in that opinion? He may even buy another hundred shares on the basis that if his original conclusion was valid, then this new purchase will lower the average cost of all the shares he owns, so that even a moderate advance would put him back in the profit column.
What is he doing? Is he making an impartial evaluation of a stock? Or is he defending his obsolete opinion in the face of present facts? Is he acting in a way that is likely to make him profits? Or is he setting a higher value on being right than on the money involved.
Let Fruehauf drop to $12 a share. Will this man sell now? No. It would hurt too much to sell. Who would it hurt? Why, it would hurt him, of course. How would it hurt him? Well, it would mean a loss in money. But isn’t it clear that the larger loss is not measured in dollars, but in pride? It will hurt less to sweep the facts under the rug, delude one’s self, and maintain that one was right in the beginning and is right still, than it will to admit that one was a fool. To put it another way: If he has decid-ed, “The stock is worth $60 a share,” and the market says $12 a share, then the market must be wrong. For the sacred map cannot be wrong. It would hurt too much.
Call it fantasy, prejudice, opinion, judgment, or what you will, when the high abstraction collides with bare facts, it is the facts that have to give way if your value system places such a high premium on rightness that your tender ego cannot suffer the slightest setback. Many men cannot afford to take monetary losses in the market, not because of the money itself so much as because of their oversensitive, poorly-trained selves. The humiliation would be unbearable.
The only way that occurs to such men to prevent such painful situations is to strive to be always or nearly always right. If by study and extreme care they could avoid making mistakes, they would not be exposed to the hard necessity of having to take humiliating losses over and over again. And so? And so, too often, rather than settle for a relatively minor loss, our friend will stand firmly on the deck of his first judgment, and will go down with the ship. The history of Wall Street, and of LaSalle Street, too, is studded with the stories of men who refused to be wrong and who ended up ruined, with only the tattered shreds of their false pride left to them for consolation.
How to avoid such unnecessary tragedies? Be always right? You know that isn’t possible. Keep away from the speculative market entirely? That is one answer, but it’s rather like burning down the barn to get rid of the rats.
There are other answers, and they are simple. They are standing there, right at hand, like elephants in the front hall, if we can only see them. In the first place, there is no rule that we can’t change our minds. It’s not necessarily wrong or a mistake to believe that Fruehauf stock will go up from $24 to $60. What is wrong is sticking to the opinion after the evidence clearly shows that the conditions have changed. The rational approach is to be ready at all times to consider new evidence, and to revise the map accordingly.
In the second place, it need not hurt so much to have to change one’s mind. Unless we are so wedded to absolute standards that we cannot entertain anything that will conflict with what we decided in the first place, we can alter the map to any degree we want, or completely reverse our position. If we have a good method of evaluation, in which we have confidence on the basis of observed and verified results, we will not have to think of these changes of opinion as defeats. They are simply part of the process of keeping our maps up to date. If we plan to travel to Boston over Route 20 and there is construction underway on a five-mile section of the route, we don’t try to blast our way through. We take the detour. We go by the territory as it now is, not by the old map. And if the road is blocked entirely and no detour possible, we don’t shoot ourselves, or run our car over a cliff; we simply turn around and go back home and try again tomorrow.
It is perfectly amazing how many losses you can take in the market and not get hurt very much, provided you are able to cut these losses short as soon as a change of trend appears. In order to do that, you will have to keep an open mind—not open just to favorable things that confirm what you wanted to believe in the first place, but open to any reports that will have a bearing on the situation, whether good or bad.
The really serious losses come when someone closes his mind and stubbornly refuses to recognize new factors in the situation. Of course, it’s not enough merely to keep losses small. In order to keep solvent, one must also have some profits; but profits, too, bring their psychological woes.
