That Pesky Ambiguity

I admit ambiguity makes me uncomfortable. I prefer sure things, and speculative trading sure isn’t one of them. I recognize the ambiguity of the market instinctively—but even my logical mind sees its inevitability. I buy a contract, thinking it will go up in price. Who sold me that contract? Someone who, looking at the same chart, thought it would go down, or at very least that it was no longer worth tying up his capital. If I’m “in tune” with the market—which I spend a lot of time trying to be—some part of me will be sensitive to that seller’s conclusions, always inconsistent with my own.

This is not just an academic question: if I lose, I lose real money. Speculation is dangerous, it can be painful. How do I deal with danger, with pain? By adding layer upon layer of “confirmation”? By grabbing a quick profit “before I get caught”? By a do-and-die “Charge of the Light Brigade”? Hoping for a miracle? These are very expensive ways to pretend that ambiguity can be ignored or eliminated.

After I enter a position, I quickly sense the thousands of participants who are seeing things opposite to me. And there’s also the matter of time frame, especially the shorter time frame, which triggers a sense of ambiguity (that is, “doubt”). I buy the Euro at 1.3265 looking for a 20 pip move to 1.3285 on the 5-min chart. It moves in my favor to 1.3282, then stalls and pulls back to 1.3275. On the 1-min chart, this may have been a great set-up for a 3 pip scalp short. I’m not trading on the 1-min chart and this is not my trade, but I’ll sense it as a reversal. In fact, it is a reversal—but only for the 1-min scalp trader. These smaller time frame moves make the ambiguity of the market impossible to ignore, especially if I’m zoomed in.

So, can I learn to love the ambiguity of the market as much as Sarah Silverman loves Babybel cheese? As a market speculator, I’m at least grateful for it. Ambiguity is an inherent feature of the speculative markets; thus, without it I couldn’t be trading. Beyond that, and more to the point of this workshop, since aversion to the market’s ambiguity leads traders to try to create an illusion of certainty, which in turn distorts their good judgement, embracing ambiguity (though not quite in the Sarah Silverman sense) gives a big advantage. The fact that embracing ambiguity is really hard to learn is actually a source of comfort: while other traders are ever chasing the next holy grail, the trader who has learned to embrace ambiguity will continue to have what Warren Buffett calls a “barrier to entry”—and in plain sight. I could learn to love that.