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Stack Fallacy Applies to Traders as well

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Venture capitalist Anshu Sharma describes the term Stack fallacy as the mistaken belief that it is trivial to build the layer above yours. He describes this in the context of very successful companies such as Google who own our email graph and our search interests, yet struggled to build a social network on top of this knowledge.

I would like to apply a similar line of thinking to the trading world.

The stack fallacy comes from human’s natural inclination to over estimate what we know. We think because we have developed computer skills as a software engineer we will be able to translate this into programming a profitable EA / trading system. We think because we have a graduate degree in statistics we will have an easy time becoming a successful options trader. We think because we follow a strict exercise regime, we will be able to stick to our trading system.

While there is often a strong correlation to the strengths I describe above and trading success; the stack fallacy manifests itself in how we over estimate our ability in a certain field and naturally assume that it will be easy to build on this knowledge. The message I want to leave you with is simply – don’t assume!



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