Jones buys 100 shares of Fruehauf Trailer at 24. He will tell you with all the enthusiasm of the true believer what a fine company Fruehauf is, and what excellent prospects they have for the coming 12 months. He will tell you everything he knows that is good about the stock, but he will not tell you anything that is bad. For him there is no bad. His mind is made up. He does not want to be confused with facts. He is not looking for the truth; he has found it. And like a politician or a minister or a trial lawyer, he is not trying to see reality as it is. He is trying to keep himself convinced that his map of Fruehauf is actually a good one. He wants to hear nothing that will upset his all-out judgment.
What he wants and needs is argument to bolster his shaky judgment and make him feel a little more secure. Therefore, he will not read, or he will forget, anything that appears in the Wall Street Journal that threatens his faith that Fruehauf is all good. And he will clip and treasure the favorable comments or reports that tend to show that he was in fact right. The data he collects are no doubt true, but they present a very one-sided picture.
Suppose, now, that Fruehauf stock sells off to 18. Will he re-examine the territory and see whether there have been essential changes in the situation “out there”? Or will he, more often than not, cling to the old map of his original opinion and simply go on a search for more evidence to confirm his rightness in that opinion? He may even buy another hundred shares on the basis that if his original conclusion was valid, then this new purchase will lower the average cost of all the shares he owns, so that even a moderate advance would put him back in the profit column.
What is he doing? Is he making an impartial evaluation of a stock? Or is he defending his obsolete opinion in the face of present facts? Is he acting in a way that is likely to make him profits? Or is he setting a higher value on being right than on the money involved.
Let Fruehauf drop to $12 a share. Will this man sell now? No. It would hurt too much to sell. Who would it hurt? Why, it would hurt him, of course. How would it hurt him? Well, it would mean a loss in money. But isn’t it clear that the larger loss is not measured in dollars, but in pride? It will hurt less to sweep the facts under the rug, delude one’s self, and maintain that one was right in the beginning and is right still, than it will to admit that one was a fool. To put it another way: If he has decid-ed, “The stock is worth $60 a share,” and the market says $12 a share, then the market must be wrong. For the sacred map cannot be wrong. It would hurt too much.
Call it fantasy, prejudice, opinion, judgment, or what you will, when the high abstraction collides with bare facts, it is the facts that have to give way if your value system places such a high premium on rightness that your tender ego cannot suffer the slightest setback. Many men cannot afford to take monetary losses in the market, not because of the money itself so much as because of their oversensitive, poorly-trained selves. The humiliation would be unbearable.
The only way that occurs to such men to prevent such painful situations is to strive to be always or nearly always right. If by study and extreme care they could avoid making mistakes, they would not be exposed to the hard necessity of having to take humiliating losses over and over again. And so? And so, too often, rather than settle for a relatively minor loss, our friend will stand firmly on the deck of his first judgment, and will go down with the ship. The history of Wall Street, and of LaSalle Street, too, is studded with the stories of men who refused to be wrong and who ended up ruined, with only the tattered shreds of their false pride left to them for consolation.
How to avoid such unnecessary tragedies? Be always right? You know that isn’t possible. Keep away from the speculative market entirely? That is one answer, but it’s rather like burning down the barn to get rid of the rats.
There are other answers, and they are simple. They are standing there, right at hand, like elephants in the front hall, if we can only see them. In the first place, there is no rule that we can’t change our minds. It’s not necessarily wrong or a mistake to believe that Fruehauf stock will go up from $24 to $60. What is wrong is sticking to the opinion after the evidence clearly shows that the conditions have changed. The rational approach is to be ready at all times to consider new evidence, and to revise the map accordingly.
In the second place, it need not hurt so much to have to change one’s mind. Unless we are so wedded to absolute standards that we cannot entertain anything that will conflict with what we decided in the first place, we can alter the map to any degree we want, or completely reverse our position. If we have a good method of evaluation, in which we have confidence on the basis of observed and verified results, we will not have to think of these changes of opinion as defeats. They are simply part of the process of keeping our maps up to date. If we plan to travel to Boston over Route 20 and there is construction underway on a five-mile section of the route, we don’t try to blast our way through. We take the detour. We go by the territory as it now is, not by the old map. And if the road is blocked entirely and no detour possible, we don’t shoot ourselves, or run our car over a cliff; we simply turn around and go back home and try again tomorrow.
