Pre-eminent Physical Experience
It is all too easy to forget that trading (not to mention life) is a physical experience. (See Descartes’ Error “I feel, therefore I Am” by Damasio) The path of least resistance is believing that risk decisions are mainly, if not exclusively, cognitive (thinking) events.
My just-ended golf weekend in Amelia Island reminded me how true this is. On certain chip shots I thought about things like ball placement and whether I wanted a full-swing or not. On others I “thought about” what felt right. I looked at the distance to the hole and just focused on the physical experience. Ditto for putting. Which do you suppose led to better shots?
If you said “thinking shots”, you are wrong with one exception.
I tried a whole new way to hit a sand shot and it required that I consciously execute each step. I couldn’t do it by feel because I had none. And true to the intent of this letter, the response of the much better golfers I was playing with was “great, now you have the FEEL of it.”
Trading is like this. At first you have to intellectualize a risk situation. But the best results come when you arrive at the place where on top of that cognitive activity you can effectively layer an awareness and integration of the physical experience – the data that exists in your body not your head.
This is what is meant by the term “art and science”. Trading by definition cannot be a science as it is only the sum total of all human risk decisions but its numerical nature allows it to pass as a reasonable facsimile. The idea of financial engineering btw is kind of an over-statement. There is no engineering of markets. Anyway, as for the art part, the thing that is missing from almost all trading advice is how to research and interpret data that isn’t presented in statistical form. Or put another way, how to leverage the qualitative along with the quantitative.
The vast majority of experts will still tell you not to try.
The irony of that is your brain is going to interpret market data via pattern matching regardless if you want to use that input or not. Most importantly, the holistic system communicates the result of the pattern match through the physical feeling-sensory-dimension of our existence. The reason the conventional wisdom is so wrong is that it never learned to distinguish between the feeling of an impulse and the feeling of an intuition or what comes to feel like instinct. That however isn’t a good enough reason to stick with the old earth is flat/intellect is all approach.
The way we see it, the brain will always win in the end so why not get started as soon as possible on working in concert with a brain and a body that work together to assess and address uncertain situations – price movement or sand traps. The job might be as hard as learning to shoot a 90 but did you really think other traders or money managers were going to let you take their money without a fight?
Bring all your faculties to the game!
Tags: decision-making under risk, knightian uncertainty, market psychology, neuroeconomics, trading psychology
[...] things that work for me, but I think they can be applied to most styles and time frames. T0 quote Denise Shull, “your brain is going to interpret market data via pattern matching regardless if you want to [...]
In my case Josie, I had some to begin with (after about 3 months). Part of my quest to understand trading psych was to understand how or what that was. Now I know it was the innatie tendency to read the market as a human game. I got messed up with all of the advice about iron-clad plans and control and now it is so clear to me the inter-related roles of thinking and feeling and what becomes experiential knowledge on a non cognitively conscious level.
Mark, Never had been to Amelia before. Heard good things and it was guaranteed to be warm, was not too far from NYC by air and had a Ritz Carlton with a course… ironically the day we left, NYC was 80 and sunny and it was raining there. But all in all it was great!
Analogies to golf are very relevant. You have to develop “muscle memory” before you develop the feel. Same with trading. You have to know some basic patterns to see which type of pattern is developing on a particular day before you can have the confidence that your “feel” for the market is likely to be accurate. Living near Amelia Island (well within 70 miles) I was fascinated that is where you vacationed.
Denise, I’d love for you talk more about how you developed that intuition or instinct for trading.
We tried an interesting informal experiment. We wanted beginning traders to develop a “feel” for the movement of the market (Forex). We gave them access to 6 months of data and had them watch the 30-minute charts at 30 times normal speed.
Our thinking was that much of the intuition that experienced traders have is a result of the implicit learning (complex pattern recognition) that occurs from years in front of the charts. These traders may not be able to articulate what they know at a subconscious level, but they “feel” what is happening in the market.
Those beginning traders who spent at least 1 hour a day for one month watching the charts, did indeed develop a much better feel for the movement of the market than did their peers. And they were more willing to trust their gut.
If we ever did this experiment again, I think I’d do at least two things differently. First, I’d ask the beginners to notice when certain specific things happen (i.e., pullbacks). This would give them a lens through which to look at the market and would speed up certain types of pattern recognition. And second, I would ask them to notice how they “felt” when it happened.