Trading Elements: INTELLECT (Part 1)

[Joe Ross]

INTELLECT

In my Chart Scan I wrote the other week: "As a human being there is a component working in you that is comprised of the following elements: Your intellect, your emotions, your memory, your imagination, and your will. These elements work together to determine who you are and how you will behave in the market -- actually, in anything and everything you undertake to do." This week we are going to look at "Intellect" to see how this element can defeat you as a trader.

Over decades of trading and teaching others how to trade one of the greatest problem areas that regularly comes up is that of intellect. You might want to think about that for a moment
(no pun intended). A component of intellect is "logic." How can logic undermine a trader?

Being intelligent, being a logical thinker, having a high degree of intellect is often the worst thing that can happen to a trader, yet it is those persons having these gifts who are most often attracted to the business of trading.

The problem for these aspiring traders is that there is little to do with logic when it comes to trading in the markets. Markets are driven by emotions, the two most prominent being fear and greed. There is not a shred of logic in either of those emotions. On a purely intellectual level the markets consists of a place to buy and sell. They are places, where to the best of man's ability, a somewhat fair price may be discovered. Finding out a price at which buyers are willing to buy and sellers are wiling to sell, seems altogether a logical pursuit. Indeed, this process is called price discovery. Although price discovery is often corrupted by those who are able to manipulate prices it is the best method man has come up with.

On the surface markets appear to be logical and intellectually solvable. However, the truth is that because they are driven by emotions they are actually confusing and chaotic, and anyone trying to put the movement of prices into a box is doomed to failure.

Sadly, the majority of people who are attracted to trading are those who want everything about price movement to make sense. Their attempts at setting boundaries for price movement are truly tragic. They talk about support and resistance as though somehow, magically, those price levels will contain prices. They draw trendlines and defy prices to cross them. They draw angles and pitchforks, speak knowledgeably about Fibonacci ratios, Elliott Waves, MACDs, and so forth as if these concepts had any logic behind them at all.

I'm not saying that any of the above are not tools that can be used in trading, but they must be used with full knowledge of their weaknesses and with full knowledge of what they can actually show. Any and all tools used for trading can fail, and unless a trader is willing to be flexible, there will be little chance of success.

There is no end to knowledge and understanding that must be acquired by a trader. There are no rigid lines, no boxes, no be-all to end-all models that will always work. There are not perfect systems and no perfect methods. The problem with intellect is that its logical element wants safety and assurances. Intellect wants a perfect fit every time. But anyone who has traded with real money, soon finds out that trading simply isn't logical. Prices cannot be confined. Markets are like the proverbial 600 pound gorilla. They go wherever they want to go.

Joe Ross

 

[SOCRATES]

INTELLECT

In my Chart Scan I wrote the other week: "As a human being there is a component working in you that is comprised of the following elements: Your intellect, your emotions, your memory, your imagination, and your will. These elements work together to determine who you are and how you will behave in the market -- actually, in anything and everything you undertake to do." This week we are going to look at "Intellect" to see how this element can defeat you as a trader.

Over decades of trading and teaching others how to trade one of the greatest problem areas that regularly comes up is that of intellect. You might want to think about that for a moment
(no pun intended). A component of intellect is "logic." How can logic undermine a trader?

Being intelligent, being a logical thinker, having a high degree of intellect is often the worst thing that can happen to a trader, yet it is those persons having these gifts who are most often attracted to the business of trading.

The problem for these aspiring traders is that there is little to do with logic when it comes to trading in the markets. Markets are driven by emotions, the two most prominent being fear and greed. There is not a shred of logic in either of those emotions. On a purely intellectual level the markets consists of a place to buy and sell. They are places, where to the best of man's ability, a somewhat fair price may be discovered. Finding out a price at which buyers are willing to buy and sellers are wiling to sell, seems altogether a logical pursuit. Indeed, this process is called price discovery. Although price discovery is often corrupted by those who are able to manipulate prices it is the best method man has come up with.

On the surface markets appear to be logical and intellectually solvable. However, the truth is that because they are driven by emotions they are actually confusing and chaotic, and anyone trying to put the movement of prices into a box is doomed to failure.

