Imagine you are thrown into a jungle and have to survive for 30 days.
You have a guide book that describes the native plants, telling you which ones are poisonous, and which ones are edible or have medicinal properties.
After a few hours however, you realize you can’t find any of the plants described in the book, around you.
You’re thirsty, lost, and it looks like a rainstorm is coming. What do you do?
Caught in a bad place
Most people who get into trading find themselves in a similar situation.
They read a book on “how to trade” with chart patterns (or technical indicators or whatever), but when it comes to actual trading they find that their experience is vastly different from what they’ve read.
Understandably, they then try to force their real-life market observations to fit the theories they’ve read about.
This approach, unfortunately, tends to lead to poor results.
The map is not the territory
At the core of this problem is the term, the map is not the territory.
It’s a warning that says, “Don’t confuse a description of something, for the thing itself”.
The idea is that abstract knowledge should not be mistaken for practical understanding.
You see, just like how learning all the words in the dictionary doesn’t make you an expert communicator, memorizing a book on plants doesn’t make you competent at jungle survival. There are many subtle differences between the concepts you learn in theory, and practical application.
Like jungle survival, trading is not a skill that can be learned conceptually. One needs to actually get out there and practice.
And with time, one eventually comes to learn that principles are more important than precision.
Principles over Precision
In complex domains, following the right principles will get you far better results than following a precise plan.
This is because the outcome of complexity cannot be reliably forecasted. There are simply too many different ways for the situation to develop.
What becomes crucial then, is not how great our plans are – since something always goes wrong – but how well we can adapt to the ever-evolving situation.
And this is where principles come in.
Principles under uncertainty
When the path forward isn’t clear, principles help guide our actions.
Faced with a decision, we choose the option that is most aligned with the principles we follow.
For example, one of my principles is to trade small.
This means that every trading decision I make is aligned with this attitude. Any time I don’t think or feel I’m trading small, I pull back immediately. This way, I stay in line with the principles I’ve learned over the years.
This does not mean that plans are useless, of course. On the contrary! We must never trade without a plan.
Sooner or later though, all plans break down.
And when that happens, it’s our principles that determines how we perform.