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Just Looking

Have you ever fired up the Google box for the purposes of finding something pertinent and relevant to your next task only to find yourself four hours later amazed by your new found knowledge that a crocodile cannot stick out its tongue or that there is no Betty Rubble in The Flintstones chewable vitamins.

Seeking is an innate task that has come to obsess humans – in fact we cannot stop doing it anymore than a lab rat can stop pressing a lever in a cage in order to get a reward. In fact by seeking out endless inane facts we are stimulating precisely the same centre that James Olds discovered in 1954 when he was investigating how rats brains work.

Olds and his team stuck an electrode into the rat’s brain and whenever it went to a given location they would give it a small shock. To their surprise the rats kept returning to this same location over and over. Unknown to Olds and his team their probe was not in its intended place but rather had been placed into the rats lateral hypothalamus. It was thought that the electrode was inadvertently stimulating what was initially referred to as the brains pleasure centre.

Later experiments seemed to confirm this because rats would undertake tasks that resulted in a small shock to this centre until they collapsed. Later work has cast severe doubt on this notion of a pleasure centre because the animals involved in these experiments seemed to be, to use a technical term, somewhat bonkers. Later experiments involving humans confirmed this observation.

The behaviour that resulted from these human trials has been labelled seeking. This seeking behaviour was probably the engine that drove us out of the caves and over the next hill. Seeking seems to provide us with an intangible emotional reward – in effect we are born explorers. We are hard wired to look for things – it is not hard to see how this is a valuable evolutionary skill to have.

However, this seeking is an emotional behaviour – we get a high from the process of looking for new things – not actually from finding new things. Unfortunately like a lot of evolutionary behaviours it may not be all that useful in the new society we have created. We are wired, in effect, for things such as Google to make us stupid.

The question is how is this paradox of a brain that is more easily stimulated than satisfied relevant for traders? The answer to this is simple. Fire up your charting package and have a look at your indicator drop down list. Ask yourself how many of these indicators have your tried at one time or another? I can almost guarantee that the answer is close to 100%. The follow up question is how many of have you used Google to search for more indicators or tools? And my guess is that this process has not really aided your trading – in fact I would suggest it has actually hindered it.

The same is true for system development and I want to separate the search for improved systems from the notion of tinkering. My feeling is that most system design and testing undertaken by traders is actually a form of seeking behaviour. The reward comes not from finding a new system but rather the process of looking for a new system. We know this to be true because we derive more of a dopamine blast from seeking not finding.

This leads to an endless cycle of tinkering and searching and not actually trading and is why investment clubs (a profoundly stupid idea) or associations of technical analysts exist. It is not to trade but rather to go through the discovery process of thinking about trading.

The task of the trader is to trade and this is why, when you listen to very successful long term traders, you are stuck by the notion that many of them have not changed their systems in decades. They have overcome the desire to seek.

If I posed the challenge to traders of deleting all except say two or three tools from their charting package, I wonder how many would take me up? I wonder how many more could keep away from Google for a week?

 

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Comments

  1. Bill Davidson says:

    Chris
    Good article makes alot of sense

    So how much new system development should a trader undertake keeping in mind your article about over seeking?

    Is it worthwhile to have a new system that can be used if the current system is not working?

    At what point does a successful trader surmise that their trading system no longer works after accounting for inevitable drawdown periods etc?

    Bill

  2. ykmehra says:

    Bill,

    Assuming that the current system has been tested for robustness; one might continue to use it. If a new system is developed, a switch may be considered when in testing / actual trading it performs better than the current one…

    Ed Seykota has mentioned this in an interview some years ago…

  3. The question is how do define “not working”. If a system is drawing down then this is not necessarily evidence of not working since all systems encounter losing periods.

    You would have to be very careful with the metrics you apply to define not working. This also raises the question of without adequate testing how do you know the new system will work? And if you have done adequate testing on your original system is actually working or is the operator who is not working properly.

    Systems that work in testing may not work in reality because of the influence of the operator and this needs to be taken into consideration when assessing a system. For example if you consider that the system is broken but you have not been following the rules then it is actually the operator who is broken.

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