Becoming a student of the market

[Derek27]

In my view psychology can be a major advantage but never on it's own an edge.

[ruthlessimon]

I've rapidly been approaching that conclusion.

Ok Shaun, I'm gonna hit you with a question:

-The price goes through 2.0 @ 3mins, Hcap - whats the probability it trades 1.91, before 2.1?

If a trader backs the 2.0, then gets "scared" because it trades 2.06 - but doesn't know the above figure - then I have no sympathy, & the reason for his lack of confidence, is because he doesn't have a quantitative leg to stand on.

Peter could easily, answer that question, that would be like "starter" question on a pre-race exam

[spreadbetting]

Maybe it's all just a case of semantics and we're all in agreement anyways Shaun

Not sure how a pyschological edge determines which way the market will move and ultimately wins them money, but it's fine by me if they believe mindset and pyschology are the main talents you need to trade. They must be raking it in or at least need a bigger librry for all the copies of trading in the zone and ebooks they've collected.

I'm actually surprised no one's gone for the 10,000 hour rule and mentioned experience is the main player, that usually gets touted quite a bit as a winner to beat the market. Betfair's been going for 18 years now so there must be thousands of players who've hit that 10,000 just by doing around 12 hours a week, with Derek's round the clock trading he'll probably rack those 10,000 hours up in a year or two.

[ShaunWhite]

A trader who see's a price drifting, gets FOMO, then lays it after 20ticks, hoping for more, but doesn't know the average move on this race etc - cannot be blamed for his psychology surely?

If he knows that, on average (via a spreadsheet) the high is around 15 ticks, & he still lays it, that's an IQ problem!!

Knowing the average move in this scenario should be a very small part of the descision to get involved, unless you're a bot.

Again I challenge any cold trader to prove that they have such detailed knowledge of these scenarios on instant recall with sufficient depth to be practically useful. "This does that, x does y, b moves 5 ticks, jockey on the fav is on a double ...what's the exact average expencancy"....?

As far as I know, the std goto for your 'world's best' when cold trading is still order flow, undoubtedly refined by 1000s of hours of soft 'this does that more often than not' experience. I'm not seeing or hearing that "I did that because the average move in situation X is 14.3 ticks".

I suspect the evidence and his confidence in it could be be categorises as it would be in law..

2.1.1 Some evidence
2.1.2 Reasonable indications
2.1.3 Reasonable suspicion
2.1.4 Reasonable to believe
2.1.5 Probable cause
2.1.6 Some credible evidence
2.1.7 Substantial evidence
2.1.8 Preponderance of the evidence
2.1.9 Clear and convincing evidence
2.1.10 Beyond reasonable doubt


Knowing/learning what causes the ups and downs that go to make up your average is far more useful. Your average consists of pluses and minuses, I don't want to get involved with the minuses if i can help it.

Let's take a situation that produces +5 ticks 5 times and -10 ticks 5 times. A -2.5 situation? If you identify the reason why the negaive ones go below 0, or what causes the a -5 to go to -10, there is still oppertunity.

This logic then applies to all scenarios, even the ones with an average negative expectancy, cheery pick the plus side. Opperunity exists at all times and in all situations.

[ruthlessimon]

Knowing the average move in this scenario should be a very small part of the decision to get involved, unless you're a bot.

Again I challenge any cold trader to prove that they have such detailed knowledge of these scenarios on instant recall with sufficient depth to be practically useful. "This does that, x does y, b moves 5 ticks, jockey on the fav is on a double ...what's the exact average expencancy"....?

True, that is something I've questioned myself - although could it be argued that thousands of small quantifiable edges, make up what we call "experience/discretion"?

It would tally with a scoring methodology though (pardon the pun)

Which is also how'd I'd deem order flow. A backer is not letting it pass x.xx, the 3rd just broke through 10.0 which means x - which means the probability of a steam just got even higher.

[ShaunWhite]

The price goes through 2.0 @ 3mins, Hcap - whats the probability it trades 1.91, before 2.1?

Peter could easily, answer that question, that would be like "starter" question on a pre-race exam

From which direction? What's the 2nd fav doing? How general or specific is your question?

By looking in the stats I'm sure he know your answer, anyone could. But is that knowlegde on instant recall? Is it the reason he does what he does, or is it part of a larger body of evidence that could easily outweigh it?

Only one person can answer those.

[ShaunWhite]

...scoring system.....exactly that!

That PW scoring system is like the Enigma machine, mine's like those punched card computers you used to make out of cereal boxes.

[ruthlessimon]

By looking in the stats I'm sure he know your answer, anyone could. But is that knowlegde on instant recall? Is it the reason he does what he does, or is it part of a larger body of evidence that could easily outweigh it?

Only one person can answer those.

He might not know the probabilities on recall, but he'd know it's a +expectancy play, & roughly where the price should hit.

& this is why trading is complicated. The picture changes.

A trader could have probabilities on the fav breaking 2.0 (steam), & probabilities of the fav steaming/drifting if the 2nd does x. Statistics that were created independently, but in a single race both apply - & that's where the discretion comes into play. Suddenly in a scoring system a +3, just became a -5

[ShaunWhite]

He might not know the probabilities on recall, but he'd know it's a +expectancy play, & roughly where the price should hit.

I'm going to lay that quantum of proof, it's definately on the drift!

I'm much happier with it now it's just a "+ve and roughly where" rather than a fact to within 2dp.

[stueytrader]

In relation to the most recent posts, we could of course widen our definition of what we mean by psychology.

Of course, there are all of the more emotional, control and discipline elements (probably the most common use on here for the word).

