Dear Trader
Trading seems far away from philosophy. One is action, the other contemplation.
But I think that a philosophy of trading could enhance personal trading profits as well as contribute to the practice of trading.
Over time, I will elucidate various aspects of a philosophy of trading. Some of the key aspects of such a philosophy will be:
- Epistomology
- Praxeology from the Austrian School
- Feedback loops
- The Subjective Theory of Value
Understanding a philosophy of trading should give deeper insights into what moves markets and therefore better techniques of trading. The reason is simple. The closer you understand reality, the closer your trading techniques of trading will correspond to reality.
It was actually my interest in philosophy that caused me to become a pro trader.
I became very interested in the enlightenment philosophers, particularly John Locke and John Stuart Mill in y early teens. But I was then disappointed to learn that philosophers don't make any money. Who knew that philosophers were not in great demand?
So I shifted my focus to psychology because I reasoned that psychology was applied philosophy. I actually went to university as a psych major! I was mainly interested in clinical psychology. I found my classes to be fascinating. I'll never forget when one of the students came down from the audience and gave a lecture on how they operated on his brain while he was awake and stuck electrodes into various places in his brain to stimulate them to try to trigger an epileptic seizure. They wanted to find out the precise place in his brain that was causing his epilepsy. Astounding! Riveting!
But then I realized that clinical psychologists don't make much money either. And I wanted to be economically free. Didn't want to work for the Man! Hey, it wass 1971!
So I shifted to economics because economics is applied psychology!
So I took Econ 101 which was great. Actually the only good class on economics. The advanced courses were floating in a fantasy land and were not tethered to reality.
I reasoned that we could test economic theories by seeing if they were effective in predicting economic changes. If Marxism or Austrians or Keynesians or Monetarists were so good then they should be able to describer reality better and therefore predict changes in economies better than other economic theories. In other words, the theory should work in practice. So I started taking the major theories and seeing if they could predict future realities. I found that the Austrian and Monetarist theories worked the best! Marxism was not in tough with reality at all.
Of course, it was a short step to seeing if I could make money in the markets using these predictive tools.
My very first trade was a derivative trade. I bought AVCO company warrants. But I really started trading after running this test on economic theories. I started trading forex and gold in about 1971. I chose those instrument because they corresponded to predictions I could make from the Austrian and Monetarist theories.
And it worked! I started making money trading!
Of course, I kept learning more about philosophy, economics, and psychology because I realized very early that more reality oriented I became, the more money I could make in the markets. I've been on this quest for 50 years now!
This is the first in a series about philosophy and related disciplines as far as they related to trading. We will go far afield from just entering orders and looking at charts to answer the deeper questions of why certain techniques work or don't work
Interested?
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Thanks!
Good trading,
Courtney Smith
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