The ability to simplify means to eliminate the unnecessary so that the necessary may speak…Hans Hoffman
The 14th Century Franciscan monk William of Occam formulated a concept that provides the basis for many present day scientific theory and models. This concept, know as Occam’s Razor, says:
Given any competing sets of solutions for a problem, the explanation must be made in terms of what is already known. That does not necessarily imply that it will be the simplest solution (although it often is), but it will help you focus and alleviate anxieties and endless frustrations trying to figure out what you don’t know. For traders, this translates to focusing on what you do know, and using this knowledge to carry you further into study. The more you know about a particular market, the more quickly you will come to creative mastery and the more you will be able to simplify.
The founders of Alcoholics Anonymous called this the KISS (Keep It Simple Stupid) solution. This principle can be applied to nearly every facet of life, including trading, and is positively correlated with experience. The more you know about any subject, the quicker you will be able to find elegant and simple solutions
Your brain is out to get you. Your brain is complex with multiple reverberating circuits and connections that drive you to think yourself into or out of any situation. Your brain lies to you night and day in the most convincing and deceptive ways imaginable. If you find yourself challenged, confused or messed up in your trading or in your personal life it is for one reason: Your best thinking got you there.
The most confused in the markets right now are those who are reading newsletter after newsletter, site after site, pundit after pundit trying to find a reason for “WHY” things are happening. Everyone has something to say, write, postulate or theorize about such situations as: “Why are markets rallying when the economy is so bad? Who is buying into this rally? Who is selling? What about the fiscal cliff, the derivatives, the wars and the endless chatter of doom and gloom? When is it going to end? Why are the shorts I put on still tanking? Where is the correction? What is going to happen?”
You see how senseless this all this? It means nothing and is a huge waste of time. Yet- people keep looking, reading, over thinking and trying to find something or someone that agrees with their ideas so they feel a little better–for a well.
I heard part of a radio program this morning where people were calling in and quoting this or that “guru” about where the dollar and gold were going. Markets are made because people have different opinions. This is how it should be. If everyone thought the same way, believed the same things–there would be no markets. For example, in the futures markets (zero sum– for every buyer there is a seller), you are trading your beliefs against the beliefs of those who disagree with you. You know that your beliefs are correct if your position is making money- and vice versa.
What is correct? Who is correct? The answer is simple: The markets are correct. If you are underwater in your positions and in the hold and hope mode, you are not listening to the markets.
Remember that the greatest secrets are always in plain view. It is happening because it is happening. All of the mental and intellectual tricks (neurotic defenses, cognitive biases) that you play on yourself are for the purpose of easing anxiety over a situation that you do not understand. Quite often, the more you search for answers, the more anxious you become. You are the problem and you are the solution. It is just that simple. Stop trying to figure it out. Accept that it is happening and act according. Learn to respond, rather than react. If price is going up, it is going up, so go with it and continue with it until it stops going up. If price is going down, go with it until it stops going down.
The easiest way to gain discipline is to reduce everything to its most simple parts. Dissect, declutter, and get simpler. Stop trying to turn a game of probabilities into rocket science.
What might Occam say to you about trading?
There is way too much noise. Turn down the noise in your mind and on your charts.
Trust yourself to see what is in front of you. Markets do not lie; people do.
Do not be fooled by highly intellectual explanations for why things are or are not happening. Listen to the voice of the markets.
Wisdom in trading is manifest through simplicity. The more complex you try to make this, the greater the probability that you will lose
The market speaks in probabilities. Do not try to change this language by making it one of certainty.
If what you are doing is working, keep doing more of it. If it is not working, get out and go back to basics.
Find an edge and keep sharpening it. Disciplined traders win. Emotional traders lose. In the battle between discipline and emotion, the disciplined massacre and plunder money from the emotional.
Simplicity is the ultimate sophistication…Leonardo da Vinci
Janice Dorn, M.D., Ph.D.
