Nabeel Siddiqi

One of the most common results of studies on people who are successful is that they have a penchant for deferred gratification. Deferred gratification is the ability of a person to trade current pain for future pleasure. If you are willing to study now for a test later or to spend your free time learning a new skill instead of partying you practice deferred gratification.

Research studies show that the most successful people are those who are able to deffer the gratification from their hard work for the longest time. Which makes sense, if you can work with the same zeal, day-after-day with no signs of progress, no reward, yet believe it will yield a reward further down the line, there is a good chance that the number of competitors you have will be few. Because if it was easy and rewarding, everyone would be doing it. If its hard, yet rewarding, far fewer people will attempt it and even less will push all the way to get the reward.

Keeping deferred gratification in mind and its high correlation with success in life. Let’s take an evolutionary perspective. When looking for a mate a male will look for child-bearing traits in a female and a female will look for provider characteristics. This is a simplified, evolutionary perspective but even with this base we can see that when it comes to deferred gratification we can see that after marriage a female does not get instant gratification, whereas the male does.

Over time the female’s child-bearing traits lessen and normally, the males provider characteristics become stronger (with experience a man will earn more and have lower testosterone levels which will result in him being less likely to run off with a younger better looking girl, etc.). This means that females come to expect deferred gratification in life and it can even be argued that evolution has naturally selected females which have a stronger tendency for deferring gratification because it will help the chances of the survival of their offspring.

Essentially, this means that women should be better able to deffer gratification than men. The evidence of this is visible in the fact that girls normally out-score boys on average in school, more women graduate with college degrees than men, a girl who enters college is more likely to finish than a guy, etc.

The implication for men is that in the cave-man era the strongest, most aggressive man was the alpha male who got the women and the resources. In modern society if you are a man with too much testosterone you are no longer the alpha male with the resources, rather it is the man with some feminine characteristics who will have the best chances of success. So, drink some alcohol and eat soy beans to increase your estrogen levels and achieve success.

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The Efficient Market Hypothesis (EMH) is the idea that markets are informationally efficient and that all the news, data, etc is priced into the market price at anytime, hence it is impossible to make money in the market.

In finance the EMH is taught as if it is written in stone. Fortunately, I started trading before taking any finance classes, so I was skeptical of the theory. Ask any trader, the markets are far from anything resembling “efficient” and you know what? You CAN make a lot of money if you just put your mind to it, have some patience, and have the right guidance.

I have been using automated trading systems for trading the foreign currency markets since 2003. And I have been profitable.

So, what did I do?

Technical analysis. Technical analysis may sound like its complicated, but it really isn’t. There are essentially two different types of trading: fundamental and technical. Fundamental traders watch the news, read about companies (or countries in the case of forex), and make a decision based on what they feel will happen in the market. This is what Warren Buffett does and for most part and this is highly subjective and requires a lifetime of experience to do well. Technical traders on the other hand only look at the price of what is being traded (in trader lingo it is called a “security” which could be a stock, currency, commodity, or anything else).

In technical trading we don’t care what is being traded or what is happening in the news, because it doesn’t matter. If the price is going up, buy, else if it’s going down, sell. To make life easier technical traders use tools called technical indicators which help make the price movements easier to understand and predict.

Since technical trading is objective, a strategy can be tested to see if it works before you put your hard earned money at risk. For example, let’s say we think that when Microsoft (MSFT) will gain $20 once it crosses its previous 25 day high. In other words, if MSFT rises above the highest point that it reached over the previous 25 days it will rise for about $20. This means that we can construct a trading system and test it for all the historical data of MSFT and be quite sure that it will make money in the future. Once we are satisfied we can put our money to work and it will raise the chances that we will profitable in the future.

In trading, even if you are right 5% of the time you can still make money by letting you profits run and cutting your losses short. That is good trade management, but that is for another day.

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