Apr

16

When Wiswell got into a complicated situation, he'd always say, "I'm in over my head, I better simplify". That seems like a good strategy. The risk has increased and the expectation has not increased, so the utility of the position has decreased. Yet when a comparable situation in the market occurs, i.e. when the outlook becomes more uncertain– for example, before an upcoming announcement or when a regularity changes from good to mixed, the tendency of myself and my traders is to either stay with the whole position or close it out entirely– never to reduce by half as Wiswell would do in his game.

The question arises–why does this bias occur? And is it a characteristic of all traders or is there something in my background and those that follow me that makes us fish or cut bait? One will ask Dr. Brett for guidance as well as soliciting guidance from fellow specs.

Russ Sears writes: 

It would seem that the Chair's question is related to the Cassandra Portfolio mentioned earlier. If the trade makes its forecasted return quicker than forecasted then "flattens" or starts to drop, it makes sense to sell the whole and look for a new edge. If however its return is "flat" at first, it makes sense to stick to the original forecast.

Where we don't have the magical 21 day forecast… If we have an edge that we believe in I try to go with my coaching mantra "have a good plan. Believe in the plan. Stick too the plan."

There is always someone touting the latest greatest new training method, diet, etc etc. Many good runner's jump to the latest fad to the next. But the great ones stick to their logically built training plans until they shows signs of overtraining.

Perhaps a related question is what are the signs a trader is "in over his head".


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4 Comments so far

  1. Anonymous on April 16, 2016 5:10 pm

    I relate to this in all areas of life. It’s applying a binary model to an ambiguous and grey problem. I’m still lost as to how to overcome this. How does one tow the line and develop the sensitivity to walk the grey line of risk in trading? This seems like a major pillar to winning over long run

  2. Anonymous on April 20, 2016 2:19 pm

    If a person walks into an environment where all parties are trying to exploit and pickpocket him then naturally he’ll lose and end up unhappy. If the same man walks into a resource rich low hanging fruit orchard naturally he’ll be more prosperous. The financial markets are the former. It’s largely a sucker’s game geared toward the house having the edge. What is one to do?

  3. Dash of Insight| Weighing the Week Ahead: Can Stocks (finally) Set a New Record? on April 24, 2016 10:00 am

    […] Victor Niederhoffer has some great advice derived from checkers expert Tom Wiswell, whom he met by chance in Central Park. The key idea is to reduce size in the face of uncertainty. While we do this routinely in our firm, most traders either sell the entire position or remain “all in.” The post led me to another page of Wiswell Proverbs. Traders and investors alike will enjoy these. It is difficult to pick a favorite, but here is a candidate; ERRORLESS PLAY: In Chess and Checkers you can be ninety-nine percent right and still lose; one bad move can defeat ninety-nine good ones. […]

  4. Will markets (finally) set a new record high? - TradingGods.net on April 25, 2016 3:22 pm

    […] Victor Niederhoffer has some great advice derived from checkers expert Tom Wiswell, whom he met by chance in Central Park. The key idea is to reduce size in the face of uncertainty. While we do this routinely in our firm, most traders either sell the entire position or remain “all in.” The post led me to another page of Wiswell Proverbs. Traders and investors alike will enjoy these. It is difficult to pick a favorite, but here is a candidate; ERRORLESS PLAY: In Chess and Checkers you can be ninety-nine percent right and still lose; one bad move can defeat ninety-nine good ones. […]

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