Dennis shared a nice video interview of Bruce Lee. The legendary kung fu master is well known for his philosophical approach to fighting. He invented Jeet Kune Do, which emphasises on developing your own style of fighting that suits you, and not trying to stick to one school of kung fu.
Don’t get set into one form, adapt it and build your own, and let it grow, be like water. Empty your mind, be formless, shapeless — like water. Now you put water in a cup, it becomes the cup; You put water into a bottle it becomes the bottle; You put it in a teapot it becomes the teapot. Now water can flow or it can crash. Be water, my friend.
I see similarity when we approach the market. There are many schools out there – value investing, growth investing, trend following, countertrend trading, system trading, algorithm trading, and many more. Is there one best method out there to approach the market? Gurus will tell you there is no holy grail. Each method will have its pros and cons, and it will perform differently depending on the market situation. But a newbie has to start somewhere. It is through learning to apply a few methods that I started to gain experience about the market. The process helped me to feel the ups and downs of prices and my capital, and to understand my reaction towards the fluctuations.
In Curtis Faith’s book, “Trading from the Gut”, he talked about left brain and right brain trading. Left brain is logical, scientific and systematic. Right brain is creative, sensual and flexible. A newbie would have very little knowledge about the markets. To get him started, it is advisable to follow a set of rules when trading or investing. The rules will help him identify buy and sell points. A buy rule can be a shorter moving average cutting above a longer moving average, or when PE ratio is less than 10, or a combination of rules. He will be using his left brain in this case and in fact, it is actually training the right brain by countering all the fear and greed in it. Overtime, his right brain will be stronger and achieve a greater understanding towards the market as well as understanding himself.
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As I mentioned, no one method can work well in all market conditions. When the trader or investor outgrows his system, he needs to use his right brain and left brain to design another set of system that work in a condition in which his previous method fails in. He may design or re-design many systems until one day he make investment decisions without a fixed set of rules. This is where he becomes like water – he flows with the market, feel the pulses of price movements, making decisions easily and no fear in executing the orders.
Absorb what is useful; Disregard that which is useless
Go ahead and learn about more methods. But only in the effort to train yourself to be ‘water’.