Darren and Walter talk about trading rules, creativity and why the school system “breaks in” children. If you are re-thinking your trading system and approach to the markets after this episode, then it has done it’s job.
Be your own trader, and trade your own beliefs. It’s a better way to trade.
Download (Duration: 19:35 / 22.4 MB)
In this episode:
00:52 – gifted children
02:25 – parallels with trading
04:37 – breaking your children
05:44 – where creativity starts
07:38 – a failure
09:09 – follow the right path
10:20 – greatest contributions
11:29 – passion for it
13:47 – creative thinking
18:44 – be open minded
Look outside the box and see what happens to your trading [Click To Tweet].
Which of your assumptions are effecting your trading? [Click To Tweet].
You are going to trade your beliefs. [Click To Tweet].
Walter: Whatever you have will morph into something that is consistent with what your beliefs are about the market.
Announcer: Two traders, Darren and Walter, pull back the curtain on profitable trading systems, consistent money management, and profitable psychological triggers. Welcome to the Two Traders Podcast.
Walter: Welcome to the Two Traders Podcast. It’s Walter here. I’ve got Darren on the line. Darren today, you want to talk about gifted children?
Darren: Yeah. I’ve read and asked for this week about gifted children. Whenever I read anything that’s kind of psychology or human behavior based, I’d always look for trading link within that.
Here’s the interesting thing about gifted children. Let’s say, let’s take a 5 year old who’s an amazing pianist. You’ve imagined that they’d go on, and grow up to be like great composers or the next Mozart. The funny thing is that, that very rarely happens. It’s not just in music. It’s also in sports, science and mathematics.
You know what is going on? If someone is amazing at something at the age of 4 or 5 or 6, then why when they mature are they not exactly becoming the new Mozart or Beethoven?
What they reckon… what they found was that, because the kids have these gifts, the parents tend to be really strict with them and give them lots of rules.
What happens is, they become brilliant copying what’s already known. They lose that sort of creative thinking edge because they’re given too many rules and restricted. Do you know what?
The interesting thing they found was, the kids that do go on to be very original, come up with new ideas and really sort of change the game if you like, when they looked at their parents, they’re very relaxed with rules, kind of let the kids do what they were into, what their passion was.
Obviously, you can see they’re sort of parallels with trading. It’s why I’m always saying that “I really don’t like too many rules in trading or to have a structure to work around.” It’s really understanding the part each of those rules play in the outcome with trading.
As an example, let’s say, I’m on my intraday trading, I don’t trade in the Asian session and to do that I have an indicator that starts at 10 pm and finishes at 7 am. I get lots, and lots of questions about exactly what time the indicator should stop. I think that is kind of people’s desire to find that precise rules because they think that will affect the outcome.
Whereas, really they’re missing the point. It’s more of just a loose structure to work around and then you have to let your creative side and your imagination come into trading as well.
So yeah, that’s it. I just thought it was really sort of fascinating because you would think and then when you come to trading as well, you think “Okay, this guy has got a financial background, he’s got a degree, he’s really intelligent. Then, he would definitely be a good trader and he’s very disciplined, he’s got all these rules rolled out.” Obviously, that isn’t the case so it’s kind of like, there’s some parallels there.
Walter: Yeah, absolutely. This is a great topic and I’m glad that you’re bringing this up. I have been thinking a lot actually over the last week about creativity. As ironic as it sounds, I’ve actually been trying to structure my thinking around “Okay if I wanted to say it to someone, this is how you become more creative.” What are the rules? Which I know, sounds totally counter true.
What’s the structure? What’s the process? What are the things that you can hang your hat on and try and encourage that?
I think you’ve nailed it because what the schooling system is all about, in most countries, when you think about it, it’s basically about “breaking” your children. You’re breaking them in.
You’re making sure they understand what they should do in society and they’re basically following the rules. The very best of those students who are able to follow the rules to a T, they are the ones who were rewarded right? They’re the ones that get the scholarships. Don’t you agree?
Darren: Yeah, definitely. I mean, that’s the way our education system works. To reward the results rather than looking at the whole thought process, the one into it and the other they’ve put in. How they try to look outside of the box. All these things, they’re not considered, nevermind, added to the final score and I think that is a mistake.
Walter: Absolutely. It’s one of those things where it’s even difficult to see it when it’s happening because you’re inside of it. As a trader, you’re probably using assumptions that you haven’t thought about. You do a good job with this Darren, you question those. I mean, that’s kind of where creativity start. It’s this idea of bringing something over, like an idea from a totally different field, totally different realm and bringing it into your realm.
For example, a lot of traders are probably familiar with the two percent rule or the one percent rule or whatever particular book or guru says to do, you can’t risk one percent or two percent. There are some really good profitable systems where if you do that, you will lose money.
