Posts filed under “Apprenticed Investor”

Trade Like a Scientist

Doc Steenbarger has a terrific 3 part series on trading like a scientist. All three posts are short and easily digestable, but here’s what stood out to me:

• Observation and deduction are the key to developing a trading strategy;

• Understand what is meaningful and what is random.

• Scientists have humility; They know their best theories are only approximations of reality.

• Knowledge, for a true scientist, is always provisional;  Ongoing empirical tests generate further additional observations and revisions.

• Scientists remain open to data that may invalidate their hypothesis.

• Scientists focus on the process and not the outcome. A single winning or losing trade does not prove a strategy works — but it does provide some additional data.

• The aim of Science is to understand through observable phenomna, what is going on in reality. This, Scientific traders do not "Trade Without Understanding;"

• Since all scientists understand probabilities, they never Oversize positions;

• Recognizing errors is key to an objective mind. Thus, why Traders should be prepared to admit error: never average down, and always use stop losses. 

Good stuff, Doc. Thanks!

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Source:
Trade Like a Scientist – Part One: The Scientific Mindset
Brett Steenbarger
TraderFeed, June 15, 2007
http://traderfeed.blogspot.com/2007/06/trade-like-scientist-part-one.html

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