At this point I believe that there is a really human aspect when it comes to be a in a default state of 'prediction'. Prediction is basically, having a thesis and then seeing it later in fruition if the thesis 'become' right or wrong. There's layers on how one can decide how to prove they are right and when it comes to the market, it becomes convuluted as most early traders feel the need, to get as much information as he humanely could, even if it means staring at the chart so that it can beg the chart to prove him right. This is sub-optimal and any trader after closing a losing position would already know this or realize out of an epiphany. 'Fuck that was so stupid.' But result is always in hindsight. There's a drawback on the human nature that I believe the truthness oscillating between the pleasure principle and the drive principle.
I would like to quote my previous article, Artist's Ego Death as it explains the nature of such:
If we were to follow the pleasure principle, as I were to quote Memory Reconsolidation, Cristina M. Alberini, 2013:
With the pleasure principle, Freud postulated that certain aspects of mental life are guided by pleasure-seeking behaviors originating from the unconscious. The principle of pleasure, which supposedly governs mental functions, was also viewed by Freud as a principle of non-displeasure.
Is essentially speaking that in a roundabout way, life is inevitably spent doing what one loves doing or finding pleasure with. In the other hand, the Drive Reduction Theory states that:
Drive Reduction Theory states that needs which are currently not satisfied constitute behavioural drives working towards their satisfaction (Hull, 1943).
Similarly, based on need-related changes in neural activation patterns, it has been argued that unfulfilled needs cause primordial emotions that dominate the stream of consciousness (Denton, McKinley, Farrell, & Egan, 2009). More generally, self-regulation researchers consider unfulfilled needs special forms of desire which—because need satisfaction has a very high reward value for the individual—are especially likely to hijack cognitive capacity, at a cost to other currently to-be-pursued goals (Hofmann & Van Dillen, 2012).
End Quote.
There's no point in denying, at least for most people, happiness does in a sense is at least enabled with money. Some circumstances that brings happiness are enabled through money. There's an undeniable at least some sort of correlation, when it comes to receiving money, we get a dopamine hit. Whether it's waiting for a payday, someone giving you gift that is paid with money, or going out on a night out that is paid with money. I am not worshipping money as a mean to be the holy grail of happiness, i'm just saying in this current world, receiving money grants dopamine hit to a sense that we are receiving 'pleasure'.
It's ultimately, 'biologically makes sense' for humans to have a nature that it chases pleasure and avoid displeasure. If we don't avoid displeasure, we are just practically numb to the sensations of displeasure, or our neurotransmitter receptors are fried. This can also be extrapolated to more physical sense of pleasure and displeasure. Don't like, getting burnt by the fire? Stay away from it. To the point of the whole craving for sex thing. It's just the way it is, chasing pleasure and avoid displeasure.
This naturally occuring function that drive behavior ultimately what makes people engage in trading financial assets and keep continuing engaging in the financial market. In which people are forced to sit down, make predictions, and be rewarded.
I want to share you a metaphor on how displeasure and pleasure principles have a lasting echo to shape one's personality. I would like to quote the book Trading in the Zone by Mark Doughlas:
Perception and Learning
Everyone has heard the expression, “People see what they want to see.” I would put it a little differently: People see what they’ve learned to see, and everything else is invisible until they learn how to counteract the energy that blocks their awareness of whatever is unlearned and waiting to be discovered.
“To illustrate this concept and make it even clearer, I am going to give you another example, one that demonstrates how mental energy can affect how we perceive and experience the environment in a way that it actually reverses the cause-and-effect relationship. Let’s look at a very young child’s first encounter with a dog.
Because it’s a first-time experience, the child’s mental environment is a clean slate, so to speak, with respect to dogs. He won’t have any memories and certainly no distinctions about a dog’s nature. Therefore, up to the moment of his first encounter, from the child’s perspective, dogs don’t exist. Of course, from the environment’s perspective, dogs do exist and they have the potential to act as a force on the child’s senses to create an experience. In other words, dogs expressing their nature can act as a cause to produce an effect inside the child’s mental environment.”
“What kind of effect are dogs capable of producing? Well, dogs have a range of expression. By range of expression I mean dogs can behave in a number of ways toward humans. They can be friendly, loving, protective, and fun to play with; or they can be hostile, mean, and dangerous—just to name a few of the many behaviors they’re capable of. All of these traits can be observed, experienced, and learned about. When the child sees the dog for the first time, there is absolutely nothing in his mental environment to tell him what he is dealing with. Unfamiliar, unknown, and unclassified environmental information can generate a sense of curiosity—when we want to find out more about what we’re experiencing—or it can generate a state of confusion, which can easily turn to fear if we can’t place the information into an understandable or meaningful organizational framework” or context.
