Analogies Between Chess and Trading, 11/28/06Or, Ode to GM Nigel Davies
Some analogies between chess and trading:
Here is a great example of this, a day (today) that showed three distinct trading 'lines':
- The various patterns we iterate through are the same as the multiple lines a GM explores in a chess game
- The way we weight the probabilities of the various patterns is the same as a GM would weight multiple lines in a chess game
- Simplifying multiple trading positions (e.g. 2 multiday and 2 intraday down to 1 multiday), is similar to how a GM might simplify a chess position down to an endgame (e.g. two rooks vs king and bishop)
- Alternatively, rolling multiple patterns into a single compound pattern is the same as a GM simplifying a chess position down to an endgame
- Finally, making a trade and playing a chess move are both the result of extended calculation into risks and probabilites
All of these trading lines play out w/ different probabilities and risks over multiple time frames. From chess back to trading, the problem becomes how to simplify these lines into a trading plan.
- Down x% yesterday
- The first big move in n days
- Down x% towards the end of the month
Viewed through the analogies of chess, every day becomes a game. As traders and system designers we know the opening book, we can guess at the likely transposes and we prepare for novelties and adversity realizing that finding the right move 'over-the-board' is extremely difficult in both chess and trading.