Are there limits to logic? If markets behaved logically the underlying logic would eventually be discovered, traders would make excess profits, and the markets would breakdown and cease to exist. In general, new traders believe that rational and logical ideas should make profits when applied to markets. But more experienced traders rely less on logic and the rational. Experienced traders accept chance and probability as the primary determinants of trading models. Armed with this knowledge they understand the odds of the game and use a disciplined money management system to minimize risk and maximize profits.
Probability and chance not only drive our trading models, they also occur spontaneously whenever we set out to find or discover something. Louis Pasteur once stated that, “chance only favours invention for minds which are prepared for discoveries by patient study and persevering efforts.” In regards to trading this means that traders need to study the markets as much as possible, be persevering, and eventually a useful trading idea may occur. It takes a long time and it is not easy.
Creativity involves a mix of conscious and unconscious thoughts and processes. Conscious reasoning is logical and rational. The unconscious is not logical. The unconscious puts limits on logic. In order to succeed we must immerse ourselves in the ideas, thoughts, and research and then step back and allow the unconscious to process all the information. Sometimes the more we seek something the more it eludes us. Seek not, and you shall find, may be more useful in the creative process. This is one way to build successful trading systems and models.