26 February 2013


Hi Friends,

Today I'm sharing this article on the Principle of KISS. A must read for every Trader.

The ability to simplify means to eliminate the unnecessary so that the necessary may speak… "Hans Hoffman."

The 14th Century Franciscan monk William of Occam formulated a concept that provides the basis for many present day scientific theory and models. This concept, know as Occam's razor, states that, given any competing sets of solutions for a problem, the explanation must be made in terms of what is already known. That does not necessarily imply that it will be the most simple explanation (although it often is!), but it will help you focus and alleviate anxieties and endless frustrations trying to figure out what you don’t know. Focus on what you do know, and use this knowledge to carry to further into study so that you become an expert in whatever you are trading. The more you know about one particular stock, future, commodity or currency-- the more quickly you will come to creative mastery. The more you will be able to simplify.

The founders of Alcoholics Anonymous called this the KISS (Keep It Simple Stupid) solution. This principle can be applied to nearly every facet of life and trading, and is positively correlated with experience. The more you know about any subject, the quicker you will be able to find elegant and simple solutions.

Your brain lies to you day and night in the most convincing and deceptive ways imaginable. If you are finding yourself challenged, confused or messed up in your trading or in your personal life it is for one reason: Your best thinking got you there.

Those who are the most confused in the markets right now are those who are reading newsletter after newsletter, site after site, pundit after pundit trying to find a reason for "WHY" things are happening. Everyone has something to say, to write, to postulate or theorize about such situations as "Why are the markets rallying when the economy is so bad? Who is buying into this rally? When is it going to end? Where is the correction? What is going to happen?" Well, since you don't know, you look everywhere until you find an answer that you like. Usually this is an answer that agrees with your beliefs—a simple expression of what is called “confirmation bias.” How can you know what you don't know when you don't know what you don't know? Why do you continue to look outside of yourself to other people for answers that they don’t have but are delighted to sell them to you—often for outrageous prices and promises.

Markets are made because people have different opinions. This is how it should be. If everyone thought the same way, believed the same things—there would be no markets. For example—in the futures markets (basically a zero sum game—but not quite)—for every buyer there is a seller. This means that you are trading your beliefs against the beliefs of those who disagree with you. You know that your beliefs are correct if your position is making money.

What is correct? Who is correct? The answer is simple. The markets are correct. IF you are underwater in your positions and in the hold and hope mode, you are not listening to the markets.

Why are you tormenting yourself trying to "figure it out" when the answer is simple? Remember that the greatest secrets are always in plain view. It is happening because it is happening. All of the mental and intellectual tricks (neurotic defenses, thinking biases) that you play on yourself are for the purpose of easing anxiety over a situation that you do not understand. Often, the more you search for answers, the more anxious you become. You are the problem and you are the solution. It is just that simple. Stop trying to figure it out. Accept that it is happening and act accordingly. Learn to respond, rather than react. If price is going up, it is going up and that is that. Go with it and continue with it until it stops going up. If price is going down, go with it until it stops going down.

The easiest way to gain discipline is to reduce everything to its most simple parts. Dissect, declutter, and get simpler. Please stop trying to turn a game of probabilities into rocket science.

What might Occam say to you about trading?

There is way too much noise. Turn down the noise in your mind and on your charts. Trust yourself to see what is in front of you. Markets do not lie; people do. Do not be fooled by highly intellectual explanations for why things are or are not happening. Listen to the voice of the markets.

Wisdom in trading is manifest through simplicity. The more complex you try to make this, the greater the probability that you will lose. The market speaks in probabilities. Do not try to change this language by making it one of certainty.

If what you are doing is working, keep doing more of it. If it is not working, get out and go back to basics. Find an edge and keep sharpening it. Disciplined traders win. Emotional traders lose. In the battle between discipline and emotion, the disciplined massacre and plunder money from the emotional.

Simplicity is the ultimate sophistication…"Leonardo da Vinci."

This article is written by DR. Janice Dorn. She is believed to be the only Ph.D. (Brain Anatomist) , M.D. (Board-Certified Psychiatrist and Addiction Psychiatrist) and Graduate of Coach University in the world who actively trades, writes commentary on the Financial Markets.

Thanks & Regards,

Harsh Dixit.