matt.stokes1

I agree with Tradewinds: The other 2 fundamental differences are: 1) When you trade a cookie for a slice of pizza, you are forced to define your risk (the cookie). With trading, nobody forces you to define your risk and you could lose your entire bet, plus more if you're leveraged. 2) When you trade a cookie for a slice of pizza, the outcome is certain - you give up the cookie, you get the pizza. With trading the outcome is completely uncertain.

Thanks too Ingot54 for your passionate and thought provoking response. I think Rande's point is that Trading does not come natural to the human brain and that it has to be learned. If a humans starts trading using his/her natural instincts, then they will likely lose money in the long run. You could certainly argue that a significant percentage of these losers may not have purchased or developed a system with a demonstrated edge and that is in fact the reason for their failure. But I believe that you could give a new trader a profitable system with the entry and exit rules spelled out in simple terms and he/she would still lose. Why is this? I think its because our natural, built in behaviour cause us to override the rules of the system. I think Richard Dennis said that he could print the rules to for his Turtle system on the back of the national newspaper and people would still not be able to follow them. So the questions I would ask here are 1) Why is this? and 2) What can be done to overcome this? With regards to 1), I believe this is the focus of Rande’s initial post. He suggested this is primarily because of fear. Why are we afraid? The theory is that humans cannot distinguish between uncertainty and fear. To me this makes perfect sense. Humans are a young very species and our brains are a collection of solutions to problems we faced during the brief period of our evolution. Clearly genes that led to processing uncertainty rationally and without fear did not convey any advantage to our ancestors. It turns out that our evolutionary psychology that was good for surviving African savannahs is bad for trading. I personally have a theory that it wouldn’t matter what psychology we inherited, that it would be exploited in the marketplace. Ie if 100% of humans think a certain way, then a minority will put in the hard work to “change their psychology” to exploit the majority. I think that’s what’s happened today. But I agree with you, this is getting off topic. The WHY humans are poor traders naturally is not anywhere near as important as 2) What can be done about it. Rande doesn't address that specifically in his original post, but perhaps its coming or it exists on his website - I confess I haven't checked. For me knowing WHY helps me approach the HOW to overcome these natural tendencies, but perhaps it doesn’t for you and that’s fine. I just want to make one more point on this. By introducing an explanation for why trading doesn't come naturally to humans does not mean that we are not responsible for our failure - we are, and we have to put in the hard work. Forgive me if I am wrong, but that is how i interpreted your statement: With regards to the second question - what can be done to overcome our trading fears? MightyMouse suggested increasing desire. Urma Blume and yourself seem to lean more towards putting the hard work in and developing a system with an edge. After all, if you KNOW that your system has a positive expectancy, what is there to be afraid of? I agree with this 100%, and I think its the first step for any trader to find a system that matches your personality and backtest it extensively across multiple markets to clearly define your edge. I guess my point is that, in my opinion, many traders do this and are still afraid. I really liked how DavidJohnHall broke down trading fears into two simple categories. Fear of Losing money. Fear of Being Wrong. I am thinking out loud here wondering whether putting in the hard yards knowing and defining your edge will help you with the former fear, but not the latter? Traders that need to be right, in my opinion, need to focus on changing the way they think. They need to embrace the uncertainty. I think DavidJohnHall mentioned this too. After all, no amount of market analysis can predict whether a particular trade will work or not. To do that you would need to know what the thousands of market participants are thinking at any moment, which is, of course, absurd. Once you accept that you cannot know what will happen next it liberates you to think in probabilities. You don’t need to be right in order to make money (provided you have defined your edge)…. So why are you afraid of being wrong? Great discussion everyone!!