One of my favorite psychology ideas comes from the poker literature – specifically Mike Caro’s “threshold of misery”.  Mike’s point, paraphrased, is that there’s a difference between how bad a situation is objectively and how bad people feel about their miserable circumstances.  Sure, as a situation gets worse, we feel worse.  But eventually we hit a point where they feel about as shitty as is possible.  Analytically speaking the situation can get worse, but there’s only so bad you can feel about it.  That boundary is the threshold of misery.   Continue reading →

“I possess a quality unquantifiable by its very nature.”
“And what exactly is that, Peter?”
“Perversity.”
Peter Riviera & Molly, Neuromancer

Prediction is a funny thing.  You’ll encounter lots of traders who swear up and down that what they do is not predicting the market.  This, of course, is nonsense.  When you take a position in the market you’re predicting that price will move in the direction of your position and thus you’ll be able to exit your position at a profit. It’s as simple as that.  Prediction is the heart of trading   So why do many traders, even some successful ones, deny they engage in prediction at all? Continue reading →

Traders don’t look at the world the same way “normal” people do.  This applies both to the world at large, and more specifically to the world of finance.  For the purpose of this post, I’m only interested in that more narrow subject – how traders view the world of finance.  The easiest way to understand this is to look at a couple of pictures. Continue reading →