BarroMetrics Views: Our Unconscious Motivator II

Tonight I’ll continue with Monday’s topic. But before I do that, I want to address a point Krasimir raised. He postulated that the time it takes to progress from novice to master partially accounts for the large loss rate (80% to 90%). I partially agree with the observation. But what concerns me about the losses, is the fact that the losses are for a substantial percentage of the starting capital. With the advances we have seen, that percentage loss would have declined had the advances been implemented - we ought to have seen in trading results the same sort of advances we have seen in sports and chess. But this has not been the case.

So, the question arises: why not?

I think  partly,  trading is a probability game and because it is a probability game, on any one trade, a raw novice will ‘beat an experienced trader’ i.e. the novice will make money in the trade while a master will lose money in the same trade. This aspect exists only in trading: if I took Mike Tyson or Tiger Woods or Natal, I’d have no chance of beating them in their chosen sport. As a result of this quirk of nature, the mental paradigms which would be  difficult  to overcome, become even more formidable. It doesn’t help that the paradigms are unconscious and that the trading environment is surrounded by two additional barriers to success:

  1. There is no formalised educational structure in  trading. The gamut ranges from someone like Dr. Brett Steenbarger who devotes his considerable expertise freely and for no charge to the assist the retail trader to the scam artists who falsify results to prove that their trading systems will have a ‘90% return and turn $1 into $1M in 3 months or less’.  As a result, the environment inadvertently strengthens the unconscious barriers.
  2. The low barrier to entry. In sports, to compete with the best in the world, you need to attain a certain level of competence -not so with trading. Indeed with CFDs, you can enter the arena with as little as S$1000.00 (about US$750.00).While  I am a great believer in the benefits of CFDs in the appropriate context, in this case, all it does is encourage a novice to trade when he has little chance of success.

So, we have so far traced four reasons ‘why the more things change, the more they stay the same’:

  • Human nature: wanting something for little effort
  • The fact that on any one trade a novice can ‘beat a professional’
  •  The lack of a formalised educational structure and
  • The low barrier to entry

All of these factors impact on the three most important and unconscious barriers. I’ll deal with this tomorrow.

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