Your Brain on Trading: Science vs. Art

Anyone who's been reading this blog knows that I'm all about discretionary trading, a system that involves decision-making based on an essentially proprietary system inside your head. In fact, an individual doing discretionary trading may not quite have a system, as it's really a summation of one's abilities that are best left unquantified.

However, that does not mean that a discretionary trader should be left to random decision-making with no rules or self-discipline, but rather implies that breaking down and quantifying one's system (say pattern recognition, interpretation of news and industry trends, nuances in corporate marketing correlated to truth vs hype, etc) would be both an immensely complex task and ultimately a disservice to one's potential. Sure, there are billion-dollar hedge funds that have probably modeled 200 different parameters and come up with cool ways of trading, with a staff of computer scientists maintaining this quantified model while tightly working side to side with a team of behavioral psychologists, trading gurus, and the like. You're probably inclined to think "how could I possibly compete against these guys"?

Well if trading is more of an art than a pure science, you might ask yourself a similar question about music or any other art - does banding together a group of "experts" in music (instrumentalists, vocalists, lyricists, engineers) necessarily always result in a better song than say a creative person who just comes up with something on the top of their head? Sure, the group of experts might be more efficient and better at ultimately producing a professional-grade track, but by no means will they always produce a song that is fundamentally "better sounding" or "catchier" than the individual.

Trading is of course different than songwriting in that the results aren't interpreted subjectively, but the point here is that enough variables and complex interactions influence the outcome of trades and trading systems that it's not inconceivable that a perspicacious individual with enough insight, discipline, and experience can't "out-do" a team trying to scientifically create a trading system with an edge. Plus the game that large funds are playing is completely different than that of individuals - they're less nimble as well, and are just trying to do better than other funds to get more business ("look, we are beating the benchmark by 1%!").

Individuals are not shackled by the same constraints as the big guys, so don't act as if you're bounded by the same expectations! The simple belief that it's possible to produce an immensely profitable trading system through hard work and an open mind drives many to eventually do so. Let's all try to be part of that elite crowd.