all say that transactions violate human nature, so what exactly is it that violates human nature? This is a very valuable question.
Before we get to the topic, let’s take a look at this short story.
Miyamoto Musashi is a very popular swordsman in the minds of the Japanese. Once, a swordsman asked Miyamoto Musashi how to become a great swordsman.
Miyamoto Musashi said, "You have good talent and you can become a great swordsman within ten years."
"If I am very diligent every day, how long does it take for me to become a great swordsman?"
"That will take 20 years."Miyamoto Musashi said.
The man continued to ask, "If you don't eat or sleep every day, don't sleep, and practice swordsmanship, how many years will it take to be able to practice?"
"So, it will take thirty years." Miyamoto Musashi said seriously.
The man asked in confusion: "Why do I have to spend more energy but more time?"
Miyamoto Musashi said: "The human eyes are one for observing the outside world and the other for observing yourself. Your eyes are always staring at the sword, so you will naturally stay away from martial arts."
Whether it is true or false, we all know that many successful industries pay attention to a person's self-awareness.
If we compare futures trading to a sharp sword, then what kind of person a speculator will eventually become depends on his vision:
If you focus on yourself, you can be a good trader in about ten years;
If you focus on technology, you will achieve great success in 20 years;
If you want to get rich overnight, it will never be possible in this life.
Therefore, understands yourself and understands human nature is crucial
So, when those human natures are not restricted, will they have negative effects on us?
Absent loss
The most feared thing is to get trapped. The transaction that is trapped is either to resist or cut off the flesh, just like cutting the flesh on oneself with a knife, it is really painful. So, many traders have a habit, that is, fights , and this is why they are forced to this point.
In psychology, refusal to give up. This is a kind of human nature and a kind of psychological "loss aversion".
Most people have "losing disgust", that is, we don't want bad things to come to ourselves, that is, our hatred of bad things is stronger than the same good things.
In economics, a loss avoidance model is established using the concept of utility . In the model, the horizontal coordinates represent wealth and the vertical coordinates represent efficiency. The following two results can be obtained from a significant drop in the utility function curve:
1. The richer the person, the lower his satisfaction when he gets the same amount of wealth.
2. A person gets the benefit of one thousand yuan, but not a thousand yuan is useful.
The Economist reported a trial in 2010. The experiment was conducted in a factory and was divided into two groups. A week ago, inform a group of employees that if they can complete the designated work this week, they will receive a reward of 80 yuan. Another group of employees will receive a reward of 80 yuan per week, but if it is not completed, it will be deducted.
It seems that these two teams are rewarded for 80 yuan, and there is not much difference! However, after several experiments, the conclusions drawn were the same, and the second batch of workers performed better than the first batch.
This experiment results in a psychological rule called "loss avoidance". 80 yuan is a kind of harvest, one dollar, one is a kind of loss. Compared with the equal amount of benefits of , what humans hate the most is losses. So when we pick up $100 on the road, our happiness is far from losing $100. This reminds me of a method that many companies will take, which is to increase employees' wages, and if they cannot be completed, they will be deducted.
"Loss aversion" shows that humans always pay more attention to negative emotions than positive emotions. When making a decision, people inevitably face a disgust of losses.
Most of the work in this world is arranged in advance, and even if it is lost, there is no need to do it. However, in the world, trading is one of a few tasks, which requires a lot of decisions.
If a trader lets his fear work, he will regard the shorts as the money he has made, and it is difficult to accept this situation. At the same time, he could not accept his own losses, and turned his losses into real losses. As for "truncation", it is impossible.
In medicine, physiology also has a certain understanding of the word "loss aversion":
In the brain, there is an area called the "amyogic nucleus" that is responsible for learning and memory. Animals that damage the tonsils on both sides have significantly reduced their response ability to directional new visual stimuli, and have poor ability to identify and respond to terrorist events.
If a person's brain becomes active when facing loss, and if his almonds are damaged or his nature is insensitive, his transaction will be smoother.
