The Ingredients Necessary for Trading Success
Thoughtful talk by Pat Dorsey on value investing. It is a long talk at 1 hour 10 minutes.
The concept of moat is very interesting and it can help to expand why some businesses can perform better in the long run.
You can get the book The Little Book that Builds Wealth from Amazon.
Statistics on everything and interesting implications from the data. It is a long video at about 56 minutes.
You can get the book When to Rob a Bank from Amazon
I have seen all kinds of metaphors about traders who can make money from trading all kinds of financial markets. For example, many traders like to think of themselves as some kind of martial artists including ninja, samurai and karateka. There are also traders who prefer to think of themselves as snipers and big game hunters. They are all good metaphors in terms of describing the mental aspects of these traders but it always feel like the labelling is lacking something. Hence I am coming up with my own metaphor for being a Tai Chi Trader. Let me explain why I see myself this way and why it is a good idea to be a Tai Chi Trader.
I started practicing Tai Chi and other classic Chinese martial arts since I was little. Rigorous training all the way thanks to having great teachers guiding me. Thus, there is no pretense at all when I choose to call myself a Tai Chi Trader. What I have learned from Tai Chi shaped my view of the world and ultimately on trading. It also helped me looking outside the box which eventually led to the findings I summarized in Special Theory of Price Discovery.
Tai Chi is an art form that you commit to with life long practice. Perfection can never be attained because as our bodies grow old, we have to adjust our practice to accommodate the changes within us. Our expertise gained from practice enables us to better ourselves in handling all kinds of crisis situations. It is a forever quest for inner peace, higher level of consciousness and the perfection of the art of killing.
Applied Tai Chi is a subject of controversy so I will try to make it general and less intimidating. The original application of the art is to fight in a sea of enemies where you are alone and trapped. The expected outcome is that you are the last person standing. Hence, without the proper mindset or understanding of its purpose when you learn the art, you will not get the best out of it. In fact, most of the moves do not make sense until you realize you are learning to kill, not fight, as many enemies as possible in the shortest amount of time.
Tai Chi principles are very much the best principles in the world for day traders to adhere to. One of the reasons why these principles are good for trading is the underlying thinking of controlling the one thing you can control, which is you, and extend it from there. It is very similar to the modern psychology of a better mental state can lead to better performance in all kinds of crafts.
Hence investing into yourself by training yourself better at handling crisis situations can directly benefit your trading because of stronger mental toughness. The effects of emotional responses I talked about in my other writings is a primary source of trading errors, being able to deal with that at ease is a tool many traders can only dream of.
Tai Chi strategies and tactics in dealing with the enemies are also very useful in terms of formulating a good trading plan that is practical for retail traders who often are not well capitalize. Tai Chi’s principle to wait for the right moment in time, for which you are standing in relatively advantages position, before any offensive moves are used is a great concept to remember when you are creating your trading plan.
Another Tai Chi principle is the observation of enemies who are so fast that on the surface they are unbeatable but in reality, because of the intention they have, which is to hurt you, their actions are predictable. Hence these enemies can be defeated if you wait for them to make mistakes.
Does this remind you of the predatory market making algos and the HFT bots? In aggregation, these bots need to make money and the intention itself tells you there are patterns that will emerge from their actions. By being observant, you can identify better trading opportunities for yourself and take money from these bots.
The original Tai Chi teachings also include the concept of taking controlled damage when situations are not favourable. A lot of training is done to ensure that being hit by the enemies are resolved at minimal damage while maintaining control of yourself and the situation. This part of the original Tai Chi is seldom taught anymore because of its extremely practical value in real fights.
This concept is exactly one of the hardest thing to do in day trading for which taking small losses can be a very stressful problem for many traders. But taking losses is not an issue at all for Tai Chi Traders because we are well trained to accept small losses out of necessity until the right moment to make it back. We know we are giving in to the circumstances through training thus our emotions are not affected as much.
I can keep going but you probably get the point already. Tai Chi principles and teachings are interestingly useful for day trading.
The financial markets before late 1990s was a very different world from the one we are dealing with today. The markets went through multiple major changes over the years and no longer resemble the slower pace and more rhythmic style of price movements that was common way back then. Today, the markets are moving more like the weather in a desert for which sudden changes can happen anytime. Traders not trained with a mindset to prepare for anything to happen can easily caught off guard and affected by the outcomes both emotionally and financially.
The financial markets are in the centre of this world of chaos. The fast changing environment can be a challenge for many traders but not to the Tai Chi Traders. This environment presents golden opportunities for the Tai Chi Traders because we are trained to survive when dealing with adversities. Thanks to our willingness to accept small losses without losing our confidence, we can observe and adapt to every situations more quickly.
At the end of the day, Tai Chi Traders are the ones who are still standing when the battles are over.
I know people will ask about this so let’s get it over with.
The classic teaching has very accurate and efficient anatomical techniques to seriously damage internal organs of humans, dogs, wolves, etc. They are very specific and they are very deadly. Most people love to argue for argument sake that these instructions are all bull. So let’s put it this way, some of these techniques to damage internal organs on humans are now part of the training materials in many special forces around the world.
Remember Tai Chi is not the only martial arts with such secretive teachings passing down the generations. Many other martial arts also have their own discoveries on efficient techniques to hurt people. For example, there are at least a dozen of ways to break joints without using brutal force.
It is not necessary a validation but ancient people are not as stupid as we think they are. Science is just playing catch up to human physiology that some of these martial art disciplines have studied for a long time. In comparison, science has the advantage of systematically discovering new things while the ancient martial art masters have to accumulate their experience over many generations to get just a few useful techniques.
Being a Tai Chi Trader has many advantages – you stay calm in handling the markets, you are relaxed when not dealing with the markets, your approach to the markets allows you to trade successfully without exhausting yourself mentally or physically. All these are excellent foundations for you to build a successful career in trading. More importantly, they are also the secrets for life long success in trading and other pursuits.
