Sunday, December 6, 2009

"The Rush Hour Dance" & Trade Frequency

Anybody who has lived/commuted in a major city will be familiar with this phenomenon..lol.

You're rushing to get the train, tube etc (or just rushing for the sake of it as people tend to do in these environments!) Someone is walking in the opposite direction you're going in and your paths meet. You choose a direction, to avoid a collision. They choose the same. You both freeze for an instant, wondering who is going to navigate around who. Somehow, you both decide to move at the same time and in the same direction. Once again, an awkward moment where you both end up almost bumping into each other (the very act you were trying to avoid...you can see where I'm going with this)

This little jig can be seen in every chaotic, rush hour environment. It can go on for several seconds until one of the two decides to take a stand, even at the temporary resistance of the other person

This story captures the essence of one of my difficulties in trading. Backing off because I've had a good run/ had several winners in a row/lost several trades in a row- whatever the reason, only to find that I've missed my winning opportunities. So, naturally, I come back with more conviction at the very moment when the strategy is destined for a losing period.

This, too, can go on for quite some time- Repeatedly pushing when you should be pulling and vice versa until you choose a direction (strategy) and stick to it- even through the temporary resistance of the other person (market-induced drawdown)

The other issue is the frequency with which I trade. I've convinced myself that taking a given number of trades (all with the same expectancy) in a short period of time is somehow more risky than distributing that said number over a longer period of time.

Flip a coin 10 times today or 10 times over a month...the chances of getting a given result do not change as the coin doesn't "know" how long you've waited to get/avoid a given result....

Will be looking to up the frequency this week.

2 comments:

Jules said...

Happens to me ALL THE TIME, MM. Both walking and trading :-) With walking it's easier though. I always know that I have to be the one to stand still.

Anonymous said...

Careful, you'll need a "3AM Thoughts" tag ;-)