Trading—relatively short, speculative ownership of something—is a special topic to me. I spent about 3.5 years in love with trading and making it my mission to become a professional trader. My regard for the practice, particularly the ubiquitous, professional institution of it, eventually shifted to disappointment. The concept is intriguing still, and I’m quite glad for the experience of it—both for many reasons. It’s also a ton of fun. But I can’t in good faith encourage people to immerse themselves in trading. There are too many creative, useful, and lucrative opportunities to enjoy to live trapped in the minutiae of a pointless game. Don’t get me wrong: investing, a related but separate topic, is very legitimate and worthwhile. The reason one makes sense and the other doesn’t is time. Trading consumes lots of time, taking away from other great things and therefore diminishing the overall quality of your experience. Investing doesn’t require constant attention. It hardly requires any attention, so long as you practice temperance and staying informed of changes in the world. It makes your time worth more because it’s more free; less time can be allocated to income-generating duties and more to manifesting dreams.
Here are some things I learned from trading. You’ll notice, however, that they extend beyond just that.
Since everyone is wrong at least sometimes, you should prepare to be wrong about anything, even your deeply held convictions. Rather than complete faith in your best guess, a probabalistic mindset is the best framework for posturing yourself to handle constant uncertainty. You never lose everything, literally or figuratively, by turning out to be wrong. Some people are really bothered by needing to admit wrongness, but that’s a silly habit that should be unlearned. It’s perfectly okay to be wrong, just not to stay wrong. Not a single person or thing, ever, has been right about everything. So nobody has good reason to pretend they know all the answers and can’t possibly be wrong. Paradoxically, it’s those who are willing to admit wrongness who can ultimately achieve more complete understandings because they adapt by collecting the relevant facts to repair their misconceptions; they embrace wrongness to become more right. They’re also more likeable, frankly. Having no humility to admit fault is insufferable. In trading and elsewhere, accepting possible wrongness and moving on gracefully is a superpower.
If you’re not sure about something, just do half. This simple heuristic is disproportionately effective. You can keep it super simple and do exactly half every time there’s a bit too much doubt, or just keep in mind that it’s valid to make arbitrarily sized partial bets. Again, given the constant threat of uncertainty, you must accept that any perception and any plan is fallible. Frequently adjusting commitment to various plans based on rolling efficacy metrics works well to provide exposure to the benefits of risk and diversity while ensuring a minimum number of disasters.
“Experts” are wrong all the time! If you pay attention (i.e., study data you personally collected or received from a reputable source), you will notice all kinds of patterns that disprove financial “common knowledge.” Analyst upgrades/downgrades are not good predictors of accelerated growth/collapses. Trend reversals always occur as public sentiment is strongest in the opposing direction. Most egregiously, the market is clearly not efficient and immune to being predicted. (How do you explain that some outperform the market average after not 1 or 2 rolls of the dice but thousands, year after year? I will never understand how EMH advocates manage to ignore this glaring contradiction.) And Buffett’s strategy may have been effective 50 years ago, but an in-depth presentation from a pro trader or growth investor quickly illuminates how vastly inferior value investing is to momentum-based strategies in the market now. To be fair, experts are partly wrong so often in finance because there is a direct incentive to trick other participants into having the wrong view (so they will take your bet and you win). But, even without the zero-sum incentives that are unique to finance, it happens elsewhere too. Don’t believe something just because so-and-so said it. Research it genuinely and you will know the answer.