03 Jun

The Summit – Keeping too many options open may actually be hurting you

The Summit Issue # 11

Glen LarsonFor those of you that were able to attend our onsite training classes, thank you for your great input.  We had a great time working with you.

We covered topics ranging from basic trading from the charts, to highlighting desired conditions, to writing advanced Trade Sense entries and exits based on attendee’s requests.

We even covered which different types of indicators work in trending, non-trending, up and down markets the best.  When, or when not, to use them.

Here are some comments we heard:

“My brother and I salute you and your team for a great Genesis training seminar!  Genesis lives beyond your commitment to ensure greatest customer satisfaction.  Thanks for the excellent work!”

Wai C. – Harvard Statistics Professor

“A wealth of information!”

Dan S. – Hamilton

“All of the presenters were very good and with hands on support right there, it was great!”

Stan W. – Calgary

“You should have charged three times the price!”

Girish W. – London

No, we won’t be tripling the price, but based on the response of those that attended, we will be putting on another seminar.  We don’t have a final date yet, but it looks like it will be the middle of September.  For those on the waiting list, you will be given first shot at signing up.

As we get closer, look for a news blast and email.  You will need to act when you see it though.  We already have 16 people on the waiting list and we will keep it to 35 so we can address personal requests.

So Stay Tuned.

Keeping too many options open may actually be hurting youMy kids were watching the movie “300” the other night and it reminded me of the story of how another military leader, the conquistador Cortez, had his men burn their ships behind them.

This was to eliminate the possibility of retreat in the minds of his soldiers and motivate them to success.  I’m sure this speech was not greatly appreciated by his officers or soldiers.

Ultimately, Cortez was vindicated after they went on to achieve one of the greatest conquests in history.

I’m sure we’ve all heard the story and all agree this step was totally brave, heroic but slightly looney as well.  We all like to keep our options open.  It seems to be a motto for many as well, especially in trading.

I came across an interesting book that discusses the challenges, the impact of how “keeping your options open” may actually be hurting you.  I’ve seen the damage it can and has caused many a trader.

Dan Ariely’s new book, “Predictably Irrational: The Hidden Forces That Shape Our Decisions” confirmed what I have been seeing in my own trading and in helping others with their trading.  Tierney Labs also had a great write up on this theme.

An example of how we will struggle with keeping our options and what costs we pay was made very clear in an experiment conducted with students that are generally considered to be the brightest in the country.

The experiment involved a game that eliminated the excuses we usually have for refusing to let go.  In the real world, we can always tell ourselves that it’s good to keep options open.

“In the M.I.T. experiments, the students should have known better.  They played a computer game that paid real cash to look for money behind three doors on the screen.  After they opened a door by clicking on it, each subsequent click earned a little money, with the sum varying each time.

As each player went through the 100 allotted clicks, he could switch rooms to search for higher payoffs, but each switch used up a click to open the new door.  The best strategy was to quickly check out the three rooms and settle in the one with the highest rewards.

Even after students got the hang of the game by practicing it, they were flummoxed when a new visual feature was introduced.  If they stayed out of any room, its door would start shrinking and eventually disappear.

They should have ignored those disappearing doors, but the students couldn’t.  They wasted so many clicks rushing back to reopen doors that their earnings dropped 15 percent.  Even when the penalties for switching grew stiffer – besides losing a click, the players had to pay a cash fee – the students kept losing money by frantically keeping all their doors open,” Dr Ariely states.

Why are they motivated to keep the doors open?  Why were they so attached to those doors?  Were they just trying to keep their “options open?”

“They plumbed the players’ motivations by introducing yet another twist.  This time, even if a door vanished from the screen, players could make it reappear whenever they wanted.

But even when they knew it would not cost anything to make the door reappear, they still kept frantically trying to prevent doors from vanishing.

Apparently they did not care so much about maintaining flexibility in the future.  What really motivated them was the desire to avoid the immediate pain of watching a door close.  Closing a door on an option is experienced as a loss, and people are willing to pay a price to avoid the emotion of loss,” Dr. Ariely says.

Wow!  We all have seen and probably experienced dumb trades to avoid a loss.  We want to keep our options open, we want to be able to trade anything, anytime, any method if need be.

We have been working on keeping journals of trades so that traders will “Know Their Numbers.”  Journaling helps gauge true performance, not what you tell others or yourself, but what reality really is.  (By the way, we are releasing a cool upgrade to our journaling to help traders journal every trade and consistently review their trades – stay tuned.)

In reviewing trade journals, I usually can see where a trader does really well in say, the currencies, but loses consistently in the meats or metals.

When asked why they continued to trade these losing markets, their answer may sound familiar.  They want to be able to trade those markets in case they break out, or they want to be able to master that market too.  They like to keep their options open.

I was discussing this with Markus Heitkotter of Rockwell Trading.  He too, found similar answers when traders were asked why they traded markets in which they consistently lost.

So what can be done?  One answer, Dr. Ariely said, is to develop more social checks on overbooking.  He points to marriage as an example: “In marriage, we create a situation where we promise ourselves not to keep options open.  We close doors and announce to others we’ve closed doors.”

Probably the best thing we can do is to begin to focus more and get rid of clutter, unfinished projects and incompletes.  Try resigning from those committees that aren’t really fulfilling.  Reevaluate relationships/friendships that are draining, not uplifting.  Prune your holiday lists, your hobbies, magazines you’ve been saving to read (for over a year).

Perhaps the biggest step we can take is to FOCUS ONLY ON THE MARKETS THAT YOU CONSISTENTLY MAKE MONEY IN.

Next time you’re trying to figure out which markets to trade, which indicators to use, which educator to follow, try asking yourself:  What would Cortez do?

Further Reading:

Predictably Irrational: The Hidden Forces That Shape Our Decisions, Dan Ariely, Harper Collins, 2008.

Keeping Doors Open: The Effect of Unavailability on Incentives to Keep Options Viable, Jiwoong Shin & Dan Ariely, Management Science, May 2004.

Program Updates
We are in the process of testing a new version that impacts real time data streaming customers.  A challenge we’ve encountered with streaming is that Trade Navigator seemed to slow down under certain conditions.

We found that we were doing several calculations inefficiently for streaming that had no impact on End of Day users.

After significant research, trial and effort, we came up with a way to cut our calculation times by 1/20 for streaming users!  We have been testing this and have released it to a limited number of users – so far so good.

Now when streaming, your computer responds quicker when you want to edit charts, settings or even make trades.  The lag time has been taken care of.  Sylvia Davis has been testing it and said it was like, “Greased Lightning, AWESOME.”

Since this impacts the very core engine, we have been very cautious about releasing it too soon.  We do expect to have this released in the next couple weeks.

We’re also including some enhancements to linear regression, the fundamental data set and other cool upgrades that many of you asked for.

So when you receive the upgrade notification in your download, be sure to get it as soon as you can.

Until next month,

Good Luck and Good Trading!

Glen Larson

[…] Glen Larson agrees. In “Keeping Too Many Options Open May Actually Be Hurting You,” Larson mentions a book by Dan Ariely entitled Predictably Irrational: The Hidden Forces that Shape […]

Hello, many thanks for that post article. Much many thanks again. Maintain writing.

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