Slow Trader

Tag: chess

  • To master the game takes time

    IBM’s computer “DeepBlue” has been beating the very best chess players for some time. Now Google’s computer “DeepMind” is beating professional players in the ancient Chinese game of Go.

    We have likened chess to trading before. In his book “think, fast and slow” Daniel Kahneman explains how chess is like learning a language, but more so. There are a good deal more chess moves than there are letters in any alphabet.

    Trading, and the number of trading signals, is another level again. Also institutional traders can afford the very best computers, and more importantly, the very best programmers of algorithms. The big difference, however, is that, unlike Chess or Go, in trading we are not competing against the computers, but with them. With them we win, against them, we lose. We need to think in terms of algorithms, we need to be very precise. That involves our system two (logical) thinking not our system one (instinctive) thinking.

    Kahneman explains that it takes about 6 – 10 years, 5 hours a day amounting to about 10,000 hours, to become a master chess player. We know that this is true for other skills: a junior doctor about 7 years, a tennis player takes a similar time (the 17 year old that wins Wimbledon started at age 7, or earlier) and as a fighter pilot I considered myself no more than competent after 7 years.

    Trading has three distinct areas that need to be mastered: trade knowledge (is price to go up or down and over what time frame), the management of a trade and the emotion of trading. Each of which need to be mastered equally.

  • Chess and trading bars

    Trading can be compared more easily to chess than to…  say, poker. That is because, as with chess, trades are made with all the previous moves in clear view.

    Also, as in chess, all previous moves when trading have a certain degree of relevance and effect –

    ….moreover, each trading bar has a certain characteristic, a certain force, a certain power; as do individual chess pieces – the pawn versus the queen for example. The chart below asks: are there simularities to chess?

    Snip20151211_30

    Trading bars don’t, of course, have nice horse’s heads on them, to let us easily differentiate between the knight and the less capable pawn. However, each trading bar is, in its own way, just as distinctive as the carved chess piece.

    When we know these trading bar distinctions we have a chance at winning. But, as in chess, a game is not won by just knowing the capabilities of individual chess pieces. We need, more importantly, to know how the individual pieces (or bars in trading) support each other – the context – the confluence.