Likewise, there are funds…
A friend of mine actually, he went to go apply to trade for fund. They told him, they said to him “Are you prepared to risk 10% per trade?” He said “No, no chance.” Because, he risks much less than 1% per trade and that’s what he was used to. They said “Well then, we don’t think you’re ready to become a professional trader.”
He’s very very successful. But, their boss is very aggressive using high probability win systems and they‘re trying to maximize returns with little regard to the drawdown.
I think these sort of ideas that come up, I mean, I have a couple of data points that I’d like to share with the listeners because I think this is relevant to this discussion and I’d like to get, see what you think about this.
Okay so number one… these are the three things that come up to mind when I hear this. One is that, I had a really good friend in university and he was by all accounts brilliant. Have a photographic memory, was brilliant with math, from young age.
In fact, some of our professors in university, they actually sort of made joking side bets about which of us, cause we both decided that we’re going to graduate school, which of us would do better in graduate school. The consensus was, that he could do whatever he wanted to do.
Now in the end, he’s bounced around from different jobs. He didn’t finish graduate school, which I don’t consider to be a failure but by a lot of measures, you would say that he hasn’t quite found his way. He hasn’t found his niche. He hasn’t found the thing that he’s really good at yet.
It’s interesting because the difference really in personality between my friend and myself was more that I was like “I’m going to get this done. I’m gonna make it happen.” I was just super determined. Even though, I probably didn’t have all of the advantages that he had. He was a lot more lax and not as driven, I suppose you could say.
Maybe, that’s the key difference when you’re talking about two people who want the same thing in life. One of them maybe, doesn’t quite do as well as the other. Simply because they’ve been able to coast through life on their own being very gifted, being very intelligent and being that sort of person. That could be another aspect.
Another thing I want to bring up is, there’s two siblings an older brother, younger sister. And their parents have decided what their careers are going to be. The one was going to be a lawyer. The other was going to be a doctor. The sister was going to be a doctor and the brother was going to be a lawyer.
Now, what ends up happening, the sister did really well in school, was bumped up a grade so her peers, were a year older than her basically. In some cases, a little bit more than that because she’s bumped up a grade. What ended up happening was, the brother eventually follows the right path and went to Harvard and Yale and all that. Did all that stuff and did the career and basically, has locked into what his plans were really set for by his parents.
The sister did something different — she completely tapped out. Didn’t want to go to medical school. Didn’t want to do any of that and has done some really interesting things in entertainment and has become like a voice actress because she really has a unique voice.
So, the interesting thing to me, is how you know, if you’ll look at the two, some people would say that the sister, has achieved more or done more or had a certainly, probably potentially a more fulfilling life because she didn’t really follow the rules and the brother has largely followed the rules and you wouldn’t really know him from any other lawyer. You know what I mean?
Darren: A great lawyer, yeah.
Walter: You know what I mean? So, it’s interesting. The other thing I want to bring up, this is the last data point, if you’ll look back in history, what you’ll find is, the people who make the greatest contributions to a field in science or whatever, they’ve come from another discipline altogether and across the board you will see this. The real discoveries made in Physics, in Biology, even in Psychology, have come from people who approached it from slightly different angle because they were not indoctrinated into the truths, the rules and the laws of that field.
So, I find that fascinating too. Those were the things that come to mind when we’re talking about being tagged as someone who’s really got good things going. Like you say Darren, it’s sort of, “your course is set for you, you’re gifted, you’re very intelligent, you’re beyond the curve, you’re an outlier.” Those are the things I think that, perhaps as you say “some of the biggest contributors to society and different fields are those who didn’t necessarily know that’s what they’re going to do when they are at such a young age.”
Darren: Yeah. I think that, in the first point you made, I imagined that guy went on to do what he felt he should do, based on the pressure of being gifted and being talented. He probably felt a great deal of pressure to deliver in that field.
In the study, what they’ve found was that great pianist, and great tennis players, didn’t have an amazing tennis coaches or amazing piano teachers. What they did find was, they would do it because they really love tennis and they really love to play in the piano. So, it wasn’t that they necessarily have the gift. There’s more that they have the passion for it really. Then, that can grow into something creative.
What they’re saying is, people who will really innovate and excel in certain things, they don’t just know about that thing that they’re excelling in. They tend to have really broad knowledge about the things as well and that kind of deepen their abilities in that specific subject.
They find some stats from the article. They know about prize winners twenty-two times more likely to perform as actors, dancers or magicians. Twelve times more likely to write poetry, plays or novels. Seven times more likely to develop in arts or crafts. They tend to play instruments or compose music as well.
To be really a great thinker, you have to have breadth of knowledge. Going back to sort of trading thing again, this is why I tried to explain to people when they ask me about specifics of my strategy, I’d try to say “Don’t really focus on that, just look at the big picture of what I’m doing, and then just play with it.”