It is perfectly amazing how many losses you can take in the market and not get hurt very much, provided you are able to cut these losses short as soon as a change of trend appears. In order to do that, you will have to keep an open mind—not open just to favorable things that confirm what you wanted to believe in the first place, but open to any reports that will have a bearing on the situation, whether good or bad.
The really serious losses come when someone closes his mind and stubbornly refuses to recognize new factors in the situation. Of course, it’s not enough merely to keep losses small. In order to keep solvent, one must also have some profits; but profits, too, bring their psychological woes.
dbphoenix
Guest Author
- Messages
- 6,954
- Likes
- 1,266
chump said:Magee sounds like an astute individual who's spent no little time observing human behaviour.
What he's highlighting is from very early ages most of us THINK INCORRECTLY and equate what we know ,or don't know with some notion of what we are worth as a person...nuts ,but that's about how it works for many people even as adults (did I say look at our forums
The highlight of my year was my daughters form teacher telling me she is one of the very few who always asks without hesitation for what she does not know ..there's no reason why she needs to reinvent this nonsensical wheel of behaviour when I 've already done it
Your daughter is lucky. Most people -- at least in our culture -- are "taught" not to ask questions. In fact, just the opposite (don't rock the boat). People who ask questions are too often made to feel stupid (I'm not referring to those who ask questions with some answer already in their heads, looking for some sort of legitimacy to what they already think or believe).
It's silly to believe that one can't learn from the experiences of others. But then one can't be expected to be a success at brain surgery on the first day.
As for Magee, that was an important book to me. It's first on my reading list, though I don't think anyone else has really taken to it. But chacun a son gout.
Db
dbphoenix
Guest Author
- Messages
- 6,954
- Likes
- 1,266
I was asked via PM to do another of these, so here's the next zoom in.
Note that as the interval gets smaller, the opportunities increase, but so does the necessity for strict rules. For example, one of the arrows has an asterisk, there to show that while the swing point is lower than the immediately preceding swing point low, it is higher than the more significant low made the previous Friday. Therefore, "higher low" has no intrinsic meaning. The trader must instead place all of this in context and define very clearly just what it is that he is looking for.
In this case, if the trader were not already in, he most likely would not enter long at this point; he would most likely wait for confirmation of an uptrend and enter at the next higher low (this occurs the next day, Wednesday). Or he may go ahead and take the risk, entering on Tuesday. While doing so entails more risk, it also may mean a tighter stop, depending on how the trader manages stops. There is thus no "best" way to manage the trade. After all, the trader may have entered long at the Friday low and never have closed his long trade.
Note that as the interval gets smaller, the opportunities increase, but so does the necessity for strict rules. For example, one of the arrows has an asterisk, there to show that while the swing point is lower than the immediately preceding swing point low, it is higher than the more significant low made the previous Friday. Therefore, "higher low" has no intrinsic meaning. The trader must instead place all of this in context and define very clearly just what it is that he is looking for.
In this case, if the trader were not already in, he most likely would not enter long at this point; he would most likely wait for confirmation of an uptrend and enter at the next higher low (this occurs the next day, Wednesday). Or he may go ahead and take the risk, entering on Tuesday. While doing so entails more risk, it also may mean a tighter stop, depending on how the trader manages stops. There is thus no "best" way to manage the trade. After all, the trader may have entered long at the Friday low and never have closed his long trade.
Attachments
dbphoenix
Guest Author
- Messages
- 6,954
- Likes
- 1,266
This is as far as I go in. This time, though, I've only drawn arrows at those points I'd pay attention to. Anyone who wants to can try to label these arrows "correctly", either as a quiz or for play.
