Monday, June 26, 2006

numerical models of emotional states (part 2)

The character traits of bossiness, stubborness and persistence have the common goal of aligning reality with consciousness. Persistence has the highest success ratio of the three, and is also the most pleasant in everyday interactions. Persistence approaches the situation freshly on every iteration, while stubbornness or bossiness increase with in direct proportion to resistance.

In real life, you want to avoid stubborn or bossy people, but traders in financial markets seek them out and exploit them. Stubborn market participants should be faded over the next two hours, and bossy market participants should be front-run over the next day and then faded two days after that. There are ways to take advantage of persistent market participants, but it is rather more difficult, emotionally less satisfying, and ethically more dubious.

The Greeks tell us that success leads to pride, and pride leads to failure. Consequently, many persistent market participants ultimately succumb to bossiness and stubborness after decades of patient capital accumulation: it is easier to take their money towards the end of their life-cycle rather than at the beginning.


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