The hardest words to say

We live in a world where most of our basic needs are fulfilled; most of us have food and water, we have a sense of safety and security, a sense of community and belonging, and, most of us most of the time, can work on that oft-elusive “pursuit of happiness.” One critical psychological need is the need for security–to know what will happen in the future and how things will work out. Financial markets are challenging on many levels, especially because so much is unknown and unknowable, but so many traders are unable to face this reality. It’s so hard to say “we don’t know”.

That drive to know the unknowable has caused a lot of strange human behavior over the course of history: oracles, astrology, and many other superstitions probably trace their origins back to people trying desperately to stretch the too-small blanket of knowledge to cover all the scary unknowns. This is not just ancient history–traders and analysts who talk about financial markets do the same thing today.

The reality is that the market is a messy and noisy place, and is often very random. Things happen for unknown and unknowable reasons and the future is almost (but not quite) completely unpredictable. Even though most people know this, most people would rather have a sense of precision, even if they know it’s a lie.

Which message would you rather hear? “Market ABC is at the 161.803% Fibonacci extension of the 1/16/13 – 5/14/14 swing, which is in confluence with levels on daily and hourly timeframes and weekly pivots. COT data and other sentiment point to an end of the trend and my XT indicator is reaching a -7 count. Also, some moving averages crossed and stuff. The timing of this move aligns with several astrocycles and is a coincides with the beginning of the Ybruysh year, which was a year of renewal for the Phahooba people who populated the…” or “Market ABC is showing some signs of possible reversal. We need to wait for the market to show us more, but maybe something is happening here.”

The first example is junk, but it’s junk food people love. The second is truth, but it’s hard and bitter truth. The reality is we often know very little, but admitting this is scary. Most people can’t do it, because it forces us to confront our need for security. An industry has evolved, certification courses have been developed, and a community of hopefuls blindly accepts the lies of false prophets. Everyone who speaks on markets does so with a sense of authority and confidence (that’s how you get people to listen), and you never hear people say “we just don’t know.” That’s so often the truth, but no one ever says “we don’t know.”

Why does this matter? Well, I think the more we understand what drives us, the better equipped we are to avoid some common mistakes. Knowing that we have a weak spot for precision and that we are liable to make a ton of other cognitive errors  does not make us immune to the errors, but it does warn us to be careful, and maybe to try very hard to be better.

The best we can know, in any market at any time, is that there is a slightly greater chance of one thing happening than another. There are no reliable, precise predictions. There is very little security, and there is only the “certainty” of the law of large numbers and of a statistical edge working over a large sample size.

“We don’t know.” Those might be the hardest words of all for traders to say, but give it at try sometime! Saying those words might just be the first steps to accepting the reality of the markets, and to a long and profitable career trading those markets.


Adam Grimes has over two decades of experience in the industry as a trader, analyst and system developer. The author of a best-selling trading book, he has traded for his own account, for a top prop firm, and spent several years at the New York Mercantile Exchange. He focuses on the intersection of quantitative analysis and discretionary trading, and has a talent for teaching and helping traders find their own way in the market.

This Post Has 8 Comments

  1. Daniel Martin

    Nice Post! I actually like the “I don’t know”. This is what I believe is part of the beauty of the game. Nobody knows. Not even the Fed, the Gurus, the Gnomes of Zurich and the uber-economists do know (the latter being maybe the last to know). Even after a good run of trades, we can assume before the next trade that we don’t know. But we can prepare! Take care. Daniel

    1. Adam Grimes

      🙂 Thank you for your comment. Good points.

  2. John Grover

    One thing I know: If I start feeling good about all the green on the screen, time to take profits. Probability 80% 😉

    1. Adam Grimes

      Yeah, there’s some truth to that… and it works for many reasons!

    2. MATrader

      I have one more to add here. The moment I feel extreme need to go long, I go short (and vice versa). Probability now nearly the same, however with getting better in listening to my intuition and getting to know myself better the urgency keeps on dissipating.

  3. zaqimon .

    Many people DO know humans were created by some supernatural power, and people advocating these kind of ideas are often considered to have higher esteem and are unquestionable.

  4. Ernie

    I thought the hardest words were “I’m wrong” and getting out?

    1. Adam Grimes

      I hope not… if those words are hard, you won’t be a trader for very long. Admitting you are wrong needs to become second nature… I will talk about that in this week’s podcast, actually.

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