Jan

10

I've been thinking about the nature of counting and the intent involved. For most people who examine markets the aim of looking at data is, I believe, to consciously find some pattern which will lead to a winning market system. But what if one were to count without any particular intent in mind, purely as a means of familiarizing oneself with the nature of the beast we are called to dance with?

Vic and Laurel have mentioned many times the virtue of counting by hand, and I've listened because this somehow chimed with my chess experience without my being able to fully identify what the analogy is. Now I think I know; when I prepare for an opponent I've found it to be far more effective just to look at his games in a holistic way, familiarizing myself with how he plays rather than look for a particular move to play against him in a position he has reached before. And this works better still if you play through the games with a real board and pieces rather than do it on the computer.

I think there's a very subtle but important distinction in these two methods, the 'hand count' in both chess and markets being a method of familiarizing the mind at a subconscious level without the burden of conscious effort. I can't find any Western sources that adequately describe what's happening, but there seems to be a wealth of knowledge from the East.

"The mind of a perfect man is like a mirror. It grasps nothing. It expects nothing. It reflects but does not hold. Therefore the perfect man can act without effort." — Chuang-Tzu

GM Davies is the author of Play 1 e4 e5: A Complete Repertoire for Black, Everyman, 2005

Jeff Watson adds:

J WAlthough not a member of the technical analysis cult, I do update my daily charts by hand at the close. It’s an exercise that keeps me connected to the markets and affects my trading on the subconscious level. Abandoning hand-drawn charts in the late 80s in favor of having a chart spit out on a computer had negative impact on my trading. After quantifying my below average personal performance for a 19 month period, I reviewed what behavior had changed, and all indications led towards the charting issue. Resuming the task of putting up charts by hand had an immediate positive effect on my trading, right out of the gate. Perhaps it was a confidence changer, a talisman, or something else; That’s worthy of another study entirely.


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11 Comments so far

  1. Anatoly Veltman on January 10, 2009 6:13 pm

    Chang-Tzu’s instruction was same as Larry Fishborne’s to Keanu Reeves in original “MATRIX”: don’t try or want to hit me - and just hit me!

    Yes, a pro game-person can execute a trade as it develops in the view-finder. Just make sure you are not destructed. I remember opening class in Business School: two biggest destructions for enterpreneur is getting married (infatuated) and buying a house!!

  2. legacy daily on January 10, 2009 7:35 pm

    I’m sorry but I fail to understand what you are trying to say in this post even after reading it more than once. “what if one were to count without any particular intent in mind” what does this mean? What is hand count? What is hand count in chess? The last sentence makes absolutely no sense. The mind that holds nothing and reflects everything is not a mind. Maybe something is getting lost in translation. Perhaps you can elaborate a bit more. I do appreciate Jeff Watson’s comment. Looking at a chart and creating a chart are two completely different experiences.

    While sophisticated people would like to think that they can predict what’s to happen next, I have yet to meet, or hear, or read someone who can reliably guess the future. Therefore, the simplest explanation makes sense to me. People know nothing! People with power (massive purchasing power) have control over their actions, but they have no control over the consequences of their actions. That has been my observation. The US government with its “infinite” purchasing power is unable to prevent a major recession. The rest of us are like the flies on an elephant trying to predict where the elephant will go next. We try to apply metaphors from one discipline to another? What does chess have anything to do with the market… Chess is a two person game, easy to predict in comparison with the market where millions of participants make decisions driven by millions of unrelated (sometimes related) issues.

    I’m sorry. I accept that I know nothing. Please forgive me. I’d appreciate your clarification.

  3. Anatoly Veltman on January 10, 2009 9:19 pm

    legacy: US government with its “infinite” purchasing power is unable to prevent a major recession - not very relevant…

    1. Timing needs to be as perfect as it can be — but government has no concept (see my comment 12/13/2007, near 1500 on SP, for classic example)
    2. Controlling market (short-term) has nothing to do with controlling economy (long-term)

  4. legacy daily on January 11, 2009 1:17 am

    Anatoly: You may be right. Regarding your second point, it depends on your definition of “market”. If referring to overall stock, bond, commodity, and other financial markets, that’s not what I gathered from reading this article:

    http://www.georgesoros.com/crisis-and-what-to-do110608

    For example, where the author says that “the distorted views held by market participants and expressed in market prices can, under certain circumstances, affect the so-called fundamentals that market prices are supposed to reflect.”

  5. Nigel Davies on January 11, 2009 1:50 am

    Legacy,

    It’s about developing ‘intuition’ and the ability to operate at another level whereby you act without thinking. Trying to explain this at a conscious level is going to be difficult, though maybe some neuroscientists are able to do so now. The simplest way is to experience it, which strong chess, checker and market players do all the time.

