Episode 265: Murphy’s Law of Trading

by robbooker on June 23, 2014

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In Episode 265 of The Traders Podcast, your host Rob Booker talks about some universal principles pertaining to Murphy’s Law and trading. To discuss this topic, Rob begins by reacting to a New York Times article about the discouraging state of Iraq and its military, now that three years have passed since the U.S. departure.

This leads Rob to talk about a poor trading decision he once made, even though he knew he shouldn’t go forward with said decision. And Rob discusses how we will often make poor choices even though we see the resultant bad moon rising. So, Rob brings it home by giving some suggestions of how traders can combat the tendency to do things that are against their own best interest. Don’t miss it! Thanks for listening.

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{ 1 comment… read it below or add one }

Brian F. June 24, 2014 at 12:42 pm

Mr. Murphy isn’t as unpredictable as people suggest. If you open the door to your trading room for him by going where you shouldn’t go, the results should be expected.

Question: “What’s overriding our sense of good judgment, when given any kind of objective opinion about the situation, it would be obvious we made a mistake?”

Answer: Oh, that’s an easy one Rob, basic, inescapable human nature and position sizing. There’s a reason why you don’t get sweaty palms when checking your lottery tickets, the money’s not important to you. Everybody has an amount of money between their ears that’s “real money.” If you trade beyond that amount, you are asking for trouble.

Unfortunately, your question assumes you should have good judgment in situations where you can expect to have no objectivity. Rob, we’re back to our discussion about Discipline vs. Restraint. Traders don’t fail because they don’t formulate good rules of discipline and try to follow them. Traders fail because they take those shiny new rules off roading and reduce their trading process to a smoking ruin. You are a primate. There are thousands of situations where your judgment is impaired. Only in trading do we continue to ignore the obvious and put ourselves in those situations WHERE THERE IS NO DICIPLINE, WHERE THERE IS NO OBJECTIVITY, and come up with repeated excuses for what should be expected. It’s not Mr. Murphy, it’s you. This is what primates do. All of us.

If I could offer a word of advice to new traders, find out what amounts of money make your brain go haywire, and trade below those amounts. If you are like everybody else, those amounts will go up as your account compounds. Unfortunately, everybody else wants to be Larry Livingston and pretend the money’s not important, until they revert to type and blow out. Millions of people have tried and failed. If Jesse Livermore couldn’t do it, you can’t do it. Get rich slow and stay between the lanes where your discipline works.

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