Sadly, the majority of people who are attracted to trading are those who want everything about price movement to make sense. Their attempts at setting boundaries for price movement are truly tragic. They talk about support and resistance as though somehow, magically, those price levels will contain prices. They draw trendlines and defy prices to cross them. They draw angles and pitchforks, speak knowledgeably about Fibonacci ratios, Elliott Waves, MACDs, and so forth as if these concepts had any logic behind them at all.

I'm not saying that any of the above are not tools that can be used in trading, but they must be used with full knowledge of their weaknesses and with full knowledge of what they can actually show. Any and all tools used for trading can fail, and unless a trader is willing to be flexible, there will be little chance of success.

There is no end to knowledge and understanding that must be acquired by a trader. There are no rigid lines, no boxes, no be-all to end-all models that will always work. There are not perfect systems and no perfect methods. The problem with intellect is that its logical element wants safety and assurances. Intellect wants a perfect fit every time. But anyone who has traded with real money, soon finds out that trading simply isn't logical. Prices cannot be confined. Markets are like the proverbial 600 pound gorilla. They go wherever they want to go.

Joe Ross

What a lovely article !

Do you know, I have been puzzled by your thought processes for ages and at last all is revealed.

Many thanks for explaining your ideas at last, in particular your view of price discovery.

 

[nine]

The problem with intellect is that its logical element wants safety and assurances. Intellect wants a perfect fit every time.

Socrates might be enlightened (or he might just be having a little fun) but I find this a little confusing. After defining a human as "your intellect, your emotions, your memory, your imagination, and your will" you then assign the intellect with needs for safety and wants for perfection. Really?

 

[SOCRATES]

Socrates might be enlightened (or he might just be having a little fun) but I find this a little confusing. After defining a human as "your intellect, your emotions, your memory, your imagination, and your will" you then assign the intellect with needs for safety and wants for perfection. Really?

Both, actually, but so he says Kiwi..... You cannot accuse him of not making a huge effort to explain it....

 

[RUDEBOY]

People should print this thread off and read it every day. Jo has hit the nail right on the head. Square pegs and round holes comes to mind. Excellent thread.

 

[scrappy]

People should print this thread off and read it every day. Jo has hit the nail right on the head. Square pegs and round holes comes to mind. Excellent thread.

Yes Great thread. Only problem is it continues to highlight only the problems. These i am sure that most traders are aware of. Whats needed is solutions or a way forward.

Everybody on this thread says this and says that, all highlighting the difficulties from one angle or another.

How about a thread where these problems are viewed as an opportunity to find a solution and a way o move forward?

 

[RUDEBOY]

Hello, Scrappy. Think about the vast amounts of information in all it's forms and mediums that cover every miniscule aspect of the markets. Think of the percentage of people who try thier hand at the markets and fail. Think of the huge amounts of people who have failed or failing. Now, think about the thread you are suggesting. It kind of put's thing's into perspective.

 

[scrappy]

Hello, Scrappy. Think about the vast amounts of information in all it's forms and mediums that cover every miniscule aspect of the markets. Think of the percentage of people who try thier hand at the markets and fail. Think of the huge amounts of people who have failed or failing. Now, think about the thread you are suggesting. It kind of put's thing's into perspective.

Maybe your right rudeboy. Im sure the topics have been covered somewhere. I can see the difficulties that would arise based on what you say, all the different tools, strategies, this and that.

 

[RUDEBOY]

Except for themselves, price action is the only problem that people have. The solution is the problem itself for most people.

 

[RUDEBOY]

Price action is the solution to the problem of price action.

 

[dbphoenix]

Maybe your right rudeboy. Im sure the topics have been covered somewhere. I can see the difficulties that would arise based on what you say, all the different tools, strategies, this and that.

Not really. Socrates and Rudeboy make a big deal out of all this, but there are solutions and their number is not overwhelming. There are many different types of screwdrivers but they are all essentially screwdrivers. One place to start looking is the Knowledge Lab here at T2W.

