Sometimes 1+1 doesn’t =2 in Trading
The Master of the Best Guess [ transcribed ]
October 3, 2017 by Brint (Edit)
http://oneminutetrader.tv/2017/10/03/the-master-of-the-best-guess/
This is the Transcribed version of the podcast linked above ^ ^ ^
On this episode of The One Minute Trader podcast, host Matt talks about being the master of the best guess because in trading one plus one usually doesn’t equal two.
[00:00:00] Hello I would like to talk to you about the One Minute Trader we are here to take the time strapped trader and turn them into a profitable money making machine with daily ideas that give you, the trader on the go a reason to trade with risk defined and profits taken when able. I’m Matt Davio and this is the One Minute Trader podcast.
[00:00:56] Hi I’m Matt Davio. Welcome back to the One Minute Trader podcast today I want to talk a little bit about a subject that I think everybody has felt at one point or another as a trader in their early, middle, or later part of being a trader. It’s really comes down to: there is no perfect trade. There is no perfect set up when it comes to markets. And I find a lot that there’s so many people trying to figure out and find the Holy Grail. And what I want to talk about today is sometimes the best guess is going to help you to be successful. What I mean by that is, we don’t know what’s going to happen with the market after we put on a position and just taking the position sometimes is the best thing that one can do. So the challenge of trying to win at trading is really when I’m going to call this podcast and when I want to talk about that at today’s using an example of a client that was working with us recently we had a we had a coaching client that I was training for a number of months and she remarked to me that she could not see any logic or rationality in anything in the current market. She wanted my opinion on this and how she should manage this. That’s always a detrimental place to be where you’re looking for somebody else not only to blame but to then give credit to. And I’m nobody’s guru and you should not go about learning how to trade in that manner. I explained how often the logic we apply to the market is rarely fully formed and this is so true I see this over and over again. Or is it ever really fully complete. If we wait for all the things that we need to set up, you’ll never trade. And the market usually has moved before you realize this and then you beat yourself up and go through that cycle over and over again. So often we must make this decision based on incomplete; formation of the information that’s out there. And this is challenging for many but it is also probably the most precious and the best time to trade when you don’t have complete information, Yet most of the facts or are lining up in your trade idea at this stage of the market really hasn’t fully moved to discover new price and the new value factors thus the risk reward is much higher. But it is also there that the risk in the picture is probably false. And probably the time to take the trade. This is why in my opinion great traders are often masters of what I would say the best guess. So what do I mean by that? The human mind is a tricky thing and there’s a lot going on and we can fool ourselves dissonance and we can fool ourselves with many things but making a best guess is extremely challenging for most. The human mind dislikes incomplete pictures made from a few basic focal points and often seeks to complete the picture. When we don’t have all the answers as humans we are quite capable of abstracting successfully from limited data points. But equally This can also lead us astray and divert us so we worry more about the diversion. What happens when we don’t have the information then when we have some of the information or some of the data points. So our minds seek more complete answers. And if it doesn’t have time or data to construct them it will create a narrative, if you will, to complete the picture. The danger in this type of behavior can undermine US and or our vision can actually be pretty significantly distorted easily. The narrative may be correct but equally it may represent a logic based on false premises used to justify feelings-based decisions or decisions not necessarily based on clear logic. So when the customer or the client ask me that question that you know often when I was a trader in the past. This happened to me on many occasions and sometimes could have seriously sabotaged my training. So it happens to most people. Technical analysis in my opinion is an example of an abstraction that you can take one way or the other. You can see anything your mind tells you that there if you’d like. So there’s a difficulty I believe with straight technical analysis because we can see anything with our mind. So the narrative really has to fit with not only what you see but how you see it and that’s important. So trade what you see, you hear this all the time, not what you think you see. I find this to be a fascinating mantra because it’s great advice but it’s also flawed. On the one hand it reminds us to check our ourselves and not. Always overthink matters. On the other hand this is actually what we do. We can’t help overthink things because we are made this way. Thus because of the fight or flight that is inside of all of us to survive. But you have to ask yourself is this trade going to kill me or am I going to survive. And generally, the answer is you’re going to survive. So keep that in mind. What we see and what we think we see are one and the same. To add to the challenge particularly in markets what we see is rarely if ever true. And is it rarely complete. So rather than try to you know piece together all these things I think you just have to accept and have some faith in the sense that not everything is going to be relayed to you. So sometimes in the market one plus one equals two sometimes it equals three sometimes it equals minus four and I say that to people when they look at me like I’m crazy. Whatever your brain is not seen everything necessarily too. So one plus one may not be the full picture. In other words or maybe two add it to one to get you to three or a minus five that you still don’t see that is actually going to make it minus four as I said. So keep that in mind. It’s not always you know as clear as you think because not all the pieces of information are there. So markets never show us a clear and logically constructed picture. There are just too many variables too many views. This does whatever we want to say therefore we have to rely upon best guesses and that’s where risk management comes into place. Your job as a risk manager. I’d rather I’d rather people call themselves risk managers than traders. Is to define as much as we can and then establish kind of what the risk controls are that can help overcome our bad behaviors our optimism our pet pessimism our own arrogance and our own levels of confidence both over and under. OK so we have to find a way to deal with that strong process and structure keeps us safe as well as to engage us in market risk. So you have to take risks to make money. It’s as simple as that. There is never going to be an absolute situation or I shouldn’t say never, but there is rarely the perfect situation where you’re going to get into a trade and it’s going to make you a ton of money in a short amount of time. So in summary what I can say to ourselves is hey logic and rationality are great. They help fill gaps in data and they help try to explain the data to us. It allows us to make sense of things. This is both our blessing and curse. For me greater self awareness is what is needed to allow us to capture the upside capabilities of ourselves. Whether you’re trading or doing anything and also limit the downsides from from the results from these. So greater self-awareness means understanding the basic drivers of your decision making, and behaviors, developing an understanding of who you are from a third person perspective which is, believe me, constantly a struggle for me and being conscious of how your emerging situation impacts your behaviors and actions. This in my belief is what will help you to increasingly become a master of the best guess. So that’s it. Hope you have a great day here at the one minute trader. Any questions you have, drop us a line at Matt@oneminutetrader.tv , love to hear questions always and if you’re interested in any type of one on one consulting drop me a line there also. And thanks again for listening. Make sure if you’re enjoying this podcast that you noted down and let whichever platform know that you’re listening to that you want to continue listening to it. It really assists us and it helps us to continue to grow the program and the content. Thanks and have a great day from Matt at the One Minute Trader.
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