One of the things I’ve learned from being a practicing psychotherapist is that the answers to intractable problems are often hidden behind a veil of paradox. The way out of our toughest dilemmas usually appears to contradict common sense and turn truth inside out.
As a famous baseball coach/philosopher might put it, “You have to head in the opposite direction to get where you are going.” I gave an example earlier this week in an article entitled: “To win more, plan to lose.”
The reason is simple: most of our problems in life and in trading are self-generated and, to paraphrase Einstein, “Problems cannot be solved by the same level of thinking and behavior that created them.” Ironically, our solutions may be more problematic than the original problem, thereby compounding the conundrum.
IN TRADING COMMEN SENSE IS A TRAP
Once upon a time, common sense worked in the market. In trading today, however, common sense is often a trap because the trading environment has become more professional, more computerized and more predatory. In an interview a number of years ago, Richard Dennis (the co-founder of the great “Turtle” experiment) noted that markets are “10 times” more difficult to trade than in the 1980’s when he made his millions.
It’s the dilemma of the Disappearing Edge. The faster information is disseminated, the less advantage insiders have. The more information and tools in the hands of the average trader, the fewer the number of fools to take advantage of. Consequently, those with large orders to fill need to employ ever more sophisticated tricks and fakes to get a price advantage for their buying and sufficient liquidity to sell into.
In my experience, the most common tricks and traps in the modern trading environment now take full advantage not only of common sense, but of basic trader education, as well. Virtually every rule you have been admonished never to violate is a rule likely to be used against you by the more predatory programs running in the market these days. Why?
Because these rules make your behavior predictable.
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[TraderPlanet welcomes Dr. Kenneth Reid in our new weekly trading coach column: The Dr. Is In. Please tune back each Wednesday for the latest from Dr. Reid. Got questions? Post a comment for Dr. Reid below. ]