“In our example, the child’s sense of curiosity kicks in and he rushes to the dog to get more sensory experience. Notice how children are literally compelled to thrust themselves into a situation they know nothing about. However, in this example, the environmental forces at hand do not react favorably to the child’s advances. The dog the child is interested in is either inherently mean or having a bad day. In any case, as soon as the child gets close enough, the dog bites him. The attack is so severe that the dog has to be pulled off the child.
This kind of unfortunate experience is certainly not typical, but it’s not that uncommon either. I chose it for two reasons: First, most people can relate to it in some way, either from their own direct experience or through the experience of someone they know. Second, as we analyze the underlying dynamics of this experience from an energy perspective, we’re going to learn about 1) how our minds are designed to think, 2) process information, 3) how these processes affect what we experience and 4) our ability to recognize new possibilities.“ I know this may seem like a lot of insight from just one example, but the principles involved apply to the dynamics beneath virtually all learning.
As a result of being physically and emotionally traumatized, the little boy in our example now has a memory and one distinction about the way dogs can express themselves. If the boy’s ability to remember his experiences is normal, he can store this incident in a way that represents all of the senses the experience had an impact on: For example the attack can be stored as mental images based on what he saw, as well as mental sounds representing what he heard, and so on. Memories representing the other three senses will work the same way.
However, the kind of sensory data in his memory is not as important as the kind of energy the sensory data represents. We basically have two kinds of mental energy: positively charged energy, which we call love, confidence, happiness, joy, satisfaction, excitement, and “enthusiasm, to name a few of the pleasant ways we can feel; and negatively charged energy, representing fear, terror, dissatisfaction, betrayal, regret, anger, confusion, anxiety, stress, and frustration, all representing what is commonly referred to as emotional pain.
Because the boy’s first experience with a dog was intensely painful, we can assume that regardless of what senses were affected, all of his memories of this experience will be in painful, unpleasant-feeling, negative energy. Now, what effect will this negatively charged mental energy have on his perception and behavior if and when he encounters another dog? The answer is so obvious that it may seem ridiculous even to ask, but the underlying implications are not obvious, so bear with me. Clearly, the moment he comes into contact with another dog, he will experience fear.”
The Power of Association
As complex as these questions may seem at first glance, most of them can be answered quite easily. I’m sure many of you already know the answer: Our minds have an inherent design characteristic that causes us to associate and link anything that exists in the external environment that is similar in quality, characteristics, properties, or traits to anything that already exists in our mental environment as a memory or distinction. In other words, in the example of the child being afraid of dogs, the second dog or any other dog he encounters thereafter, doesn’t have to be the dog that attacked in order for him to experience emotional pain. There just has to be enough of a likeness or similarity for his mind to make a connection between the two.
This natural tendency for our minds to associate is an unconscious mental function that occurs automatically. It’s not something we have to think about or make a decision about. An unconscious mental function would be analogous to an involuntary physical function such as a heartbeat. Just as we don’t have to consciously think about the process of making our hearts beat, we don’t have to think about linking experiences and our feelings about them. It’s simply a natural function of the way our minds process information, and, like a heartbeat, it’s a function that has a profound effect on the way we experience our lives.
This is a profound observation. Without understanding this concept, one may not be able to rationalize where are their so called 'gut feeling' of feeling things and ultimately making decision is really coming from, especially important when it comes to trading.
I reccomend you to read Random Walkers as I wrote that before this where I cover in great detail on the nature of luck in winning that can be not associated with the traders talent at all. Now I'm going to continue the nature of 'Addiction to Random Rewards':
Several studies have been done on the psychological effects of random rewards on monkeys. For example, if you teach a monkey to do a task and consistently reward it every time the task is done, the monkey quickly learns to associate a specific outcome with the efforts. If you stop rewarding it for doing the task, within a very short period of time the monkey will simply stop doing the task. It won’t waste its energy doing something that it has now learned it won’t be rewarded for.
However, the monkey’s response to being cut off from the reward is very different if you start out on a purely random schedule, instead of a consistent one. When you stop offering the reward, there’s no way the monkey can know that it will never be rewarded again for doing that task. Every time it was rewarded in the past, the reward came as a surprise. As a result, from the monkey’s perspective, there’s no reason to quit doing the task. The monkey keeps on doing the task, even without being rewarded for doing it. Some will continue indefinitely.
“I’m not sure why we’re susceptible to becoming addicted to random rewards. If I had to guess, I would say that it probably has something to do with the euphoria-inducing chemicals that are released in our brains when we experience an unexpected, pleasant surprise. If a reward is random, we never know for sure if and when we might receive it, so expending energy and resources in the hope of experiencing that wonderful feeling of surprise again isn’t difficult. In fact, for many people it can be very addicting. On the other hand, when we expect a particular outcome and it doesn’t come about, we’re disappointed and feel bad. If we do it again and get the same disappointing outcome, it isn’t likely that we will keep doing something we know will cause us emotional pain.
