Friday, September 21, 2012

Uncertainty

Have you ever bet on a Money Wheel ?
Money Wheel is a crude Roulette.Money Wheel simply have a couple of symbols on it.To play, place a bet on one of the symbols on the betting table  and spin the wheel.If it lands on your  symbol you win.Long back we used to bet on this and lose money during village fairs and temple festivals

I don't remember feeling bad or getting frustrated after a loss.I think it was because we were well aware of the probabilistic nature of the game and the results are uncertain and random.We never did bet more than we could afford to lose

What about a trading loss? We feel upset ,angry, and betrayed after a loss.We feel betrayed by the Market, We feel betrayed by our  method and start doubting it. (I am sure Some of us may even feel betrayed by the person who taught the method and will curse him) The problem is we are not accepting the uncertainty of the Market.The only thing certain in trading is the Uncertainty.No matter how good your analysis, no matter how perfect your set-up , once you enter a trade anything can happen.Anything can happen  at any time!
Even a single order can cause a flash crash in Markets ( Read)

Embrace the uncertainty and accept the probabilistic nature of the market. Do enough back testing and forward testing before accepting any method.Do not bet on it until you have total trust on it.If you are convinced that the method is effective, stick to it.Never be tempted to throw away your trading system due to a loss because  losses are expected from time to time.
Take massive action and conquer the final slippery slope

2 comments:

  1. I think "success of the trader's system" on the left side of the chart is the big problem in embracing uncertainty. I was able to accept risk 12 years back when there were no charts and computer with me...but now with computers i "sliced the eternity(Market)" it boosted my confidence. My confidence in system everyday tells me "there is not that uncertainty" - Nishant.

    ReplyDelete
  2. Nishant

    Thanks
    Most of the trading related psychological problems are in fact method related.As Pradeep Bonde said "Methods trump Markets"

    ST

    ReplyDelete

Note: Only a member of this blog may post a comment.