I remember, we have that podcast discussion about rules, and I was kind of saying something crazy and not necessarily always going to be the thing that works but, because you’ll learn a lot about what you’ve already been doing.
The possibilities and the limitations of that by taking on new ideas. I see it all the time with traders that they seemed to become very close minded quickly like, buying into one idea and they find it very difficult to move out of the boundaries of that. I think just a little bit of creative thinking, even if you eventually go back to trading how you were, I think you probably be able to excel to a greater level if you do that.
Walter: Yeah. That’s a great point. I think that one of the things that may happen for some traders and you see this on the forums around the internet. You’ll see people just digging into others and talking about why “that won’t work” and so forth.
But, I think one of the things that comes out is that, if you’re vulnerable, if you’re in a position where you feel like… this is one thing that I use in terms of thinking like, take an idea and take it to the max, if you want to see what the outcome of that idea is.
So, let’s say, my idea here is basically this, if you’re really vulnerable, you’re more open to authority right? So let’s say that, you’ve been diagnosed with cancer which is awful right? Well, if that happens, you’re going to look to authority to see: “Okay what do I have to do here? Let’s get rid of this, let’s get healthy again.”
That’s much more likely than, if you were to get a hangnail right? If you’re to get hangnail “No, no. The way that I rid of hangnail, I just soak them in vinegar for five minutes. That’s how my grandma taught me. I don’t care what you have to say about that alright.”
I mean, that’s the kind of thinking. The same thing with trading. If you’ve been burned, if you’ve lost a lot of money, if you’ve repeatedly just been at your wick’s end because you haven’t been able to make it work, you’re much more likely to look to someone and go “Well, that make sense to me. He does pretty well. I guess, I’ll just do exactly what he does.”
So, in a way, you can see why people will become so dogmatic about it and want to know exactly what the rules are. Especially if they’ve been to that place where it’s so painful and so difficult for them to see the light at the end of the tunnel. Do you see what I’m saying?
Darren: Yes, definitely. I agree. A hundred percent.
Walter: Yeah. I think that’s part of it. One of the things that…to follow up your point, so, you’re saying “Look at the big idea, look at the framework. This is what I’m presenting.”
Which is basically, this idea for one of your trading systems which is: when the market goes and goes far and makes a nice move, you can make money quite easily really. Then if the market is not really going anywhere, it’s just kind of beep, beep, beep, chop, chop, chop. That’s sort of thing, it might be a little bit more difficult to make money. So, that’s basically the idea right? Am I being unfair here?
Darren: No, that’s exactly correct. I think essentially all trading systems are doing that.
Darren: But, they perhaps pat the eye a little bit more.
Walter: Exactly, yeah. So, what you’re saying to them is, essentially what I strongly believe which is: “Look, here, this is the framework that I’m going to offer you. Which is, you can make money and this is how I do it. When the market moves and makes these swings ups and swings downs and does this and does that. This is what happens when it doesn’t move and it gets really tight and it’s in a restricted range. It’s not really moving very much. Those aren’t going to be the good times for me when I’m trading the system. But, it’s up to you to basically decide how are you going to use this seed of an idea to make it work for you.”
That’s really something that I strongly believe. Everyone listening to this podcast should recognize that, you are going to trade your beliefs. I don’t care whose trading system. I don’t care who taught you. I don’t care how many checklists you have, spreadsheets and data and all these backtested systems.
Whatever you have will morph into something that is consistent with what your beliefs are about the market. So, when we’re trying to kid ourselves by saying “I’m just going to copy what Darren does or I’m just going to copy what trader Marissa does.”
If you cannot follow Marissa or if you cannot track follow Darren, just know that there will come a day when that system is either morphed into something completely different to what Darren uses or Marissa uses. Or you’re going to give up on it and look for something else. Something “better.” So, that’s really the point I think to me.
If you’re creative, if you’re open to these ideas, so like you say: If you’ve got these creative outlets, if you’re able to draw on information from completely unrelated fields like genetics and you’re using genetics in the way that you construct your trading system.
These sorts of things, means that you’re using something that’s true to what you believe and what you know. It’s much more likely, you’ll trade that for a long time and do well with that for a long time than, if you’re so dogmatic in trying to approach trading as you would, Accounting 101 at University and trying to get a good mark in your Accounting course. To me, I guess that’s the take home message about this Darren. What are your final thoughts?
Darren: Yeah. Final thoughts really: just be open minded and don’t buy into rules too easily. Question them all and think about the market. Step back and think about the market in much simpler terms.
Like you always say “Think about what a child would do.” If you ask the child that this is a game and you need to buy and sell sweets, to make more sweets. Think how they would think about and don’t let your thinking get bogged down with rules which often are just other people’s opinions.
Walter: Yeah. Well said. Thanks for your time Darren. We’ll see you next time. Thanks.
Darren: Ok Walter. Sure, I’m on it.