Sunday, January 10, 2010

Neanderthals and traders

The other night PBS aired “The Human Spark.” (An online video is available.) A main theme was why the Neanderthals died out. Altogether the Neanderthals lasted some 200,000 years, migrating from Africa to Europe; after about a 40,000-year stay in Europe, they were no more.

Researchers suggest that one problem with the Neanderthals was that they exhibited a remarkable tenacity; they didn’t change. Put less strongly, they were flexible but not innovative. They picked from the same tool kit over and over again.

It’s important to note that they survived for a long time stuck firmly in their, by today’s standards, unhealthful Neanderthal rut—for instance, eating only meat and avoiding everything with roots in the ground as well as readily available fish. But eventually they disappeared from the face of the earth.

I bring up the Neanderthals because of parallels to traders who follow a common piece of advice. To wit, stick to your trading plan but be flexible. It’s not important here to comment on the difficulty of being both dogged and flexible. Presumably the Neanderthals managed, so I guess we can too. The problem is that very few people can win in the long run if they remain squarely within the confines of a routine.

Traders should set aside a little time, at least once a week, to think about the markets from a different perspective. To investigate a different trading vehicle. Or to rethink risk management. There are many possibilities. The trader need not shift his strategy, assuming it’s working. But he should be aware of ways in which even a winning strategy can be enhanced and should be prepared for the time that his strategy starts to be battered.

Who wants to be compared to a Neanderthal? Worse, who wants to share their fate?

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