But, there are also a vast range of other 'psychology' aspects in trading that are less clearly related to the above - for example confidence estimations, expertise and judgment, decision making. There are a range of issues of clear thinking essentially that move well beyond the simplistic definition of psychology being about going on tilt. There are also wider issues of your more general psychology - e.g. what kind of person are in you generally in life, confident/overconfident, cautious, anxious, happy, depressed, etc etc...and your life setting which will clearly relate once again to your psychology. In essence, we are presenting something of a straw man if it is simply about not going inplay etc.

Perhaps some of that was also what Peter meant in saying it was an edge?

[spreadbetting]

I'm not sure how your own psychology gives you an 'edge' over the market and helps determine where the market will move. Understanding the psychology of how others bet can be very helpful with market moves but not sure how my own is. There's no doubt that to exploit an 'edge' profitably you need to have a certain mindest/psychology but that pretty much breaks down to how people react faced with a red screen.

There are hundreds of things that give you an edge over others, a decent TV ,a quiet and comfy place to trade from , decent bank etc but they won't help predict where the market will move which is pretty much the only thing that'll make you money in the market. But we do seem to be just going round in circles about psychology so if 95% seem to think it's the number 1 we should just fill that slot and move to the others.

Top Ten Market Edges
1. Mindset/Pyschology (80%)
2. ?

[Nero Tulip]

I agree with this.

Psychology is not an edge, you cannot make money with just a good mentality. A picture of someone sat looking at the screens all day being really flipping mentally tough but doing nothing springs to mind ...anyway - Psychology contains no instructions about the maths of value, price and risk/reward. Regardless of what your 'edge' is, it always reduces down to having risk/reward on your side and that requires a systematic / planned decision making process that could effectively run itself if the human mind didn't have to act to implement it.

The debate is therefore about whether you can (as a discretionary trader mostly) act and react on a plan consistently without being psychologically sound, and that I think is where this idea of it being incredibly important comes from, because nearly everyone that trades has found that it is hard to deal with a variety of biases and issues revolving around losses, wins and time.

Personally I see it as more of a downside protection thing, and also in good times, providing better consistency of returns (but only, if the aggregate of my actual actions results in the rewards paying more for the risk than they are costing at the time..).

One thing worth noting is, that you can have an edge, and you can be super talented technically and still lose money if you are weak psychologically, I've seen people like this go bust more than once, and it is unsettling and worrisome. Crucially though, You can still do ok as long as you do actually have an edge.

You can be really strong psychologically, but you will never make money without an edge.

I now hate myself for typing the word 'edge' so many times. Shoot me.

I'm not sure how your own psychology gives you an 'edge' over the market and helps determine where the market will move. Understanding the psychology of how others bet can be very helpful with market moves but not sure how my own is. There's no doubt that to exploit an 'edge' profitably you need to have a certain mindest/psychology but that pretty much breaks down to how people react faced with a red screen.

There are hundreds of things that give you an edge over others, a decent TV ,a quiet and comfy place to trade from , decent bank etc but they won't help predict where the market will move which is pretty much the only thing that'll make you money in the market. But we do seem to be just going round in circles about psychology so if 95% seem to think it's the number 1 we should just fill that slot and move to the others.

Top Ten Market Edges
1. Mindset/Pyschology (80%)
2. ?

[northbound]

Psychology = understanding that there will be wins and losses and your goal is to be ahead after a SERIES of trades (not after 5 trades or one day).

Edge = a higher probability of one thing happening over another, over a SERIES of trades. For example a strategy where you risk £10 to profit £10, which has a strike rate of 55 winning trades out of 100.

Without mastering psychology, you’ll struggle to find an edge, because you’ll always look in the wrong places, with an unsuitable pair of eyes.

Because you’ll be impatient and unable to stomach those 45 losing trades, especially when 4-5 in a row happen.

[Nero Tulip]

But but but... Baan Cerry says edges are ten-a-penny.. . I'm just joking Caan...but also, disagreeing.. and respectfully disagreeing slightly with northbound.

I don't think psychology is needed to find an edge, if you are good at maths / data science or you spot a structural weakness / platform inefficiency... you didn't even need to be mentally stable to do that. But you do need to be psychologically good to react to the feedback in the right way once you start exploiting it. 'Series' in your post relates to 'time' in my previous.

I do appreciate knowledge of psychology can lead you to look for places of collective psychological weakness in the market, situations where probabilistically there is a level of panic or something is oversold/bought consistently when 'x' happens.. in some ways, knowing yourself can mean, knowing others, and that can lead to an edge.. When I first began, most of my trading was based around these sorts of ideas, and I'm thankful it resulted in trading value.

On reflection, I think this might be what you meant when you said the below ? And my second paragraph now seems overly bothered with semantics...which makes me, pedantic..

Without mastering psychology, you’ll struggle to find an edge, because you’ll always look in the wrong places, with an unsuitable pair of eyes.

Because you’ll be impatient and unable to stomach those 45 losing trades, especially when 4-5 in a row happen.

[northbound]

But but but... Baan Cerry says edges are ten-a-penny.. . I'm just joking Caan...but also, disagreeing.. and respectfully disagreeing slightly with northbound.

No probs Nero Tulip, I'm sure that different traders approach markets from different angles, so your opinion is as valid as mine.

I agree with you that also knowing the herd's psychology can lead to an edge itself, as over time you can learn to spot overreactions in certain situations.

Don't know whether Caan is correct with his ten-a-penny statement either. But now that I'm starting to discover edges and slowly showing consistent profits, I do agree with spreadbetting when he says that most people would be shocked at how simple some winning strategies can be.