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In trading, constantly seeking knowledge often leads to inaction. Taking action often involves embracing certain illusions.Not only do your actual skill levels matter, but your perception about your own skills also greatly affect your performance.And sometimes, it is important to deceive yourself.
Plato was likely a trader, as he has created one of the best philosophical pieces for traders - "Allegory of the Cave” (also paraphrased from Beggs) as below -
Imagine prisoners in a dark cave, who have been chained since childhood and are unable to move. They are fixed in place, compelled to stare at the wall directly in front of them. Behind them, there is a fire, and in between, there is a walkway. Along this walkway, people pass by, carrying objects on their heads. The prisoners are unable to see what is happening behind them. They can only see the shadows cast upon the cave wall in front of them. The sounds of people talking echo off the walls, and the prisoners believe that these sounds are coming from the shadows.
Given that the prisoners have never seen or heard anything else, wouldn't it make sense for them to believe that the shadows and echoes are real? They would have no reason to think that they are just reflections or imitations of reality.
Traders analyse charts to interpret price movements, technical analysis patterns, and indicator-based signals. Investors focus on business models, financials, and growth narratives. Some mavericks resort to astrology and lunar cycles. But its is not about candlesticks or numbers or stars; they do not move prices - they are merely shadows and echoes.
Price moves as a collective result of all participants bullish or bearish sentiment and their decision to act in the market based on that sentiment (buy or sell). The only utility of any analysis - Fundamental or Technical - is to be in sync with the participants who generate net order flows that affect price movements and to get into improved risk reward scenarios. Even the most fundamentally bullish stock can decline if the crowd's sentiment is bearish and they are not interested in owning it. Similarly, a technically perfect break of a neckline in a head and shoulder pattern, which is typically bearish, will fail if the crowd's sentiment changes to bullish and they all want to buy the stock.
Effective trading strategies involve more than just recognizing price movement and entering trades after it happens, with the hope that it will continue. Instead, they understand that price movement is a result of trader decisions and aim to identify specific areas on the chart where traders are likely to make decisions that will have a net bullish or bearish impact. These areas are where traders experience stress, fear or fomo, and make trading decisions to relieve that stress, and provide potentially higher probability setups.
Most other traders aim to find the effect of price movement, either though patterns, trendlines or indicators. It is more efficient to seek the cause and enter before them, allowing their order flow to add to ours and move our position into profit.
And this will always be subjective and contextual. No trade is the same, even if you keep trading the same chart pattern in the same symbol. Just like if you dip your feet in the same river daily, it's never the same water, it's never the same current, and it's never the same you.
Trusting intuition over objective rules
Markets, like humans, are emotional creatures. Trader decisions cannot be governed by rigid rules, and as a result, price movement cannot be dictated by fixed rules. You may accept that objective rules cannot fully define market price action, but argue that they are sufficiently close; that all you need are rules for the exceptions. This reasoning may seem logical until you realize that the exceptions themselves vary. This is a common reason why most algorithmic or fixed rule systems underperform.
The answer does not lie in having a better objective model or constantly pursuing more market theories and knowledge. Instead, it lies in developing processes and actions to trust our intuition and become comfortable with subjectivity. You will most likely resist this idea. If that's the case, take some time to consider WHY.
What are you afraid of? Why do you insist on objectivity in rules when you are aware that these rules do not determine market price action?
When I started trading, my need for rules and objectivity stemmed from my inherent need for perfection and control over my trades. It also led me to believe that "following rules" and being disciplined were the perfect things to do, regardless of the outcome. As a result, my natural risk appetite unconsciously started to decrease, to the point where I was only “managing risk” instead of actively “taking risks” for super performance. The lack of subjectivity and intuition, kept my objective rules inefficient and static. When you strive for perfection, the pressure to avoid mistakes becomes a burden that often holds you back. Ironically, this pressure can still lead to mistakes, albeit of a different kind. Being slow results in missed opportunities. Failing to hit a fulltoss because it isn’t a perfect fulltoss is as much of an error as poking at a swinging ball outside off stump.
In order to embrace subjectivity, I had to find the courage to question discipline when my intuition contradicted my rules. I also had to be open to the possibility of losing money and control, risking short-term setbacks in the hope of long-term improvement (of course, without the risk of ruin). This first step required taking a leap of faith, where I had to occasionally deceive myself about my trading skills and my ability to recover from any possible situation. Your knowledge and objectivity will often attempt to restrict you within rational and theoretical limits, which is also why many skilled traders struggle to scale up beyond a point. Subjectivity is necessary for improving objectivity.
I haven't come across any other way to develop trader intuition than through trial and error, granular post-trade reviews and grinding it towards success. Intuition cannot be transmitted to others, nor can it be articulated precisely, due to its inherent fluid nature.It's not only about "trusting the process," but also about trusting yourself to deviate from inefficient but familiar processes and still come out unharmed. It's about creating a stronger intangible from an untested tangibles. And for this process, it is sometimes easier to begin with the comfort of a lie rather than burden your progress with your perceived realities.
Closing Note
The illusion is reality. The only contradiction is the observer.
- Lionel Suggs
