Trading Group Therapy - Keeping It Simple (recording)

It's quite easy to say "Just keep it simple" about any task but that means picking some things and discarding others - but which ones? 

Now, I will say that this is a long video. It's group therapy, it's not scripted and I  misjudged the time it would take as I like to keep to an hour. There is no need to listen to this in 1 chunk.  

It was a great session though. Feedback was good. I'd thought long and hard how to get the message across so that people could actually take action and not just get a few clever sound-bytes. Here's what we did:

  • First - we looked at how complex the markets are. We compared stocks and futures, both in terms of the drivers, the structure and typical day to day activity required to trade them.
  • We looked at Index Futures (and a little crude) and all the related markets - the point being - it is too complex to understand, so you have to take shortcuts. Or you get a headache. so we filter out trying to know.
  • We looked at HFTs and the algos and the most common misconceptions around them - so we could filter those out from our decision making.
  • We even looked at misconceptions themselves. Why people repeat 'unconfirmed groupthink 'facts' about trading that were never proven. How over time these become common knowledge.
  • Then we veered into a bit of human behavior and game theory. Mostly centered around the GameStop fiasco. Where we looked at an aspect that was pure game theory and one that was based on similar concepts. The reason? Trading doesn't require linear thinking, if you are a linear thinker, the Yale course on Game Theory should thrash it out of you.  The playlist for the Yale University course is here: https://www.youtube.com/playlist?list=PL7194650F2DD2AB07
  • We took a look at how much heavy lifting the markets needed to do for your trades to work out, the less required, the better.
  • Then we "trashed everything". This was the part I was looking forward to the most and dreading at the same time. I have to be 100% clear here. There is no universal truth. Two people can disagree about something and both be right (Edward de Bono explains this better than I ever could). But I showed why I thought somethings weren't right from my perspective. So - this is not me telling you that your dog is ugly, it's about my perspectives which change over time and how I rationalize not using certain things. In this section, we also touched on how execution firms work as it's part of recognizing where liquidity might exist. The article I referenced is here: https://iclg.com/cdr/litigation/5479-best-execution-what-is-it-and-how-do-you-recognise-it
  • You may think these things are all unconnected but it's all related to keeping things simple, which for many is a process of removing things. You can't remove things at random, there should be some way of identifying what makes more sense to you than other things. So we finished on a suggested process of unwinding.

 

It all boils down to something known as a heuristic technique - Wikipedia explains it best:

"A heuristic technique, or a heuristic (/hjʊəˈrɪstɪk/; Ancient Greek: εὑρίσκω, heurískō, 'I find, discover'), is any approach to problem solving or self-discovery that employs a practical method that is not guaranteed to be optimal, perfect, or rational, but is nevertheless sufficient for reaching an immediate, short-term goal or approximation. Where finding an optimal solution is impossible or impractical, heuristic methods can be used to speed up the process of finding a satisfactory solution. Heuristics can be mental shortcuts that ease the cognitive load of making a decision.[1]:94[2]"

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