Managers of chaos

The following thoughts came to me in the middle of the night.

The natural human tendency when we see a pattern is to predict/expect what may happen next. This is a powerful ‘unconscious’ urge.

Markets are chaos. We may see patterns in the chaos.  All chaotic systems form patterns. The patterns are meaningless to the chaotic system. Patterns have meaning for us, in that they represent probabilities. But the chaos does not obey patterns. It’s the other way around – patterns are the result of chaos.

In trading we should care less about prediction! We should be more like ‘robots’ simply playing strategies to exploit the chaos of markets. We cannot predict what will happen inside chaos, though we may have certain expectations.

We have learned to manage chaos in washing machines, internal combustion engines, computing devices, rockets and aircraft. We do this by imposing special structures on these things – and use special algorithms or computers that react to manage the chaos. Successful traders become expert managers of chaotic patterns.

In trading we are straining our brains to find a discipline and structure to manage chaotic markets. The vast majority fail at such a god-like task. Success means tremendous rewards. Very very few succeed.