May 20, 2024
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Read time:
7 minutes
You may have heard the claim that successful trading should be simple and you shouldn’t overcomplicate things.
On face value, this is true.
But it’s also incredibly misleading and is the cause of failure for many beginners. Let me explain…
A woman walks into a Parisian café and notices a man sitting at a table scribbling onto his napkin. As the waiter brings over his coffee, he chucks the napkin to the side. At that moment, the woman realises she’s been watching Pablo Picasso. She’s awe-struck.
After debating with herself for a moment, she builds up the confidence to go and speak to him.
“Monsieur Picasso”, she says, “I love your work. Could I possibly have that little drawing you’ve done on the napkin?”
Picasso looks up at her excited face and replies, “Yes, of course Madame. That will be 10,000 francs”
Her face transforms into outrage, “10,000 francs? But it only took you 30 seconds to draw it!”
“No, my dear” he replies. “It’s taken me forty years.”
Whether or not that story is true (I doubt it), it has an important meaning. Particularly for someone learning to trade. A master of their craft can often make things look quick and simple. An amateur might think it must be easy to replicate, and set out to do that. That would imply the path to trading success looks like this
This is where most beginners go wrong. They’re doing the equivalent of looking at Picasso’s simple sketch and thinking that’s what they need to achieve to be a legendary artist. But if we look at The Bull, a famous art piece by Picasso, we see a different process:
This is also reflected in the progression of Picasso’s style over the years:
So, what’s this got to do with trading? It gives us an insight into the route to mastery. Instead of being linear, it looks more like this:
As you learn, you progress upwards along the curve. You take on new concepts, techniques, and knowledge, which increases the complexity of what you’re doing. At the beginning, you might only pay attention to a few simple things. But as you progress, you have many different things to mentally process at the same time. It feels complex and difficult.
At some point, you’ll reach the top of the curve where you experience peak complexity. At this point, you may be able to achieve positive results, but it takes a lot of work and feels complicated. Most people give up long before they reach that point, but those who do reach it will usually stop developing once they get there. They feel like they know everything they need to and will turn their attention to using the skill rather than developing it further.
When people reach this point, we can say that they are ‘satisficed’. (That’s a funny term you may have encountered if you’ve ever studied economics. It’s a portmanteau of ‘satisfy’ and ‘suffice’, and can be loosely translated to mean “good enough”). In other words, most people stop when they feel they’ve reached a level that’s good enough. They don’t strive to go further.
But going beyond “good enough” is where all the great things happen. It’s how you can experience a flow state. It’s how you build expertise and achieve mastery. It’s how you become a high-performer.
If we think about the journey up the curve, this is defined by adding things to what we know or do; we’re increasing the level of complexity. But the journey down the curve is all about subtracting; we’re achieving what Leidy Klotz describes in his book Subtract as ‘Post-Satisficed Less’.
However, this takes a huge amount of effort. It’s like the famous quote by Blaise Pascal:
“If I had more time, I would have written a shorter letter.”
When I trade, I mostly keep things very simple. It may appear to be very basic on face value. But, the simplicity hides a great deal of complexity. It’s only by understanding and knowing all the complexities that you know what’s needed and what can be removed in a particular situation
The approach might look simple, but the thought process that leads to that point relies on years of development and understanding. It’s just like Picasso’s bull; it’s by knowing all the intricate details that he can boil something down to its essence in just a few elegant pencil strokes.
In fact, this also relates to what we discover by looking at brain research. This was shown in a study on people learning to play Tetris. When they first started, large parts of the brain lit up; displaying the learning process that was taking place. This is when their brain exerted the most energy and everything felt effortful.
Once they mastered the actions they needed to take, their movements became habitual and brain activity in the cortex died down. The brain drew less glucose and oxygen and their reactions increased rapidly. They were essentially moving from conscious incompetence to conscious competence, and finally to unconscious competence.
This is what happens when you’re trading. As you add more complexity, everything feels effortful and you have to think through everything you’re doing. When you achieve post-satisficed mastery, your brain can automatically focus on what’s important and lead you to a simple output.
But when a beginner tries to directly imitate the simplicity, they fail miserably. They’re misled by the simple output, and don’t have the knowledge, skills, or understanding to process the complexity that’s led to it. They’re seeing the swan gliding gracefully over the water, but missing all the kicking happening underneath.
So although it may be your end goal to gracefully trade the markets with sophisticated simplicity, the journey to that point is not linear. To achieve simplicity, you need to begin with complexity, and only then can you put effort into post-satisficed less.
So what does all this mean specifically for your trading? There are two main points.
The first is that you should steer well clear of focusing on trading methods that offer complete simplicity from beginner to expert. Things where you just have to memorise some rules, strategies or patterns, rather than deeply understanding the logic behind what you’re doing.
For example, there’s been a recent resurgence in mechanical rules trading, where you completely remove the aspect of discretion or market knowledge. Likewise, there are other methods where you just have to memorise and identify where to place a level or a zone, without understanding why it’s there and what the rest of the market activity is revealing.
It might be that your trading eventually reaches a point where you can rely on some simple rules, but for that to succeed it’s likely to be due to your brain processing information like a complex algorithm first. Instead, while you’re developing you should focus on learning as much as you can about the markets themselves. You should understand how the markets operate, why prices do or don’t move, and the logical basis behind everything you’re doing. Explore different methods and learn new things, but make sure you’re focusing on the logic of the aspects you learn so you can determine whether they’re meaningful or not.
Of course, everyone gets tempted by simple secret rules that lead to profits. But the truth is, successful trading comes from logic and critical thinking, not rote memory.
The second point is about what you choose to compare your progress to. It’s inevitable that if your journey involves increasing complexity before you start simplifying, you’re going to reach a point where your trading feels a lot more complicated and messy than someone who’s genuinely succeeding at a later point in their journey. You shouldn’t take this as a sign you’re on the wrong track, it simply means you haven’t progressed to that stage yet, but you’ll get there eventually - provided you’re learning the right things in the right way.
Let me make this clear, I’m not saying you have to over-complicate things to succeed at trading. We’ve all seen charts that look like an absolute mess with indicators and lines all over the place - I’m not encouraging you to do that. We don’t want to add complexity for the sake of it. I’m saying, before you can achieve meaningful simplicity, you need to understand the complexity first to know what's necessary and what can be removed in a specific situation... Just like any other skill.
To be blunt, the people who promote keeping trading simple forever are either:
- Giving advice based on survivorship bias because it luckily worked out for them.
- Not realising that the complexity they experienced while learning gave them the implicit knowledge to be able to achieve their current simplicity.
- Can’t be bothered to learn about the markets deeply themselves, so they argue that it’s not necessary to everyone else, simply to excuse their own laziness… Just sayin’!