Although instinct is the same thing, a good trader can do extreme restraint beyond instinct. They are very aware that their negative emotions will be biased and therefore will not tolerate them easily. When they see a good trading opportunity, they dare to do more and make less, and they don’t care if they encounter losses.
Silent cost
"Stop loss difficulty" is not only because of our dislike of losses, but also because of our sunk cost . When facing the choice of stop loss, novices are like facing losses in their lives. When you encounter difficulties, they are unwilling to pay the price for it. Let me tell us a few life examples:
Take a college student as an example. He has studied architecture for three years, but it is not his hobby. Moreover, he has also heard many stories about his predecessors, so he hesitated whether to change jobs: "I have studied architecture for three years. How can I waste these three years in vain?" For example, a couple met someone who was not suitable for love in their relationship, but could not be separated because they had been together for too long.
Those are things that we have already paid and can never take back. Why do we keep thinking about it?
Just like us traders, when we trade, we always don’t want to stop loss. This is because we always hold a hope. In reality, nine of ten stop loss are wrong. We often hear people say, "If I can't stop loss from the beginning, I will press back the loss now, and then suppress the loss until I make a profit, and even continue to lose money. But the last time, if I don't stop loss, we will be crushed to death). On the other hand, we often put the blame on humans: people are irrational and refuse to admit their faults.
My analysis makes sense, but from the perspective of "sinking cost", I seem to have made new discoveries again.
are also two examples of life: a person who is hesitating whether to change majors, after confirming that he has changed majors, can be admitted to the best research institute in China within two years, and succeed Will he hesitate if he has entered the best company in the industry? And the girl who is still hesitating whether to break up with Daniel Wu , will she hesitate if she knows that she has broken up with him?
switch to trading mode. If I am sure that I have made a floating loss thread order on the stop loss order and then buy a rubber order, I will definitely make several thousand. Then, why should I make a fuss when I stop loss?
, the other way is:
When I decide to leave a major, I don’t know if other majors will bring more things;
When I decide to abandon someone, I am not sure if I can find a better one.
When doing business, I don’t know if I will make money next time or next time.
In the final analysis, when we are undecided in the face of "sinking costs", in addition to our inhumane, loving face, and refusing to admit our mistakes, it is also because we lack positive expectations.
Therefore, when making transactions, you must have a trading method that can bring positive returns. Just like the trend tracking theory we are familiar with, as long as you can persist, after stop loss again and again, there will always be a return. Trend tracking has great disadvantages, and it is necessary to "endure", and "endure" is also a kind of faith. Those with talent will pursue better ways, while those who persist will use some stupid ways to make money
The fallacy of gamblers
"Gambling fallacy" is a mistake that gamblers in casinos around the world make every day. Of course, it also includes speculators in the financial market.
Just like when you are driving a slot machine, you have always been poor and you lost several times in one go. At this point, do you have a strong sense of victory?
Just like when you were doing futures , you kept stopping losses from the beginning, then do you have a strong premonition that you should win in the next transaction?
That's an illusion. Each transaction is random. The so-called "random" in means that the next "next game" has nothing to do with the previous "result". "has happened" and will not have an impact on the "next game".
As a simple example, suppose a box with 6 balls marked 1-6. In every draw, you have to draw a ball from the draw box, and the probability of these six balls is the same, all 1/6. If the probability of drawing 6 in the first few times exceeded 2, then will you have a greater chance of drawing 2 in the next time?
of course not, because they won’t care who is selected, and there will be no second person who will come to the door on his own initiative. Their chances of appearing are only 60%. The reason why
has this illusion is because in probability theory, there is a "law of large numbers". As long as does enough, it can draw the same conclusion as statistical probability. Take throwing as an example. If you throw too much, there is a 50% chance of both the front and the back. For example, if you draw enough times, your number of "2" and "6" will be similar.
We often misunderstand random and large number theory , believing that the law of large numbers is equality. If the situation was not very average in the past days, we would assume that everything in the future would be "smeared". The more “2”, the more “6”, the more “front”, the more “back”. However, the law of large numbers is not to maintain balance, but to ensure the number of lottery draws in the future. You will get a lot of "2" and "6" will also be a lot, so the small gap in the past seems very small.
