Market Manifesto

The psy­chol­o­gy of con­ges­tion action is the psy­chol­o­gy of per­fec­tion.

In con­ges­tion action trad­ing we move from one lim­it to anoth­er, and reap our har­vest at the edges, plac­ing trades near the con­fines of con­ges­tion. The per­fect per­son­al­i­ty for this type of trad­ing is the aware tech­ni­cian. In con­ges­tion action trad­ing, we know our lim­its. The task at hand is to be per­fect in our exe­cu­tion, and to gath­er in every stalk of grain in the field. Har­vest time is here. Let’s do a per­fect job of it.

The dan­gers are hubris and obses­sion.

The trick is to relax and enjoy it, and to put the fruits of your per­fec­tion in the prop­er frame­work, and asso­ciate your­self with the prop­er val­ues.

Of course you must learn the skills that you will need. Of course you must spend enough time prac­tic­ing so that you become com­fort­able with these skills. But once you have them down, then relax and enjoy the process. It’s not a bat­tle, it’s a pro­fes­sion.

So … become an aware tech­ni­cian, striv­ing for per­fec­tion, avoid­ing hubris, avoid­ing obses­sion, asso­ci­at­ing with the prop­er val­ues.

My, my, what is all this about? Well let’s reflect a bit on the ele­ments of this thought.

In con­ges­tion action, one can make a lot of mon­ey, and with the prop­er mind­set, it is not that hard, since the con­fines of con­ges­tion are known. Giv­en that, then if you can put the pro­por­tion of wins and loss­es in the prop­er place in your mind so that you are com­fort­able with those times when you are wrong and those loss­es hold no ter­ror for you and gen­er­ate no fear, then you can do this for­ev­er and make how­ev­er much mon­ey you wish. A com­fort­able life.

An aware technician….

Once I trained for a brief peri­od with young neu­ro­sur­geons as they were first exposed to the tech­niques of oper­at­ing under the micro­scope. It is an amaz­ing expe­ri­ence to see the tiny imple­ments mag­ni­fied to colos­sal, Brob­d­ing­na­gian pro­por­tions in the field of the oper­at­ing micro­scope, with the tini­est of sur­gi­cal scis­sors trans­formed into hedge shears, and sutures many times thin­ner than a hair look­ing like gar­den hose under the lens. And with these tiny imple­ments made immense by the lens, these skilled tech­ni­cians-to-be worked with infi­nite patience to learn how to cut apart 1mm plas­tic tub­ing and sew it back togeth­er end-to-end; and then how to sev­er and re-con­nect blood ves­sels in a rat’s neck, and oth­er exer­cis­es. Some were infi­nite­ly patient, and some wracked by frus­tra­tion and dis­sat­is­fac­tion with their slow learn­ing. The instruc­tor, a sur­geon and researcher of wide­ly appre­ci­at­ed and renowned skill, took note and talked to them about the con­di­tions of suc­cess. Cer­tain­ly the chal­lenges of vas­cu­lar surgery deep with­in the brain required a strong ego and plen­ty of ambi­tion and dri­ve to gen­er­ate ener­gy to get through the com­plex and ardu­ous train­ing. But those who would be suc­cess­ful had also to accept a lifestyle that reflect­ed the demands of the field. Cof­fee, for exam­ple, was not-com­pat­i­ble with micro­surgery. Cof­fee! To me this seemed remark­able, yet under the micro­scope it was clear that the tini­est tremor mag­ni­fied many times was like a wav­ing palm frond in a rag­ing wind­storm and even with hedge shears and gar­den hose it was pret­ty much impos­si­ble to tie off a ves­sel under those con­di­tions. So those indi­vid­u­als that would suc­ceed in micro­surgery with­in the brain, would have per­son­al­i­ties that could accept and wel­come the lifestyle changes con­ducive tof devel­op­ing the high­ly refined motor skills that would be required. The deep calm required by these tech­ni­cians would come only when their life-styles were in sync with the tasks at hand.

How do we describe this state of mind? We’ve often seen it in a cer­tain type of sur­geon, or den­tist, or tech­ni­cian. Not exact­ly con­trolled but relaxed, con­fi­dent, at ease with one’s self and with one’s tech­ni­cal abil­i­ty, free of nag­ging dis­sat­is­fac­tion, grind­ing ambi­tion or unful­filled need, with­out a press­ing need to change the basis of one’s life, free from the dom­i­na­tion of vice or pas­sions, but in a state of qui­et, con­fi­dent, well-ground­ed sat­is­fac­tion.

And this is the per­fect state of mind for the trad­er encoun­ter­ing con­ges­tion action trad­ing. (And per­haps for all kinds of trad­ing, but that is anoth­er top­ic.)

So an aware tech­ni­cian is one who under­stands the tools and tech­niques of his or her trade, but also accepts the con­comi­tant lifestyle which sup­port this pro­fes­sion and avoids those which work against it. Fur­ther, the aware tech­ni­cian under­stands the prime instru­ment of the activ­i­ty, which is the self. Self-aware­ness is the tool which makes the tools of the trade use­ful.

