Sunday, March 01, 2020

Trend following and Epictetus

The stoic philosopher Epictetus once said that “We have two ears and one mouth so that we can listen twice as much as we speak.”

In the world of trading however, plenty of participants seem to think they have two mouths and one ear. They aren't interested in listening; they are simply wanting to speak - often over the market itself.

Ask yourself the following:
  1. Do you observe and accept what the market is showing you (which direction is price moving?), and act upon what you see; or
  2. Are you ignoring what price is telling you and are simply champing at the bit to force your opinions on the market?
As a trend follower it is true to say that, while you will have beliefs about how you can make money, any beliefs about what will happen in terms of future price movements and timing should be kept out of your trading decisions. After all, trend following is reactive, not predictive.

So, all we can do is observe what is happening, put our positions on, control our risk, and let the trades play themselves out.

Or, as Epictetus put it: "Make the best use of what is in your power, and take the rest as it happens."

Therefore, to get back to the eyes and ears analogy, if people stopped trying to impose themselves on the markets, and saw price action for what it is, I believe they would be more profitable.

Or, put even more simply, follow price and its trends, and trade accordingly.

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