    Nigel

  6. legacy daily on January 11, 2009 3:19 pm

    I think I understand a bit better. A good carpenter does not think about the proper way of driving a nail; and the only way this develops is by actually driving many nails.

    It sounds like you're trying to highlight the importance of conditioning the mind through so much repetitive stimuli that the responses become similar to our reflexes (where sensory neurons do not pass directly into the brain, but synapse in the spinal cord allowing reflex actions to occur relatively quickly by activating spinal motor neurons without the delay of routing signals through the brain, although the brain will receive sensory input while the reflex action occurs — from Wikipedia).

    In chess, are you trying to describe something similar to what Stefan Zweig's hero underwent in The Royal Game?

    Have I misunderstood again?

  7. Nigel Davies on January 11, 2009 4:52 pm

    Legacy,

    You can find descriptions of this sort of mastery in many different sources, those dealing with ‘zen and martial arts’ being amongst the best. A chess example is when a grandmaster gives a simultaneous display against, say, 50 different opponents, and yet moves quickly and accurately on each board. It’s almost as if his hand is unable to play a bad move whilst the ‘mind’ (reasoning, logic) is disengaged.

    Nigel

  8. Steve Leslie on January 12, 2009 12:58 pm

    There are statistical probabilities that hold over time. […]. In poker if I have two overcards to an underpair pre-flop I am even money to win the hand. In one hundred of this events, I will win 50 of them on average. And so on and so on. Now that gives probabilities not guarantees. A guarantee is that we will all die some day. An Insurance company makes money by insuring alot of people and playing the statistics as to their probable lifespans, the premiums they take in and the rate of return they receive on this money.

    As for technical analysis, a true TA is not trying to predict the future as they are predicting the probability that a group of people i.e. market participants will act a certain way based on their historical prior tendency to o so under same or similar circumstances. For example wave theory suggests that markets move up in 5 waves until they exhaust and then "correct" and "pullback" in a 3 wave pattern. Prechter did the best work in this field. […]

    There are numerous patterns in TA and you can read about them in many many books. A great one is Edwards and Magee Technical Analysis.

    Now none of this is simple and easy. If it were then there would be no value in it. There is no magic bullet no magic formula and nothing works 100% of the time. It is all so fluid and dynamic and just when you have a trend in your favor, your streak ends or pauses and you are left out in the cold. This is the brutal reality of markets. It lives it breathes and it does so with no respect to the positions you hold.

    Just as with everything else in life, the more you practice and build your mental bank the better you become. Once you add verifiable records you realize objective results and not just anecdotal evidence. The more knowledge you acquire the more you can apply. Or you can find one methodology you like and attack when most of your variables point in your favor. It is all up to you.

    I hope these comments were helpful. If you deem it as crap then just move on. Find a mentor with a successful track record and learn from them. Or turn your money over to a successful person or entity and watch them closely.

    Good luck

  9. legacy daily on January 12, 2009 2:12 pm

    Steve, I’ll take your comment as a response to the second paragraph in my first comment above. Of course I appreciate your perspective and understand your points completely. Treat my second paragraph as a hypothesis that I’m trying to prove wrong for myself. It may require a lifetime of experimentation, gathering evidence, analysis and healthy debate with those who actually understand what they’re talking about.

  10. Anatoly Veltman on January 12, 2009 3:08 pm

    Steve, a quick point re: Robert Prechter. He's one of the most experienced people in EW, who are well known. Or he's one the most well known, who are experienced. I've used his analysis over decades — whenever I'd get access to it. I've seen him completely wrong in my view of certain markets at certain times; but in almost all cases, his work was extremely useful to me — as I understood the analysis, and was able to use my discretion.

    I just wanted to qualify your one-liner about him and explain that while he might have been putting out best work in the field — he certainly never was the best in the field. There were traders (e.g. Tom Joseph at one time, Tudor traders at other, and more names at other times) who were much better in EW application to trading than Dr. P could ever be.

  11. Steve Leslie on January 12, 2009 4:18 pm

    Legacy, don't construe this for sucking up.

    Nigel Davies, affectionately known as the Grandmaster, is truly an introspective gentleman with a fantastic knowledge and understanding of chess. The applications to the markets are startling. Alan Milhone, Checkers afficionado, is another with great Midwestern roots and marvelous insights into main street. Laurel Kenner and Laurence Glazier offer great insight to music theory and the symphonic flow of markets. Victor is among the top traders in the world, in addition to being brilliant yet sometimes eccentric. Victor will tell you first hand that after 40 years of doing this how amazingly rewarding and frustrating the universe of investing and speculating can be. If I may be so bold, he would also very likely tell you how much he does not know rather than how much he does. And he continues to study and learn.

    That said, consider the ancient proverbs " A journey of a thousand miles begins with a single step." Also, "Life is a journey and not a destination." It is like the horizon, you may never reach it. This is how it should be.

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