The point, of course, is that one needn't go through a lot of psychological or metaphysical angst in order to trade profitably. It's really pretty simple if one can ignore most of what the so-called "experts" are throwing at you, usually for a fee. But one does have to look at a lot of charts and put in quite a bit of screen time. There's just no substitute for watching the bars move if one is going to trade intraday, or even if one is going to hold overnight.
Db
The point, of course, is that one needn't go through a lot of psychological or metaphysical angst in order to trade profitably. It's really pretty simple if one can ignore most of what the so-called "experts" are throwing at you, usually for a fee. But one does have to look at a lot of charts and put in quite a bit of screen time. There's just no substitute for watching the bars move if one is going to trade intraday, or even if one is going to hold overnight.
Db
Attachments
dbphoenix
Guest Author
- Messages
- 6,954
- Likes
- 1,266
chump said:Just spotted this in the bushes near by...
"Now he says he does something very different. When he hears something he agrees with, he assumes that it is false and begins to work out why he believes it,"
Now this is not actually being contrarian ,or even contrarian for "the sake of it" at all.
This is actually the basis for modern scientific experimentation as per Popper.
That is , we start out with an idea (or belief as it is being discussed over yonder). In order to prove same we start out trying to test it to destruction (that is prove it to be false). If we can not find a means of disproving it then until we do ... ergo it means it is true (that is we can believe it for the moment).
I only mention this because there is a direct issue with this approach and our chart reading and strategy development.
When you have an idea for a trading strategy it is amazingly easy to prove it by simply looking only at those instances where it did work. LOL...what we are in effect doing is setting ourselves up to find what we are looking for as opposed to the FACTS. Nothing better fr this purpose than hindsight charts being misused.
For example if I think I can make money out of a 3 line break and go looking at a chart for instances where this did indeed work then all I have proveen is that I can find what I am looking for. If however I make my focus all of those instances where it did not work then I am in effect testing this idea to destruction. By observing where it did not work I then take that data and observe it's presence ,or absence in those instances where it did work. I therefore refine my belief in this strategy to a belief that it can only work in very specific circumstances. This process leads to understanding why something may be so. This of course has nothing to do with correct thinking as I wouldn't wish anyone reading this to be flabbergasted ,or any kind of gasted
Careful, there, chump. You're perilously close to an epiphany
Reminds me of the CWH survivorship bias upon which Wm O'Neil leans so heavily. (Class, what's the difference between a CWH and a triple top? Now let's not always see the same hands . . . )
Db
erierambler
Well-known member
- Messages
- 265
- Likes
- 8
chump said:If however I make my focus all of those instances where it did not work then I am in effect testing this idea to destruction. By observing where it did not work I then take that data and observe it's presence ,or absence in those instances where it did work. I therefore refine my belief in this strategy to a belief that it can only work in very specific circumstances. This process leads to understanding why something may be so. This of course has nothing to do with correct thinking as I wouldn't wish anyone reading this to be flabbergasted ,or any kind of gasted
.
Hi Chump,
As I have one strategy visually on my charts ( see attachment ), I'm going to have to chew on what you said for a while. Sometimes things take a while to sink in . I'm referring to "this process leads to understanding why something may be so".
erie
Attachments
firewalker99
Legendary member
- Messages
- 6,655
- Likes
- 612
I hadn't noticed this "spin-off" thread until last week. Looks like it's going in the right direction, but as nobody has posted since allow me to add a thought myself.
Excellent post chump.
I think the main reason why people don't adopt this kind of attitude, is because we humans have a natural tendency of flocking together with others who agree on the same things: the same ideas, the same beliefs, the same concepts, etc. This in turn makes it much more difficult to question someone who's preaching to the own quire, than to criticize another person with a deviating opinion. In fact, in order to prove our thoughts and beliefs, we search for confirmation everywhere. If we are in favour of a certain political party, we will highlight those points of their program that suits our own ideas, resulting that we are even more pro than neutral. If we get to know someone, we usually focus on the common points, instead of the differences.
