Thursday, April 23, 2015

Traders vs. Academics

Academics are an interesting breed. A true academic is commonly a person that is very well researched and has acquired a plethora of knowledge in many areas. An academic has the ability to understand and retain volumes of information and use that information to engage in deep discussions on a large range of topics.
An academic who is introduced to trading will embark on unforeseen challenges. Sure, an academic can understand the concepts and methods of trading with relative ease. However, there is a characteristic required in trading that stands as a great obstacle before them.
Allow me to classify a common characteristic you will find when trying to understand an academic. On a large range of subjects, an academic often becomes accustom to engaging in conversation/discussion/arguments and has the distinguished ability to firmly make their point to the other (often less knowledgeable) participant in the discussion. Over time, the academic begins to consider themselves as superior when dealing in intellectual encounters, if I may, and this results in a prominent development of ones ego. Now, you can have a large ego and be a good trader, but do not allow the two to interfere with one another when a disciplined decision must be made.

A more profound challenge the academic will face when taking on the skill of trading is the element of psychology. Sure, an academic may fully understand many principals and theories of psychology, but have great difficulty when consumed in the experience of a force (the market) beyond their personal control (academics like to be in control of their environment) and adjusting to the conditions they have been confronted with.
What does this mean in plain trader English? Based on what I’ve learned from text-book academics whom I have taught theory and tried to teach the psychology of trading; an academic has difficulty adapting the defined text book methods and rules of trading to the live, flexible, ever-changing, uncontrollable financial market. The academic may be able to tell you what the market “should do,” or “why it did such a thing,” after the fact, but often lacks the psychological ability to adapt to an ever-changing, uncontrollable, competition that taunts your emotional tenacity.
For example, I will teach an academic specifically how to use a technical analytical tool. I will describe how the tool will reflect movements in the market and what they may suggest about a possible future direction of the market. According to the textbook definition, the tool may offer a strong indication that the market “will” take on a certain direction, or the tool may offer information suggesting the market “will not” take on a specific direction. This is clear; the market either “will”, or “will not” take on a direction. A problem faced by the academic is the enormous gap in between “will” and “will not” and how to base a decision on this constant shift in probabilities. The market is not absolute and will actively move up, down and sideways every tick in-between “will” and “will not.” Seemingly, the markets intention is to test your psychological tenacity and shake out those who are weak.
In simple terms, an academic insists that the market behave exactly as it is outlined in the book and they become flustered and confused when it does not, because it doesn’t make sense to them. In addition, if the market does not behave in the manner described in the

textbook and they believe it should, the academic will alternatively have to admit being wrong. Admitting to being wrong is considered a good quality of a trader, but it is a forceful opponent to the ego of an academic. The academic will typically have to undergo a significant psychological learning curve to transfer their intelligence into practical trading skills.
On the other hand, my esteemed colleague and mentor, whom I hold in the highest regard, is a true trader. He is a brilliant and exceptionally gifted trader, very logical, rational, patient, methodical, charismatic and has a great sense of humor. He is thorough, diligent and disciplined. He believes in getting rich slowly, even though he got rich quickly, only because he is exceptional at the art of trading.

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