Trading Psychology : The psychology of money

Trading is often about how to take the appropriate risk without exposing yourself to very human flaws.
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ruthlessimon
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Mon Jun 11, 2018 10:10 pm

It's a shame we have to close out every 5mins for sure :)

But I have to clear up the confounding elephant in the room Peter - how much of your success would you attribute to the mathematical side of trading (i.e. spreadsheets etc)? You pretty much know everything there is to know about pre-race (or any market you put your mind to) - I cannot get that out of my head as the biggest factor of your continued excellence.

I'm almost certain, had excel never been invented - you'd have invented it!

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ruthlessimon
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Mon Jun 11, 2018 10:49 pm

I've always loved the story about Gates & Buffett:

"But once Gates and Buffett finally got a chance to talk, things just clicked. Buffett pressed the tech mogul with difficult questions about Microsoft, and Gates welcomed the challenge. "These were amazingly good questions that nobody had ever asked," he writes. Gates abandoned his plan to fly back to work that night. "We were suddenly lost in conversation and hours and hours slipped by. He didn't come across as a big shot investor. He had this modest way of talking about what he does. He was funny, but what impressed me most was how clearly he thought about the world.""

For me, the key quote: "These were amazingly good questions that nobody had ever asked"

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ShaunWhite
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Tue Jun 12, 2018 3:36 am

7900 words is a slog but it's a good read. Pity I always slightly switch off when I see things like,

"It’s to point out that there is no other field where these stories are even possible. In what other field does someone with no education, no relevant experience, no resources, and no connections vastly outperform someone with the best education, the most relevant experiences, the best resources and the best connections?

Takes about 20 seconds to think of several actually. Let's begin with Herbert and Dorothy Vogel

Herb Vogel never earned more than $23,000 a year. Born and raised in Harlem, Vogel worked for the post office in Manhattan. He spent nearly 50 years living in a 450-square-foot one-bedroom apartment with his wife, Dorothy, a reference librarian at the Brooklyn Public Library. They lived frugally. They didn’t travel. They ate TV dinners. Aside from a menagerie of pets, Herb and Dorothy had just one indulgence: art. But their passion for collecting turned them into unlikely celebrities, working-class heroes in a world of Manhattan elites.

The Vogels had no formal training in art collecting. They didn’t aspire to open a gallery or work in museums. They bought art the way any amateur collector shops: for the love of the individual pieces and the thrill of a good deal. But you don’t accumulate a priceless collection of anything by accident. Herb and Dorothy developed a methodical system for scouting, assessing, and purchasing art. When it came to mastering their hobby, the Vogels were self-trained professionals. This is how they did it.



Every article about making money from money squeezes in a mention of how rarefied it is, it's a very blinkered and limitting view of the world. Step away from the dollar signs and there's a whole world of influences.

The bottom line is don't try and make money, just try and make good decisions.

Derek27
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Tue Jun 12, 2018 6:37 am

ShaunWhite wrote:
Tue Jun 12, 2018 3:36 am
7900 words is a slog...
Agree.

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wearthefoxhat
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Tue Jun 12, 2018 9:41 am

ShaunWhite wrote:
Tue Jun 12, 2018 3:36 am
7900 words is a slog but it's a good read. Pity I always slightly switch off when I see things like,

"It’s to point out that there is no other field where these stories are even possible. In what other field does someone with no education, no relevant experience, no resources, and no connections vastly outperform someone with the best education, the most relevant experiences, the best resources and the best connections?

Takes about 20 seconds to think of several actually. Let's begin with Herbert and Dorothy Vogel

Herb Vogel never earned more than $23,000 a year. Born and raised in Harlem, Vogel worked for the post office in Manhattan. He spent nearly 50 years living in a 450-square-foot one-bedroom apartment with his wife, Dorothy, a reference librarian at the Brooklyn Public Library. They lived frugally. They didn’t travel. They ate TV dinners. Aside from a menagerie of pets, Herb and Dorothy had just one indulgence: art. But their passion for collecting turned them into unlikely celebrities, working-class heroes in a world of Manhattan elites.