We are faced with the same problem when trying to analyze the market. After we enter a trade long (or short), we will look for signals confirming that we are right. Unless the setup is cleary and objectively defined, we will be trading on a hunch and looking for every reason that confirms our belief that price is going to travel up, ignoring the obvious elements that indicate otherwise.
Instead, falsifiability offers a criterion that could help us develop a better, more objective mindset.
chump said:
Excellent post chump.
I think the main reason why people don't adopt this kind of attitude, is because we humans have a natural tendency of flocking together with others who agree on the same things: the same ideas, the same beliefs, the same concepts, etc. This in turn makes it much more difficult to question someone who's preaching to the own quire, than to criticize another person with a deviating opinion. In fact, in order to prove our thoughts and beliefs, we search for confirmation everywhere. If we are in favour of a certain political party, we will highlight those points of their program that suits our own ideas, resulting that we are even more pro than neutral. If we get to know someone, we usually focus on the common points, instead of the differences.
We are faced with the same problem when trying to analyze the market. After we enter a trade long (or short), we will look for signals confirming that we are right. Unless the setup is cleary and objectively defined, we will be trading on a hunch and looking for every reason that confirms our belief that price is going to travel up, ignoring the obvious elements that indicate otherwise.
Instead, falsifiability offers a criterion that could help us develop a better, more objective mindset.
firewalker99
Legendary member
- Messages
- 6,655
- Likes
- 612
Losing may not hurt as much as you think
Humans don't like to lose. Whether it is losing a job or a romantic partner, when contemplating the possibility of a loss, the prospect of losing is worse than reality. That is, we tend to believe that a loss is going to hurt us emotionally more than it actually will.
People often base their choices on how they think the outcome of the choice will make them feel. Investors and traders, for example, seem to believe that a loss will hurt more than a win. For example, when contemplating a trading outcome, we are more concerned with losing $1,000 than potentially winning $2,000. Surely, winning $2,000 will make us happy, but the possibility of losing $1,000 is so dreaded that unpleasant feelings of loss far outweigh the potential joy of winning. Psychologists Deborah Kermer, Timothy Wilson and colleagues (2006) at the University of Virginia conducted a novel experiment to illustrate this phenomenon. They asked a group of participants to play 44 trials of a gambling game in which a computer randomly ranked playing card suits (hearts, spades, diamonds, and clubs) from first to last. Participants were asked to guess what the top-ranked suit would be. They won 50 cents if the suit they guessed was ranked first, and won 25 cents if ranked second. They lost 50 cents if their guess was ranked third, and lost 50 cents if ranked fourth. Participants forecasted how they would feel if they lost. After playing the game, participants discovered that they felt must better after losing than they had anticipated: The prospect of losing felt worse than the actual reality of losing.
Why do people think they would feel worse after a loss than they actually do? Kermer and colleagues argue that people have many ways of looking on the bright side, but forget this fact when contemplating a potential loss. People know how to cope with defeat. They build up their ego automatically and unconsciously. These psychological processes happen so quickly that we don't realize we have these coping abilities until we need them. People are inaccurate in their expectations regarding a loss because people do not remember similar losses in the past. They do not accurately remember how they felt and wrongly assume they felt worse than they actually did. What is the solution? The solution may be obvious to seasoned traders: Make a bunch of losses, and repeatedly experience how you cope with them. Once you see how well you can cope with losses, you will tend to be less averse to losses in the future.
Perhaps one of the biggest reasons that losses are hard to handle is that losing money is not socially accepted. If you told your frugal parents, for example, (who were unfamiliar with trading) that you had lost $20,000 last month, they would treat it like a tragedy. It may not be a great feeling to lose such a large amount, but as most traders know, losses are commonplace and you must take them in stride and move on to the next trade to make profits in the long run. It is easy to put yourself in a fearful, pessimistic state of mind by allowing conventional social standards about losing money to make you feel awful. But with the proper mindset, you can cope with losses and the prospect of losing money. First, remember that losses are just an everyday fact of life when trading the markets, and that losing is not morally wrong. Second, remember the times you have lost in the past but survived to trade earnestly and make huge profits. When you are stunned and paralyzed from the prospect of losing, remember that the prospect of losing is much worse than reality.