So, how much "enough" is needed to "enough"? After analysis of probability theory, the conclusion is that at least 600 samples must be required to ensure a 5% error.
When doing program trading, they often confuse "system win rate" and "single game win rate". For example, the success rate of a trading system is 60%. They will just think that once there is a trading signal, they will have a 60% chance to make money. What's even more terrifying is that after 4 consecutive stops, they will think that I have stopped losing four consecutive times and have a 60% chance of winning, and I will definitely win next time, so I bet all my money on it. This is a classic gambling fallacy that equates the "law of big numbers" and "egalism".
gamblers' misunderstanding will affect traders' development of trading systems, determine positions size and trading methods. They have a wrong understanding of the theory of big numbers and ignore randomness, which is their mistake.
In Stanley Crow's words, the gambler's mistake is: the market will never make you make money ten times just because you lose money nine times in a row.
The law of decimal
It is easy for people to summarize the so-called rules through only a small number of data samples, and use such rules to guide trading behaviors. The results can be imagined.
Or give an example first to facilitate us to understand the decimal theorem:
A famous law is circulating in the football world: "The Gift of the Brazilian Team" - as long as the Brazilian team wins the championship, the next championship will be the host of the competition, unless the Brazilian team takes back the gift itself.
1970 The 9th World Cup Brazil won the championship, and the 10th championship in 1974 was the host of the National West Germany ; at the end of 1994, Brazil won the championship again, and in the next 1998 summer of France, we all know that the championship is the host France; and Brazil won the championship again in the sixth and seventh World Cups, which belongs to the Brazilian team taking back the gifts themselves.
Another "1982 Axis Law " - the World Cup winning teams are distributed symmetrically with the 1982 World Cup as the center.
However, both laws were cracked in 2006. Because the host of the World Cup in 2006 South Africa not only did not receive the gift from the last champion Brazil team, but was also eliminated by Brazil team himself, and in the end, the Brazil team failed to reach the end. However, there are still some other laws that have not yet been cracked in the football circle: for example, "Whoever wins the Federation Cup or the America's Cup , don't think of winning the next World Cup."
In the financial market, we are also often affected by the law of decimals. A typical example is: When an investor observes that an investment manager has performed better than others in the past two months, he concluded that the manager is at a higher level, and the statistical significance of this conclusion is too weak.
Futures trading analysis is also often filled with so-called mottos obtained based on the law of decimals. The most typical examples are: gaps must be filled; how long the horizontal is, how high the vertical is, etc. A friend first came into contact with futures technical analysis. After looking at the technical form of Hong (yin) Sanbing, he observed it for a few days, and then said to me excitedly, "I found that this form is very effective. I have watched several times in a row, and they are all valid. I am going to do it according to this form." I said, "Then have you done backtesting on historical data? Have you done backtesting on different varieties? What is the overall success rate? And you entered the market according to this signal. When will you appear?" My friend was stunned.
In fact, I happened to have done programmatic backtesting of this pattern before. The rules used are: after three consecutive positive (yin) appear, the opening price of the fourth K-line is bought (sell), the stop loss is set at the lowest point of the previous K-line and the next jump (or the highest price jump), and the tracking stop profit is used. Finally, historical data backtesting is done on many varieties. Some varieties cannot achieve positive returns, and the other part is OK, but the capital curve is also very tortuous and is not suitable for real-time trading.
decimal theorem, in other words, is: as long as the samples we observe are small enough, we can draw many strange rules. Therefore, when we feel that a law is effective in the senses, we need to seriously think about whether it is just an illusion caused by the law of decimals.
Survivor bias
Survivorship bias is a common logical fallacy , which means that you can only see the results generated by a certain kind of screening, but you do not realize the process of screening, so you ignore the key information that is filtered out. There are many alias for this thing, such as "silent data", "dead people can't speak", etc. A case of research on air combat aircraft by experts during World War II is recorded in .
