The missing link in trading

31/08/2013 | By | Reply More

I’ve been on a very long journey to understand risk and trading as I do now. When I talk and examine risk I do so almost intuitively now, but I had to learn it all the hard way, from the ground up.

The journey has led me to re-examine myself a lot. I’ve had to learn and improve my ability in three distinct things, trading (the structural bit), modelling markets (the understanding bit) and finally a bit of psychology (the doing bit). When I started there were parts of my make up that were wrong and needed correcting, others that were more or less there but could be improved. Examining and working on all three has delivered a nice round experience and taught me a lot and given me guidance outside of these markets.

The understanding bit

I knew a fair bit about key areas I wanted to work , but I wanted to really push the boundaries of what was possible. So, over the years, I’ve worked with a number of wonderfully qualified people whom have helped me solve particularly complex problems in a number of areas, particularly modelling markets. But curiously hardly any of these, highly talented people, took advantage our or work to trade. It seems it is because they have either convinced themselves it’s not possible, haven’t understood how markets work, or they don’t have the ability to pull the trigger. It was quite a revelation to me.

The structural bit

I’ve also bumped into very good traders. But because they haven’t tried to explain and understand what they are doing, when the market shifts it inevitably puts them out of business. Curiously I learnt there were lots of people trading who have no idea why they may any money or what the key buttons were in the market. Unlocking this understanding was a key for me as it open the door to new ways forward.

The doing bit

And finally, Psychology permeates the underbelly of everything; so you need to understand that as well. But ultimately putting all three to use, I believe, is the key in many situations, not just this market. It’s nice to be an expert, but the saying that everything is good in moderation is a valid observation IMHO.

If you want to get a helicopter view of all those things and how they intertwine then watch the documentary I have embedded on the this post. It should give you a real insight into what I am trying to say. I wrote a magazine article on this equation about a decade ago and it’s a thing of beauty, when used correctly. But as you will see, people try and park themselves into one of these three territories to justify what they do often with disastrous consequences. What you need in fact, is a mix of all three. I quickly learnt how important that mix is, so that’s what I have tried to achieve so far in my career.

Anyhow, when you have a spare hour; park yourself on a sofa and watch it.

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Category: Psychology, Trading strategies

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