Humans don't like to lose. Whether it is losing a job or a romantic partner, when contemplating the possibility of a loss, the prospect of losing is worse than reality. That is, we tend to believe that a loss is going to hurt us emotionally more than it actually will.
People often base their choices on how they think the outcome of the choice will make them feel. Investors and traders, for example, seem to believe that a loss will hurt more than a win. For example, when contemplating a trading outcome, we are more concerned with losing $1,000 than potentially winning $2,000. Surely, winning $2,000 will make us happy, but the possibility of losing $1,000 is so dreaded that unpleasant feelings of loss far outweigh the potential joy of winning. Psychologists Deborah Kermer, Timothy Wilson and colleagues (2006) at the University of Virginia conducted a novel experiment to illustrate this phenomenon. They asked a group of participants to play 44 trials of a gambling game in which a computer randomly ranked playing card suits (hearts, spades, diamonds, and clubs) from first to last. Participants were asked to guess what the top-ranked suit would be. They won 50 cents if the suit they guessed was ranked first, and won 25 cents if ranked second. They lost 50 cents if their guess was ranked third, and lost 50 cents if ranked fourth. Participants forecasted how they would feel if they lost. After playing the game, participants discovered that they felt must better after losing than they had anticipated: The prospect of losing felt worse than the actual reality of losing.
Why do people think they would feel worse after a loss than they actually do? Kermer and colleagues argue that people have many ways of looking on the bright side, but forget this fact when contemplating a potential loss. People know how to cope with defeat. They build up their ego automatically and unconsciously. These psychological processes happen so quickly that we don't realize we have these coping abilities until we need them. People are inaccurate in their expectations regarding a loss because people do not remember similar losses in the past. They do not accurately remember how they felt and wrongly assume they felt worse than they actually did. What is the solution? The solution may be obvious to seasoned traders: Make a bunch of losses, and repeatedly experience how you cope with them. Once you see how well you can cope with losses, you will tend to be less averse to losses in the future.
Perhaps one of the biggest reasons that losses are hard to handle is that losing money is not socially accepted. If you told your frugal parents, for example, (who were unfamiliar with trading) that you had lost $20,000 last month, they would treat it like a tragedy. It may not be a great feeling to lose such a large amount, but as most traders know, losses are commonplace and you must take them in stride and move on to the next trade to make profits in the long run. It is easy to put yourself in a fearful, pessimistic state of mind by allowing conventional social standards about losing money to make you feel awful. But with the proper mindset, you can cope with losses and the prospect of losing money. First, remember that losses are just an everyday fact of life when trading the markets, and that losing is not morally wrong. Second, remember the times you have lost in the past but survived to trade earnestly and make huge profits. When you are stunned and paralyzed from the prospect of losing, remember that the prospect of losing is much worse than reality.
chump said:Curtis
DBP,
I always wondered what was meant by "mapping the territory" .After looking at so many charts I don't think drawing ma's would add any 'value' for me anyway now, as I know from looking at a chart where they are , not precisely ,but rough enough (up,down or sideways) given I am not interested in them for signal purposes. Some of the UK sectors I don't have charts for at all, but I log the data in just number form and that seems sufficient as well. Not advocating that particularly by the way as doing without computer drawn charts just for the sake of it does not seem to offer any real benefits to me. It takes a bit longer to take in the data when itt is not in visual format.
[
And can this not be as applicable to the interpretation of "price"?
After all, the components that constitute price are a number of variables, many of which have absolutely no relevance within the map of the territory that they first appear, yet appear they do, and can seriously distort the analysis, if analysed purely as price [and or combined with volume]
jog on
d998
Similar threads
