Blinkered: Learning from Others Failure
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We all wear invisible blinkers - including our inner tendencies that get in the way of our full perception of reality. We rarely see our inner tendencies because they are the very lens through which we view the world.
While all the names have been altered, the following four short trading case studies all suggest a change in vantage point may be desirable for us all - they might just give some of us a chance to get a small glimpse of one aspect of our unique set of blinkers.
This is potentially very valuable, for if we can begin to perceive what is normally transparent to us, suddenly new opportunities appear everywhere - opportunities that previously had been effectively invisible - hidden by our blinkers.
Recall that we each experience what life has to offer through the combined filters of:
our standard learning modes,
our inner tendencies.
All the case studies are of traders who asked about 'Market Path' - a style of trading that repeatedly fades market movements. Each time the market rises a price step (of your choice) a unit is sold and each time the market falls a price step a unit is bought. That is basically a market making trading style. The units of trade are often about 100 times smaller than might be employed by a trend-follower using the same account size. This is because running losses and multiple open positions have to be accommodated when repeatedly selling into rises or repeatedly buying into falls. A majority grasp the ideas quickly and some go on to use them successfully, but we are going to focus on some of those who have difficulty in grasping the concepts - and the all too common experiences they have.
Case Study 1 - Beth
Beth liked the idea of Market Path - it was 'exciting'.
When Market Path was explained to Beth her immediate reaction was "wow this is fun". This made her invoke some of her fun related learning strategies. She employed such learning styles irrespective of the appropriateness of such learning strategies to the task in hand.
She noticed immediately that the probability of market retracement increased after each successive fade of a one-directional market move.
So increasing position size after each extra move in one direction seemed sensible and perhaps exciting for her.
You will not be surprised to hear that her greed based approach sometimes led to very large running losses and often having to close out at a large loss, when if she had the capital to wait it out she would have made a large profit. She could not get past her need for fun, to progressively increase position size, as it was "boring otherwise".
So possibly her inner tendency of greed combined with an inappropriate and inflexible learning style soon led to fear and she lost interest as quickly as she gained interest. Thank goodness it was all using paper trading.
Case Study 2 - Jim
Jim is a steady as you go type of guy, testing everything carefully before taking the plunge. He says he only has one style of learning - slow and sure.
He came to the same insight as Beth - the probability of market retracement increased after each successive fade of a one-directional market move. But it took him some weeks to get there, and his response was the exact opposite to Beth - Jim felt you needed to reduce position size steadily after each extra move in one direction to reduce running losses and he had the figures to prove it.
You will not be surprised to hear that Jim's worst fears were revealed to be true - that it was difficult to make a profit as the best prices had the lowest position size weights.
Jim could not get past his admitted fear based need to progressively reduce the position size - and his fear created conditions that confirmed his other fears and he gave up the opportunity.
Case Study 3 - Jenny
Jenny loved to try anything new. But it seemed she would only do this on her own terms - in this case insisting in the use of end-of-day open high low close data. This would not be a problem if she did not also insist on using a step size between successive trades which was more appropriate to dealing 5 to 10 times a day.
The volatility available on some markets intra-day, can be 3 or even 10 times that seen by the end-of-day trader even when employing open/high/low/close data. So Jenny perceived and thus exploited, only a small fraction of the volatility profits that someone using tick data or even 30 minute data would see. You will not be surprised to hear that Jenny soon lost interest in Market Path when she 'discovered' that the "volatility profits are just not there". Using her data and her parameters, she was right.
Jenny appeared to feel she knew more about the subject than the person she asked about it and introduced it to her - to the point where she had nothing to learn.
Case Study 4 - Dez
Dez would read an explanation but not digest it. He would ask the same question over and over and yet answer it himself three sentences later.
When the explanation was re-written from another vantage point, in another style, by another coach, it made no difference, Dez said he understood but he did not - or rather, he did superficially, but not in any depth.
He just could not put in the effort or was just unable to grasp at understanding level - he was locked into one learning style and his keenness, enthusiasm and intellect were all for nothing - his learning deficit was all-powerful.
In the end it had to be firmly said - there are others whose time is not wasted and for whom coaching time is not wasted - and the priority must go to those who are capable of learning.
We all have these and similar problems to some degree, some of the time - none of us are immune. What inner tendencies, learning deficits or inappropriate learning mode selection process is making you a little blind?
A simple change of vantage point can often circumvent some of our difficulties.
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