
The Zen of Trading - tortilla
http://www.ritholtz.com/blog/2010/05/the-zen-of-trading-2/
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chasingsparks
As someone who has spent the past eight years studying markets and trading, I
can say that these are not bad heuristics. Nonetheless, I wouldn't recommend
them to a new trader. As many traders are fond of saying, you must pay your
tuition in money lost and sometimes emotionally brutal events like "blowing
up." (Paying tuition is a popular phrase inspired by Edwin Lefèvre's
_Reminiscences of a Stock Operator._ )

More than most professions, trading requires you to fundamentally alter the
way you respond to stimuli. We have some natural biases that make us pretty
unsuited to trading. Traders who are successful are the ones who remodelled
their brain, a job that often starts with an intellectual sledge hammer.
Studying a list of proverbs, no matter how good they might be, will not prove
profitable. They might act as a good scaffold to lean on while "paying your
tuition," but I am skeptical.

(This argument can be expanded to most proverb-style writings. In fact, I was
going to write this in response to one of the 37,000 threads regarding
_ReWork_ during that mania.)

~~~
hristov
I am curious, how does one remodel his or her brain. Or what type of brain
remodelling do you need?

~~~
chasingsparks
You almost have to nurture a case of depersonalization disorder. If you know
any successful traders, you probably know what I am talking about. They don't
seem to experience or interpret things like everyone else.

To be playfully ironic, I'll list what I think are the two biggest issues:

1) Completely demolish the instinct to extrapolate linearly.

2) Train yourself to have no attachment to your expectations. (Coincidentally,
this is #2 on the referenced webpage's list.)

This is certainly not exclusive to trading (e.g. scientists should operate
this way) but I think it's harder to practice in trading. Money makes
consequences _very_ concrete. (Edit:) If a scientist conducts an experiment
that fails to find anything significant, it's still "good science (TM)." If a
trader fails to be profitable, he has failed at trading.

------
mynameishere
If you trade commodity futures, ask yourself: "Do I know more than the farmer?
Do I know more than Nestle?" When you trade stocks, ask yourself: "Do I know
more than Fidelity's advisers? Do I know more than Goldman's quantitative
analysts? Do I know more than the insiders?". It's 50/50 up/down minus the
spread, minus the fees.

~~~
jboydyhacker
I do not believe this is correct.

Farmers are usually the last to know about fluctuations of commodity prices.
Commodities are driven much more by macroeconomic trends that farmers cannot
be expected to bother with. And as for stocks and a fidelity advisor. Oh man,
that is also very very wrong. Stock picking is about seeing trends before
others do and being gone before those trends end. The former is a relatively
common trait, the latter is rarely intuitive and pretty rare.

~~~
dtby
I love you; you pay my rent.

------
pvdm
It was a good article but not great. Didn't really have anything to do with
Zen or it's application to trading.

~~~
willz
Right on!

The part I liked the most is the Michael Jordan quote. I didn't know MJ so
statistical, and now I respect him a lot more.

A trader should do the same. A simple system of logging trading decisions like
MJ did will greatly help a trader improve.

I always wish there are some web app that logs what those pundits (stocks or
whatever) said, and keep a tab of their accuracy.

~~~
chasingsparks
Some of the more popular pundits are visible enough that independent
researchers compile comparative reports on them versus the market in general.
Their are many on the (annoyingly loud) lightning rod that is Jim Cramer (e.g.
<http://www.scribd.com/doc/15672032/Investing-in-Mad-Money>). Other people
have much more precise records for comparison:
[http://finance.yahoo.com/q/ta?s=BRK-A&t=my&l=on&...](http://finance.yahoo.com/q/ta?s=BRK-A&t=my&l=on&z=m&q=l&p=&a=&c=SPY)

In a similar vein, WSJ had a very clever "dartboard contest" for years.
(<http://www.investorhome.com/darts.htm>) Unfortunately, it requires a
subscription to see the results. You might find it interesting if you have
one.

~~~
willz
Thanks for the links. For your yahoo link, what does "BRK-A" vs "SPY" mean?

~~~
chasingsparks
Berkshire Hathaway class A stocks, i.e., Warren Buffet's bets.

SPY = S&P500 Index ETF. That was actually a minor error on my part. I meant to
link you to a comparison of BRK-A versus the SP500 index, not an trust that
tries to mirror the SP500 index. Thankfully, for comparative purposes, they
are virtually identical.

