Wednesday, December 1, 2010


This concept talks about the way time can be thought of as being a "fourth dimension"- time & space are distorted for an object, relative to an observer, as the speed of that object approaches the speed of light.

After thinking about that for a while, it occurred to me that a similar situation is often played out in trading, except that Space & Time are doing the distorting.

Distorting our emotions that is.

Time- If a losing trade occurred "a long time ago" (<- all relative!) then you're less likely to hesitate on that next trade than if it happened "recently". On the flip side, if you've made good gains "recently" you're more likely to "call it a (insert arbitrary time period)" than if it was "a long time ago"....

....AKA Recency Bias.

Space- If you have been stopped going long/short at a given price level/taken profits at said level, it's quite possible you'll modify your actions around that level as it has become an emotional place for you. You may treat it as s/r based on your experience(s) there when, in fact, it could mean nothing (unless it is a point of collective decision making, in which case it's actually s/r! Where we should be looking to trade...)

Even worse is when we have positive/negative experiences within the same place on the X as well as the Y axis.

It can be hard to accept the fact that equity increase/decrease is not correlated to Space OR Time. 6R can be made over a period of time and then lost in a fraction of that time, or vice versa. 20 pips of movement can make you money whilst an 100 pip trend can lose you money (especially if you're me!). It's all random.

Only the edge is constant.


Anonymous said...

As we say where I come from, "Deeper than Dolcoath".

what is margin? said...

Thanks for the info :)