Simply put, based on the characteristics of the most shots in the wing and tail of the aircraft returning to the battle, the experts judged that if the aircraft armor is to be strengthened, the wing and tail should be strengthened, because these parts are "easy to be shot". However, if we only study which part of the reinforcement aircraft is studied based on the distribution of bullet holes on the return aircraft, we will ignore the "plane that has been shot down", which is an important research sample.In other words, the planes that can return have not been fatally injured. They were mostly shot at the wing and tail, and the fuel tank and driver's position were intact, which just shows that the wing and tail were not fatal injuries and should not be strengthened; while the aircraft with injured fuel tank and driver's position basically did not come back alive, so the fuel tank and driver's position are the real fatal places. However, the injured aircraft in these parts were screened out of the research samples because they were shot down, thus becoming "dead people who can't speak" or "silent data".
So what does this have to do with our behavioral habits when doing transactions?
people who do transactions love to read the legendary experiences of successful people and try to imitate them. The great masters who make huge profits are widely circulated in the futures market. To sum up their experiences, it is not difficult to find that they all have one common feature: , which means that in a wave of large unilateral markets, heavy positions or even full positions intervene, and floating profits increase positions, and finally achieve hundreds of times the returns in a short period of time...
So, followers rushed to follow the example, but they did not know that succeeded in the same way as . Most of the people who traded with the same methods as them were not so lucky, but became cannon fodder and could not appear in front of the public, talking about the so-called way of heaven and teaching their own "successful experience".
Therefore, when we are discussing imitating successful people, don’t forget those “losers” who can no longer speak.
lawyer mechanism
Psychologist Monlodino said that when people make judgments, there are two mechanisms: one is the "scientist mechanism", where evidence is first drawn; the other is the "lawyer mechanism", where conclusions are first obtained and then evidence is found. There are very few scientists in the world, guess what mechanism is most people using to think? Everyone loves to see things that can confirm their existing ideas. Not only do we not like to watch, but we will also directly ignore the evidence that does not conform to our existing ideas.
There is such a joke:
said that a white Catholic came to the gate of heaven to go in. He listed his own good deeds with the gatekeeper, but the gatekeeper said, "Yes, but you must be able to spell a word correctly to enter." "Which word?" "G-O-D." "Go in."
A Jewish came to the gate of heaven, and he was also asked to spell a word correctly to enter. The gatekeeper tests his word still "God". The word is very simple, so he also spelled it correctly, so he went in.
Story The last black man came to the gate of heaven, and he faced the same rules. But the word that the gatekeeper asked him to spell was, " Czechoslovakia (Czechoslovakia)". The meaning of this joke
is that each of us has a threshold for receiving information. We don’t look at it at all if we are below this threshold. The threshold for the gatekeeper of heaven is that black people cannot enter heaven. So it is so difficult to convince a person.
In fact, when we are doing futures, we often use the "lawyer mechanism" to make judgments. The judging mechanism of will make us form very bad behavior habits: after going long, we will collect positive news everywhere, ignoring negative information, and vice versa. The biggest harm of the "lawyer mechanism" of is that it makes us lose our objectivity. We can watch the position in the account become increasingly large and do not deal with it, but instead catch the wind and shadow everywhere to find some self-comfort information.
Finally, I remembered a classic saying from Livermore : The market has only one direction, not a bull direction, nor a bear direction, but the correct direction. When we were talking about following the trend, we made a prediction on the market direction in our hearts. Then, what we followed in the end was not the trend, but the "me". When "I" is consistent with the situation, we will be complacent; when we are inconsistent, we may insist on ourselves and ask others to spell "Czechoslovakia"
Human nature contains two contradictions - both altruistic and selfish; both good and evil; both fear and greed; both unwilling to admit defeat and compromise; transactions are about getting along with our own human nature.There is no magical secret for good traders in . They just have insight into these phenomena, rebelled against them, and did things that most people are unwilling to do or cannot do at all.
