Trading, Backwards

A shoutout to Bruss Bowman for pointing out this genuinely insightful video on backward cycle riding.  Engineers made a uncomplicated modify to a bicycle, such that turning the guide keep bars made the bike motion contrary the expected direction.  Sure enough, that made the bike impossible to ride.  The video demonstrates this amongst sense of humor in addition to insight.  It turns out that it doesn’t guide keep much to disrupt the algorithms inward our brains!

A somewhat similar experiment was conducted inward the 1950’s past times Ivan Kohler, who had subjects wearable prism spectacles that distorted their vision.  Since that time, prism adaptation has acquire a well-studied phenomenon.  There is typically a menses of disorientation, inward which subjects wearing prism spectacles cannot execute uncomplicated hand-eye coordination tasks.  Then, gradually, they adjust to the changed basis in addition to tin sack component amongst the glasses.  When the spectacles are removed, however, they provide to a brusk menses of disrupted functioning.  

Fascinatingly, people who wearable the spectacles but produce non interact amongst the basis during that menses produce non adjust to the novel perceptual world.  It takes repeated sense to larn from errors in addition to recalibrate one’s perception.

Think well-nigh ever-changing fiscal markets.  Markets modify inward their patterns of volatility, sometimes moving a non bad deal, sometimes quite little.  Market shift inward their patterns of correlation, sometimes moving inward concert amongst other markets in addition to other times moving to a greater extent than idiosyncratically.  Markets modify their directional behavior, sometimes reversing moves inside ranges, sometimes extending ranges inside trends.

It is every bit if the market’s handlebars continually change; every bit if traders constantly lay on novel spectacles amongst unlike prisms.

If that is the case, thence nosotros would hold off disorientation to endure a natural component of the adaptation process.  We would likewise hold off losses to endure a natural component of adaptation.  Traders *can* adjust to changing markets, but alone later on a menses of interaction amongst those markets.  

Anticipating those periods of disorientation is helpful to trading psychology:  ane demand non guide keep them every bit threats if they are component of adapting to changing conditions.

Anticipating periods of disorientation is likewise helpful to guide a opportunity management.  If nosotros know that markets volition change, nosotros tin sack continue bet sizes minor plenty to conditions those periods when markets merchandise amongst backward handlebars. 

Not long later on nosotros appear to main markets, nosotros acquire students again:  expertise over fourth dimension is a function, non simply of learning, but the capacity to relearn.

Further Reading:  Adapting past times Becoming a Better Thinker
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