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Tag: psychology

Learn A Stop Loss Method from the Stoics

Posted on by Michael Covel

An excerpt from The Power of Negative Thinking:

Ancient philosophers and spiritual teachers understood the need to balance the positive with the negative, optimism with pessimism, a striving for success and security with an openness to failure and uncertainty. The Stoics recommended “the premeditation of evils,” or deliberately visualizing the worst-case scenario. This tends to reduce anxiety about the future: when you soberly picture how badly things could go in reality, you usually conclude that you could cope. Besides, they noted, imagining that you might lose the relationships and possessions you currently enjoy increases your gratitude for having them now. Positive thinking, by contrast, always leans into the future, ignoring present pleasures.

More:

The social critic Barbara Ehrenreich has persuasively argued that the all-positive approach, with its rejection of the possibility of failure, helped bring on our present financial crises. The psychological evidence, backed by ancient wisdom, certainly suggests that it is not the recipe for success that it purports to be.

A good stoic primer. Also, a video.

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Daniel Kahneman on the Trap of ‘Thinking That We Know’

Posted on by Michael Covel

“Critical thinking has to include assessing one’s own thinking”: Read and watch.

More.

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Right Action and Beliefs: Foundational for Trading Success

Posted on by Michael Covel

The rules and the math are a mission critical part of trend following success, but your mind’s organization will always be the determining factor for long and worthwhile gains. Marcus Aurelius wrote:

Two kinds of readiness are constantly needed: (i) to do only what the logos of authority and law directs, with the good of human beings in mind; (ii) to reconsider your position, when someone can set you straight or convert you to his. But your conversion should always rest on a conviction that it’s right, or benefits others–nothing else. Not because it’s more appealing or more popular.

This is why so many convert to trend following–it can be believed and it is right.

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Too Much Data Is Toxic–Trend Followers Get This Terribly Important Principle Deep in Their Gut

Posted on by Michael Covel

An excerpt (source):

In business and economic decision-making, data causes severe side effects —data is now plentiful thanks to connectivity; and the share of spuriousness in the data increases as one gets more immersed into it. A not well discussed property of data: it is toxic in large quantities —even in moderate quantities.

More:

The more frequently you look at data, the more noise you are disproportionally likely to get (rather than the valuable part called the signal); hence the higher the noise to signal ratio. And there is a confusion, that is not psychological at all, but inherent in the data itself. Say you look at information on a yearly basis, for stock prices or the fertilizer sales of your father-in-law’s factory, or inflation numbers in Vladivostock. Assume further that for what you are observing, at the yearly frequency the ratio of signal to noise is about one to one (say half noise, half signal) —it means that about half of changes are real improvements or degradations, the other half comes from randomness. This ratio is what you get from yearly observations. But if you look at the very same data on a daily basis, the composition would change to 95% noise, 5% signal. And if you observe data on an hourly basis, as people immersed in the news and markets price variations do, the split becomes 99.5% noise to .5% signal. That is two hundred times more noise than signal —which is why anyone who listens to news (except when very, very significant events take place) is one step below sucker.

More:

To conclude, the best way to mitigate interventionism is to ration the supply of information, as naturalistically as possible. This is hard to accept in the age of the internet. It has been very hard for me to explain that the more data you get, the less you know what’s going on, and the more iatrogenics you will cause.

Trend followers tackle the issues raised by Taleb by making their trading decisions off the market price. Boom–one piece of data for all of your trading decisions–price.

Article Source: Ritholtz.com.

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The Median Isn’t the Message by Stephen Jay Gould

Posted on by Michael Covel

A nice reminder from a great thinker:

If a little learning could ever be a dangerous thing, I had encountered a classic example. Attitude clearly matters in fighting cancer. We don’t know why (from my old-style materialistic perspective, I suspect that mental states feed back upon the immune system). But match people with the same cancer for age, class, health, socioeconomic status, and, in general, those with positive attitudes, with a strong will and purpose for living, with commitment to struggle, with an active response to aiding their own treatment and not just a passive acceptance of anything doctors say, tend to live longer. A few months later I asked Sir Peter Medawar, my personal scientific guru and a Nobelist in immunology, what the best prescription for success against cancer might be. “A sanguine personality,” he replied. Fortunately (since one can’t reconstruct oneself at short notice and for a definite purpose), I am, if anything, even-tempered and confident in just this manner.

Hence the dilemma for humane doctors: since attitude matters so critically, should such a sombre conclusion be advertised, especially since few people have sufficient understanding of statistics to evaluate what the statements really mean? From years of experience with the small-scale evolution of Bahamian land snails treated quantitatively, I have developed this technical knowledge – and I am convinced that it played a major role in saving my life. Knowledge is indeed power, in Bacon’s proverb.

A passage for trend followers? Hmmm… lion or gazelle.

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You Think It Is All About Lucky Survivors? Wrong. It Is About Effort!

Posted on by Michael Covel

Jonah Lehrer writes:

Because work isn’t fun. It doesn’t matter if we’re engaging in deliberate practice or studying algebra – the most necessary activities are often the least pleasant. Furthermore, success requires that people learn how to exert effort for extended periods of time, engaging in 10,000 hours of practice (+/- 5000 hours), suffering through 12 years of school and going through draft after draft. There are no shortcuts: even those blessed with raw talent still need to stay on task. Practice is never optional.

Consider the work of Francis Galton, the 19th century British polymath who spent decades amassing biographical information on the lives of eminent judges, politicians, poets, musicians and wrestlers. Although Galton hoped to identify the hereditary origins of genius – he wanted to lend support to his cousin Charles Darwin’s new theory of evolution – he eventually concluded that innate intelligence was not sufficient for high-achievement. Rather, these successful men needed to also be blessed with “zeal and with capacity for hard labour.”

Who said work isn’t fun?

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The Moment One Definitely Commits Oneself, Then Providence Moves Too

Posted on by Michael Covel

William Hutchinson Murray, The Scottish Himalayan Expedition (1951):

“Concerning all acts of initiative (and creation), there is one elementary truth, the ignorance of which kills countless ideas and splendid plans: that the moment one definitely commits oneself, then Providence moves too. All sorts of things occur to help one that would never otherwise have occurred. A whole stream of events issues from the decision, raising in one’s favor all manner of unforeseen incidents and meetings and material assistance, which no man could have dreamed would have come his way. Whatever you can do, or dream you can do, begin it. Boldness has genius, power, and magic in it. Begin it now.”

THAT is so critical to trend following success, or any success for that matter.

Note: Tip to Tim Ferriss.

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Trend Following is for beginners, students and pros in all countries. This is not day trading 5-minute bars, prediction or analyzing fundamentals–it’s Trend Following.