Lest you think that we think the road to suc­cess in trad­ing involves giv­ing up caf­feine, we can reflect a bit about dif­fer­ent kinds of traders in the world. The swash­buck­ling, hard-drink­ing roustabout gam­bler who plunges in and out of the mar­ket with a high hand and arro­gant atti­tude – some­times he wins big, for sure. But he tends to be a break­out trad­er and not the kind of qui­et tech­ni­cian who is adept at extract­ing every bit of advan­tage from con­ges­tion action trad­ing.

What about the dan­gers we touched upon above? And what about the tech­ni­cians who were not so aware? And those who were suc­cess­ful at first but who fell off the wag­on in mid-career? Now of course the rea­sons why peo­ple suc­ceed or the reverse are man­i­fold, and can­not be reduced to sim­ple apho­risms or guide­lines. But we know about a cou­ple of dan­gers we can talk about here.

Per­fec­tion breeds hubris and obses­sion.

You are expe­ri­enc­ing Hubris when you think you are so good you can’t lose. It is the sin of pride – one of the sev­en dead­ly sins, a list of char­ac­ter flaws set down with astute con­ci­sion thou­sands of years ago. We find these sins on all sides today but the most impor­tant side we find them on is inside, and that is where our con­cern lies at the moment. We are inter­est­ed in the sev­en dead­ly sins not for moral rea­sons (though we encour­age think­ing about moral­i­ty as part of your self-exam­i­na­tion and per­son­al growth). We will be exam­in­ing the sev­en deadly’s for their poten­tial to wreck your trad­ing skills, and for the imped­i­ments they pose to your finan­cial suc­cess.

Hubris is a dan­ger to all traders but espe­cial­ly to the aware tech­ni­cian, the per­fec­tion­ist, the marked­ly skilled trad­er who has a plan, a tech­nique, and a track record.

What hap­pens when hubris grabs hold? We traders devel­op a dan­ger­ous state of mind that tells us we are larg­er than the mar­ket, that the mar­ket will do what we think it will do, and that because we are per­fect in our per­cep­tions we will win every time, or most cer­tain­ly at least this time.

(Much like dis­ease enti­ties and their counter-veil­ing anti­bod­ies, the dead­ly sins are always present with­in our per­son­al­i­ty. In a healthy per­son­al­i­ty our strong val­ues and aware­ness keep the sins at bay, just as your immune sys­tem with its cir­cu­lat­ing anti­bod­ies keeps the every-present pathogens under con­trol in our body, and rarely let them devel­op into that state we call “illness.”)

Hubris would always like to take over and run the show, it loves to dom­i­nate a sit­u­a­tion. Brag­ging to our­selves or to oth­ers is a sure sign of hubris; watch for it, because it binds you and will take your mon­ey from your account quick­er than a pick­pock­et in a car­ni­val crowd.

The oth­er com­mon com­pan­ion of the per­fec­tion­ist is obses­sion. We traders become obses­sive when we want more per­fec­tion than the occa­sion per­mits. In trad­ing we some­times call this “tickitis.” It is the effort to call every turn, to grab every tick, to place orders at the exact high or the exact low of a move, to trade every close to the con­fines of con­ges­tion and, in short, to be more per­fect this time than we were per­fect the last. We become focused on this goal of per­fec­tion to the exclu­sion of all else, and some­how seem to think that if we just con­cen­trate a bit hard­er we will be able to be yet a bit more per­fect, on and on, in a weary­ing and wear­ing cycle of effort.

Why does such obses­sion come about? Because we believe that we can be per­fect. Why do we want to be per­fect? Because we have the tech­ni­cal skill to play the mar­ket and we see the clar­i­ty of the the­o­ry and we believe that if we put the two togeth­er in just the right way we will be able to get all that the mar­ket has to offer. It is a form of greed.

Well, it’s not in the cards. It doesn’t work that way. The mar­ket is a nat­ur­al phe­nom­e­na, and it plays out through prob­a­bil­i­ties. The nature of prob­a­bil­i­ties is that you can’t pre­dict the out­come in the short term but you can deter­mine the out­come in a large sam­ple, over time. The dri­ve towards per­fec­tion and the accom­pa­ny­ing obses­sion results from a mis­ap­pli­ca­tion of stan­dards. The obses­sive, per­fec­tion­ist trad­er is try­ing to apply to a short-term out­come to that which can only be deter­mined in the long run, over time. His expec­ta­tion of per­fect suc­cess is doomed, and frus­tra­tion is the inevitable result. Frus­tra­tion leads to errors, and so the cycle is fraught with dan­ger, to say the least.

Con­ges­tion action trad­ing, the trad­ing that takes place between clear­ly defined con­fines of con­ges­tion, is a rich and reward­ing field of play. You can make a lot of mon­ey there, and enjoy a pleas­ing and relax­ing life style. But watch for pride and obses­sion. They’ll steal your mon­ey if you don’t take care. Be an aware tech­ni­cian. Know your­self, and be at ease with who you are. Then you can enjoy what you make, as well as to take plea­sure in the mak­ing of it.