Expect only what happens in the fight. That way you’ll never be surprised.
— recollected from Duncan Idaho, the Swordsmaster of the Ginaz, by Paul
Before anything else, trading is first a crucible of autodidacticism: a test of teaching oneself to accept recurrent lessons of humility before the market compels that acceptance.
The humiliating import of Behavioral Finance is that our cognitive life is firmly set with a cornerstone of heuristic cleverness; but that same adaptive wisdom that serves for our survival so well becomes the agent of abasement when we treat it as the foundation of rational agency for our market decisions. As Kant lamented with a misanthropic resignation two centuries before Kahnemann and Tversky met, “from the crooked timber of humanity, no straight thing was ever made”.
But self-sabotage isn’t a fated and ineluctable consequence of our biology, even if our “human, all too human” condition is a miasma of crippled rationality. It is true: those natural proclivities creating our adaptive fitness for life are the very things that frustrate our aspirations to become market-adept.
But once this is conceded – once our inadvertently masochistic frailty is accepted as fact – what remains? The same question confronting us with each new day, session, trade and allocation decision: to decide whether our foibles stall us out at a terminus of quiet resignation and passivity; or set us on a counter-intuitive passage through our fallibility that begins with the humble acceptance that it is so.
Encyclopedic enumerations of our shared menagerie of maladaptive mental tendencies are everywhere. Cartographers of our slip-shod cognitive terrain have exhaustively mapped the perilous irrationality crevasses down which we continue to haplessly and unceasingly fall.
But where these lists of behavioral errata tear down, their content does not preclude the ability to pursue that single project that builds up: discovery and adoption of a grounded process.
Process is never comfortable: it asks our free agency to clip its own wings, to abide through the positive duress of discipline. Through it the perpetually-renewed array of decisions, so fraught with snares of bias, cedes our volition to a single choice: obedience, or not. But submission to process is self-abnegation in all the right ways: it is the will to affirmation as a trader or investor through constructive abasement.
The “rational animal” as Descartes described us adduces known variables to assign probability to possible futures; but it’s stubbornly resilient irrationality confuses this facility with prescience. The anticipation created by our sophisticated guesswork leads to decisively shifted weight before the turn is decided; to pre-commitment of psychological and tangible capital that is only painfully and reluctantly revoked. Fear of regret and hedonic adaptation foster an inertia that keep us where we are when the consequences are anything but rational once retrospectively evaluated.
There is a “propagation of uncertainty” inherent to participation in markets that far surpasses the complexity of our routine experience of the spaces and events common in the natural world. We find out too late – and then hubristically imagine we did not – our capacity to anticipate as we confront markets is disconcertingly outclassed.
The pain that results from broken investment theses and betrayed market expectations lays bare our tender illusion of control over future outcomes. That is the place we most fear to look; even outstripping the tangible discomfort of losing positions.
Treating process as an end in itself subverts this tyranny of expectations; of the primordial drive to see around every corner and forecast every outcome that tragically fails where we call on it most earnestly. Releasing the perceived necessity of authoring and following expectations through a grounded and repeatable plan of action means every trade, every session, every position – every fight in our long campaign for consistent success – is new.
To the degree we set aside the bias-riddled preconceptions our exalted, yet serially fallacious rationality insists are necessary, we humiliate ourselves. Ultimately, it is the subservience of our will to process that nullifies the market’s capacity to surprise: an affirming and constructive end that can be reached by no other path.
This the first installment of Trading Wisdom from the Desert, a series of trading meditations (originally published here) inspired by aphorisms from Frank Herbert’s Dune Hexaology.
Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity. Desert image courtesy of wisdomquarterly.blogspot.com