The Vogels had no formal training in art collecting. They didn’t aspire to open a gallery or work in museums. They bought art the way any amateur collector shops: for the love of the individual pieces and the thrill of a good deal. But you don’t accumulate a priceless collection of anything by accident. Herb and Dorothy developed a methodical system for scouting, assessing, and purchasing art. When it came to mastering their hobby, the Vogels were self-trained professionals. This is how they did it.



Every article about making money from money squeezes in a mention of how rarefied it is, it's a very blinkered and limitting view of the world. Step away from the dollar signs and there's a whole world of influences.

The bottom line is don't try and make money, just try and make good decisions.
That's the money shot..... :!:

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ruthlessimon
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Tue Jun 12, 2018 6:37 pm

ShaunWhite wrote:
Tue Jun 12, 2018 3:36 am
The bottom line is don't try and make money, just try and make good decisions.
Absolutely, & this is where the psychobabble really gets on my wick :D

The greatest strides in my trading decision making have come about out of market hours. Either discussing ideas with other traders, discussing how they review their progress, how they track their metrics, or spending hrs creating a spreadsheet to test an idea spotted via a market that day etc.

A good edge breeds good psychology - & if it doesn't then your not cut out to be a trader.

My best trades have always been where I know my risk inside out. My worst trades - where I haven't done the pre-work, & am therefore indecisive when the moment comes.

Let's say I was going to compete with Peter on his cycling routes. Cycling is "all in the mind" apparently (which I also disagree with!!). But here's the process I'd go through:

1. I'll analyse the distance, I'll analyse the terrain, maybe gently ride the course.
2.. I'll use my powermeter data (taken from yrs of riding) to estimate exactly the wattage I'll need to push, in order to win the canal segment. & the optimal way to vary that power depending on the terrain. The boffins such as Andy Coggan have modeled power levels to adaptations - therefore I can skip that step luckily - & just buy a training plan ;)
3. Now I begin training - this is where psychology enters the picture - I need to be disciplined & follow the plan devised above.
4. Race day. I know exactly what to expect. I've done all the prep. I just need to ride to the set power devised in step 2 & refined in step 3 (requires discipline), & take the win (or at least be close)

5. If I'm beaten, or Peter retakes the KOM, we go back to stage 2 & begin again.

I'm convinced trading is almost exactly the same! But people suck at stage 2 - especially the latter end of step 2. If you asked most people to explain how they trade, it'd be so fuzzy, so mushed - it's no surprise they struggle IMO.

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Euler
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Tue Jun 12, 2018 7:07 pm

I'd say most of my trades take into account how I think others will trade. The fact that some very clever people just can't make this work, tells you that just knowledge doesn't capture the full picture. My favourite markets are the chaotic ones where nobody really knows what the price should be.

If I was in a bike race I'd train hard, understand the course and also look at how I think it would be ridden and if I can gain a few seconds here or there. But if the market were a bike race you would have loads of people who didn't know how to ride, some not knowing that you needed a bike. Others who had not ridden the course. Some are terribly unfit. You only need to finish in the top 50% to 'win' in this race. To try and be the outright winner is really a major ask as it would be like competing to win a gold at the Olympics.

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Euler
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Tue Jun 12, 2018 7:30 pm

Curiously, I use an app to do virtual racing against other mountain bikers. There is a three-mile loop through the forest nearby that I've held the best time for the last four years, it resets each year. I know what ground conditions give me the best time over the course so if the ground conditions are poor I'll do another course and practice stamina, speed or climbing. When the ground conditions are good I'll switch to that course and do a timed run. There are several points on the course that are 50/50 if I can pull them off, each will shave a few seconds off my time. If I get all of them and my body is up for it, then a clean run will be right up there.

But the nasty bit is the ridge overlooking the forest. In the middle, there is an oak. If I dive right and get it just right I can just squeeze through at full pelt. If I clip the Oak I will crash and tumble off the ridge. Whether I attempt it all depends on how confident I feel that day and if my time is good enough to have a shot at the best time. That's more or less how I trade the big races.

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ruthlessimon
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Tue Jun 12, 2018 7:44 pm

Euler wrote:
Tue Jun 12, 2018 7:07 pm
But if the market were a bike race you would have loads of people who didn't know how to ride, some not knowing that you needed a bike. Others who had not ridden the course. Some are terribly unfit. You only need to finish in the top 50% to 'win' in this race.
That's an amazing (& hilarious) summary Peter :lol:

Yeah very good :D

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