“The problem with any addiction is that it leaves us in a state of “choicelessness.” To whatever degree the addiction dominates our state of mind, to that same degree our focus and efforts will be geared toward fulfilling the object of that addiction. Other possibilities that exist in any given moment to fulfill other needs (like the need to trust ourselves and not to subject too many of our assets to risk) are either ignored or dismissed. We feel powerless to act in any other way than to satisfy the addiction. An addiction to random rewards is particularly troublesome for traders, because it is another source of resistance to creating the kind of mental structure that produces consistency.”
This section briefly explains on how something that seemingly random yet neurochemically rewarding, can make the participants continously engage to the activity, even if it doesn't have direct correlation to one's performance of doing the task, the reward is still there.
I read from a book that I've forgotten the title of. It basically says ther eason why pleasure principle and displeasure principle is so strong. Because we automatically associate our previous feelings to current feelings. When a trade is going bad, we inevitably are influenced by negative vibe, to the point 'ah fuck, i'm so stupid', but trader does not lose money only until it close, when this trader believes that he is going to be right eventually, he tends to hold on that losing position longer than he should as he doesn't have a concrete plan but just following his instinctual desire for happiness, the surge of dopamine when he receive the realized profit, this ultimately creates a systemic problem where the trader is losing sums of money. Comparatively, when the trader is on a winning trade, as he sees his profit goes up and go down the next hour, now from receiving pleasure and pleasureable ideas on how he can spent the money that subconsciously emerged, the moment it goes down, his happiness is shaken out of fear that he will lose his 'already high' profit to lower and lower. The natural human instinct is to protect his profit as he doesn't want it to go down any further, and as he close, he cuts his profit short and let his losers big, this is just the natural human instinct out of the drive to seek pleasure and happiness and avoid displeasure out of fear and pain.
Now this is where plan comes in.
A plan is ultimately what one makes itself. But from the books that I've read and the experiences I gained, the only way to piggyback this 'natural human instict' that very well goes against being a consistently profitable trader (not cutting wins short and let losses grow big), the only way is to think to put risk as first priority, because 'risk adjacent fear' is the number one string that rules behavior. We can talk about cognition later and talking about alpha, betas and shits like that as I've explored some of those in The Fidget, because I believe, taming the nature of the emergence of primordial emotions come first, then cognition. Even a retard can make money on wallstreet bets, but little done very good job at keeping the money that they have made, because of the obedience to pleasure-seeking principle with zero remorse on risk.
First of all, consider any money that you've put on the exchange as lost. Anything can happen, literally anything can happen, you are not bound to win, but you can be lucky and win, the point of it all, is to understand how the game of probability is played and how to adjust appropiately.
Find the horizon that you are most comfortable with and think that you can commit dilligently. This will determine the nature of how you trade. As in, have a plan in mind until what time horizon you think you can see you being right, months, Weeks, or days, or for some even hours. Obeying risk means putting on a trade knowing your fucking max pain. If you know if price goes down 10% you'll lose a hundred bucks or a thousand bucks, you already accept it can happens, so there's no poin on watching the trade everytime you have the human chance to do. It's not a good way to trade if you're trading with sums of money you are not willing to lose. Trading is ultimately a game that involves probability and even if you are right 70% of the time in your track record, going all in and sell your family can mean that the 30% is your final demise. Everyone knows this yet somehow people still goes irrationally long on bull markets knowing as much a bull market is a bull market it never makes sense to go all in. I theoretize that they are just doing the pleasure-seeking principle and the euphoria outweighs the emotions of losing that comes with risk, they simply ignore it. I see people putting their rent money and college tuition funds on option contracts, which is just fucking insane but so much so for pleasure-seeking principles, God knows how euphoric they were before that convinced their mind that it is the 'right' thing to do to punt their college tuition.
When risk is accepted, theorethically, one can obey and TRUST his own plan without needing to have a dopamine kick and flush from seeing PnL moves like a heartbeat. It has become irrelevant in any time window when the trader already has a plan and accept his risk form engaging in the market.
Plan comes first. Then how come most people when I ask, what's your plan? They can't answer yet they trade.
Now this is where it comes, exercising cognition through making plans and accounting every viable outcome is part of the cognition's effort to tame emotions.
Cognition helped us to strain us from going feral and do the next thing our pleasure-seeking brain wants, having awareness helped us stopped becoming addicts to the pleasure-seeking brain. There's no fucking bootstrap into this than the best is to awaken the self-awareness that we already have. Most people lose their money trading and such is the nature.
This article is written for me to read back on the days I have a bad trading day, to again worship my plan and re-formulate my thoughts and strategy. As much as I value this article and my ability to distill this own thoughts. The brain is still too futile and it often comes back to the path to least resistance to meet pleasure at the end of the tunnel in which it couldn't be good for me in the long run for the goodness of my trading journey.