--Db

 

[scrappy]

Except for themselves, price action is the only problem that people have. The solution is the problem itself for most people.

Once again i agree. First problem is that the solution is the problem. Second problem is the traders appproach to understanding and using price action. They are all aware(or not for that matter) about this.

How do they propose to deal with it on their next trading day. What conclusions have they drawn from their experience of PA. How can they use these conclusions to create understanding and eliminate emotion from trading.

Just some of the questions I think traders should be asking themselves to move to the next level in their trading.

Just my two pence worth again.

 

[RUDEBOY]

What i have mentioned above is purest insight. Now let's add money to the equation. This little thing called money really distorts price. Money is the hallucagenic of the markets.

 

[dbphoenix]

What i have mentioned above is purest insight.

If you like. But the idea that doing something about it is enormously difficult or complicated is at best misleading.

One must be wary of stumbling into the Wet Birds Don't Fly At Night School of Trading Philosophy. Bumper stickers do not serve as a plan for action.

--Db

 

[scrappy]

Not really. Socrates and Rudeboy make a big deal out of all this, but there are solutions and their number is not overwhelming. There are many different types of screwdrivers but they are all essentially screwdrivers. One place to start looking is the Knowledge Lab here at T2W.

--Db

Agree with you totally that their are solutions. I think rudeboy was referring to the entire arena of trading, it would be difficult. My original post was thinking along the lines of a set approach be it either volume analysis(which I use), or Joe Ross's approach, after all he started the thread.

Maybe i was just being a bit polite. But what i was thinking is that if Joe Ross is a seasoned trader(which i am sure he is), would it not be ideal for him to list some solutions, or an approach which may lead to some kind of understanding to the problems highlighted here and then how deal with them, believe me there is an approach.

Its all well and good writing these post in intellectual poetry, but most of it just doesn't make any real sense to most. wont mention any names here .

My point is that to all the problems highlighted here, there is a solution, its just how you choose to convey the message to the masses. No one here is going to remeber your ability to recite grtaet english.

Not referring to you DB, i think you have introduced a new way of thinking on the board. Would be great if others followed suit.

 

[scrappy]

If you like. But the idea that doing something about it is enormously difficult or complicated is at best misleading.

One must be wary of stumbling into the Wet Birds Don't Fly At Night School of Trading Philosophy. Bumper stickers do not serve as a plan for action.

--Db

Thats more the approach i was talking about.
Its all in the way of thinking. If you believe their is no soution ,sure enough you will not find one. If you believe then you will find one or create your own.

Excellent DB

 

[RUDEBOY]

Hello, DB. People don't think about solutions to problems. Most think about money too much. Maybe trading philosophy is too underated.

 

[dbphoenix]

Agree with you totally that their are solutions. I think rudeboy was referring to the entire arena of trading, it would be difficult. My original post was thinking along the lines of a set approach be it either volume analysis(which I use), or Joe Ross's approach, after all he started the thread.

Maybe i was just being a bit polite. But what i was thinking is that if Joe Ross is a seasoned trader(which i am sure he is), would it not be ideal for him to list some solutions, or an approach which may lead to some kind of understanding to the problems highlighted here and then how deal with them, believe me there is an approach.

Though general has its uses, one inevitably arrives at the need for specific. So what specifically are you looking for? If the thread on the so-called "Ross Hook" is insufficient, and it may very well be, what exactly do you require?

--Db

 

[RUDEBOY]

I'm sure the successful traders found that the simple solution is to use a simple method.

 

[dbphoenix]

Hello, DB. People don't think about solutions to problems. Most think about money too much. Maybe trading philosophy is too underated.

Maybe, maybe not. But these are broad-stroke generalizations that don't address the question of Fine, But What Do I Do?

For my money, the Ross approach is over-intellectualized, at least compared to its origins (Wyckoff and Dunnigan). But it certainly isn't as intellectualized as the Every Little Movement Has A Meaning All Its Own school. And it may be just enough without being too much for a given trader.

In any case, one needn't wax philosophic about all of this and be left with nothing but cold coffee. The solutions are simple, though they aren't necessarily easy.

--Db