Trading Update: The Knowledge Trap

As I continue to work with my trading system and observe how it performs – both on the sim and live accounts, my thoughts begin to wander as to why it’s taken me so long to arrive at this trading system solution. I don’t believe it’s super complex, although I have to keep in mind that even complex things can feel more simplified when you are working with expanded knowledge about that topic. It can be compared to math or science courses in school. The first level of calculus can seem difficult to comprehend at first, but at the end of the term, the concepts taught can feel pretty clear and straight forward compared to starting the class teaching the next level of calculus.

As I thought about it longer, I came to the realization that the bulk of my progress happened over time as I applied observational insights to my system over what I had learned in technical analysis books. It dawned on me that all the information I had picked up on how to apply technical analysis to market data had become a main hindrance and block to my trading system progression. It’s like the saying goes, “To the man who only has a hammer, everything starts looking like nails.”

While TA books gave me a sizable set of new analysis tools, it also directed my mind into thinking along certain paths that fit in with those tools. This turned out to be both a good and bad thing. One has to start somewhere, and just watching market prices bounce around with no guidelines at all isn’t going to magically turn into a trading solution. On the other hand, the danger is letting that framework of knowledge you start from constrain your mind from branching out to other solutions- basically trapping you in the “box” you have unknowingly created.

The term “sophomore” is used to describe second year students in school. The literal Greek translation of that word is “wise fool”, and it’s an apt one. It describes the state of the student as having learned enough to move past the freshman stage, but now has the potential problem of believing they know more than they really do. This is the knowledge trap – thinking we have enough information when we really don’t. When caught in this trap, our minds are limited to only what we know, and this leads to consciously and subconsciously making decisions that dismiss alternative paths to solutions that should be explored.

We can feel confident enough to attempt to answer questions when we should be looking for more information and confirmation. This happens all the time in all areas of life and business. Think of all the stories of how doctors can miss correctly diagnosing a patient even though all the tell tale signs were staring them in the face. Most businesses miss the jump to the next level to a competitor despite their head start advantage.  A current classic example of this is Apples “iPhone” series, which allowed a non phone company to dominate a well established cell phone industry both in hardware and software operation.  Another example is Blackberry, formerly the undisputed dominant leader in business smartphone sales, but got crushed by the iPhone to the point where some question Blackberry’s survival going forward.

All the TA books I’ve read were a two edged sword. They allowed me to start the process of analyzing chart data but they were also unconsciously chaining me to certain solutions paths as well. The fact that the majority of folks using TA still have trouble trading/investing should have served as a warning to remain open minded.

I read articles on trading about having to “free your mind” to master trading, but most of them present it in a way that suggests you just need to be calm and relaxed – which I believe is a false lead. What they should be focusing on is opening one’s mind to accept new solutions and realize that what is written is only a piece of the puzzle with other pieces needing to be discovered.

In my case, I would eventually get stuck at a level and keep running into walls. Perseverance kept me at it despite the lack of progress. During this time my subconscious mind was processing the market data I saw day after day and I would start seeing natural patterns form, so eventually I started creating new analysis methods to capture these patterns and they would wind up being more reliable than the TA book listed ones. However, my mindset was still primarily locked in “book TA” mode so I spent much time trying to marry my natural solutions to the ones I read about.  This put me in a repeating loop of progress and failure as I just couldn’t lock down the consistency I was looking for.

Over time, a LONG time, and a ton of hours working through and rehashing my actions looking for insights for improvements, the book TA methods starting fading one by one and the natural ones started being the driving force. Although I feel very fortunate that I was able to arrive at effective solutions in the realm of the high probability of failure traders face, had I listened to what my mind was telling me and not dismissed it with my “sophomoric” trading knowledge, I believe I likely could have arrived at this solution much faster.

Our minds are really super computers – if we feed it information and give it good observational data, there’s no limit to what solutions can be processed as long as we remove our “knowledge bias” – this is the true Zen of trading and solution solving in general. We just have to be open to listen to what our mind is saying without the problem of automatically rejecting based on “prior knowledge”.


If I could ask a million questions…

That would leave me wanting more

That’s why I let you do the talking

Maybe that’s what talking’s for

I do my best to learn to listen

Since you have so much to say

If I connect with your position

I will learn so much that way


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