Nov

19

 A friend posted this link to his Facebook page. It's about the chess scene in Bryant Park, Manhattan. It's a very well written article, and I suspect it will be the best 3 minute read of your day. Lots of the highlights in the article make me draw parallels with the markets. For example:

The author said, "A chess match with a stranger in a public park involves a sudden and awkward intimacy…You are usually silent and bent forward, concentrating together, antagonistically, on the same problem. You are conscious not only of your own position and ideas on the chessboard, but also of the stranger's body, energy, breathing, where the eyes move on the board and what they speak of intent." In the markets, one needs to get inside the counterparty's head to understand the motivations, strategy, and game being played. (If one doesn't know who is on the other side of the trade, one must figure out the rationality of the other side, because they have reasons to be in the trade that are just as important as yours.

He further went on to say, "I have staked out a solid position I can feel myself coming undone. Usually this occurs when I build an early lead and then become so terrified of squandering it that I panic and end up doing just that." How many times has one blown a good position and had a winner turn into a loser…and one watches it unfold, well aware of what is happening."

Interesting point brought up: "He was the stronger player but I should have won." In the markets, one can beat a stronger player if one is nimble. Every trade I enter, I enter with the assumption that the counterparty is stronger than me and has better information.That way I can plan my escape if things get dicey.

He adds: "What is it about chess that can make losing so annihilating and the reactions to it so acid?" Amateurs and the public mentally beat themselves up over a bad trade, when the proper thing to do is figure out how you FUBAR'ed the trade and the lessons that can be learned. He postulates, "The supercollider of egos and skill levels at the park can produce democratizing and humbling effects." There is a lot of ego around the markets, and that is not necessarily a good thing.

He went on, "The randomness is part of the draw but also provokes a fear." Markets can be very random, especially when the form is about to change and it's trying to figure out a price where it will trade at.

As an aside, two things my mentor taught me. Nervous markets close lower, and markets always move to the level where there will be the maximum amount of trades allowable at that time. That's why when we were locals and the market wasn't moving, we'd start offering the market down and start selling in order to bring the market to a place where the paper would come in. It's not really different in the electronic age.


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