The Emotions of Math - Part I

As trading becomes increasingly more statistical in nature one must acknowledge the birth of another question, what is the inherent nature of statistics? I am rapidly approaching an interesting conclusion…emotions.

The general belief that systematic, analytic models are less emotional than discretionary trading is fundamentally flawed. Statistics, in any discipline, are a 2nd mover, the 1st being the cumulative human actions that stats must, per se, be based upon. So then stats, probabilities, and the like, simply quantify the most ubiquitous element of human nature, emotions.

This suggests that equations, assessments, and even math itself is deeply rooted in emotions, for without such they cannot noticeably exist.

The math market, or stock market as many prefer to call it, is the finest example of mathematical emotions. Black boxes simply do a better job, at times, recognizing the patterns of past emotions without compounding trading decisions with the convolution of real-time emotions. The vacuum of code then is advantageous because it minimizes the indecision or delay one’s nervous system causes, even for the most robotic of traders.

An intentional embracing of emotions, for the trader, may result in more profitable trading than ignoring the same. The irony is while traders seek to be more “robotic” robots seek to become more human.

The stock market has no abstractions or haphazard components, only actions and re-actions that are perceived as such to the mechanically bent trader. Categorizing the discipline of one’s emotions as "trading psychology" does violence to market context. Traders wrongly buy into the assumption that stats, charts, spreadsheets, and the like, exist with a higher level of intellect, when in actuality they are simply a cleaner composite of dirty emotions.

Traders seeking net improvement in an increasingly systematic market have no choice but to re-evaluate the concept of emotions. What exactly are emotions? Can any strategy truly eliminate them? Elimination is a natural impossibility. Just as one cannot swim in a waterless ocean, one cannot trade a strategy not influenced by emotions. The deception that one can trade this way is ego-candy, and makes the trader feel superior. A quality that takes a lot of emotion to even notice.

For the student of language (connotation vs. denotation) the phrase "emotional mathematics" does not necessarily ring oxymoronic bells. Admittedly, it does take effort to move past the sudden intellectual shock the phrase causes.

In the end, all market participants enjoy a good ride on that pretty Ferris wheel called deception. It’s fun! Our computers are computing other computers; codes are written to recognize other codes, and consequently the support you noticed on your chart is now more a function of others noticing the same rather than actual support. We’ve convinced ourselves that the only way to win is to hire a programmer to program a static box of pure, unemotional market intelligence, not realizing there is no such thing.