The Offense and Defense of Trading

Trading is hard. This far-flung, never-ending electronic poker game serves up a mental challenge unlike any other. Anything can happen at any time. It looks like a numbers game but it’s really a people game. The data are numbers but the information is in the relationships between, and the implications […]

Develop the Instincts for Trading

“I got them all wrong” exclaimed one private equity portfolio manager. “Ha! Right!” said another Chief Investment Officer when I suggested that the pattern recognition skills embedded in succeeding with the Bloomberg Tradebook Trader Brain Exercise (TBX > GO) resembled private equity decisions.
With almost ten thousand players, this exercise/game illustrates an underlying hunger […]

WHY Play the Bloomberg Tradebook Trader Brain Exercise?

Last Wednesday Bloomberg Tradebook released the Trader Brain Exercise. Developed in collaboration with The ReThink Group, the “game” essentially warms up the parts of the brain involved in pattern recognition and prediction. A leading decision neuroscientist had this to say about it.
The Trader Brain Exercise is the first in what […]

Trading Emotions Echo the Past

A trader I coach predicted this as the best positioning for Brexit : Short the pound, short the S&Ps, long gold and short oil. This is John B. – a guy with 20+ years of very successful experience and a recent history of working on separating instinct from impulse through […]

Solve that Cleveland Sports Curse

UPDATE June 20, 2016: I am SO glad the Cavs won! Thrilled. Elated. Vindicated. Ecstatic. Relieved. Joyous. Shocked… not necessarily in that order. Maybe someday I will get to interview LeBron about the cycle of emotions he experienced and used to create this incredible historic victory!

UPDATE June 17, 2016: This […]

Recover from a Trading Mistake through Writing

A few weeks ago, I attended the annual meeting of The Social and Affective Neuroscience Society (SANS) – a seemingly unlikely place to figure out how to resolve a trading mistake! Those who follow me know I am not only a closet academic but that many of the advanced trading psychology […]

FOMO or Fear of Feeling Bad in the Future

This morning I was talking to a coaching client and we jointly realized that to characterize one of the most powerful trading emotions as FOMO actually misses the most important point. FOMO – or fear of missing out – connotates the fear of missing an event which really isn’t the […]

Should I Stay or Should I Go?

We’ve all asked this question. Should I stay at the party a bit longer? Should I wait and see if the Cleveland Browns might possibly (by some miracle) pull this game out? (NO!)

But I bet it never occurred to you that this is really the central question of trading. It’s […]

Why Advanced Trading Psychology is Your Best Bet

In the Annual Review of Psychology 2015, Lerner of Harvard points out that from 1970 to 1995 there were virtually NO scientific papers on the subject of emotions and judgment and decision making (JDM). From 1995-2000 there were less than 50 a year and then it began to climb. The […]

Why Change Your Thinking about Your Emotions?

John Netto, a very successful trader, is currently finishing his book The Global Macro Edge wherein he takes on what he sees as the myths of Wall St. One of the chapters will be titled “Emotions are your Biggest Ally”. How, when it seems emotions are usually our biggest enemy, […]

Gain Market Intuition with NinjaTrader’s Market Replay

Back in the ‘90s in Chicago when I just beginning to trade my mentor would say: “I’ve seen this movie before.” Mistaking the market for a math problem, I really didn’t get what he meant – until indeed I too felt a click of recognition as I watched price action […]

Which Strategy for Trading Emotions Actually Wins?

Conventional wisdom still dictates that traders “control their emotions.” Yet somewhat conversely, the cutting edge of neuroeconomics research shows that “emotion determines how we perceive our world, organize our memory and make important decisions” (Brosh, 2013).

Ever wonder why you did the exact thing you planned not to? Ever marvel at […]

The Art of War and Monday Morning Sell-Offs

For many traders, me included, waking up to a big sell-off is very exciting. The feeling that there is money to be made reverberates in my gut. In fact, that feeling borders on fear of missing out. Fear of missing a bounce, fear of missing another leg down and sadly, […]

Trading Emotions – the Latest Research

The latest research on preventing the behavioral risks of emotion overload once again turns out to be counter-intuitive. Instead of using your logic to change your feelings, it appears that embracing your emotions may be the fastest route to calming or changing them. “Tapping into more emotions improves […]

Uncertainty – Reprinted from Psych Capital Tips and Tricks

Trading psychology advice permeates the world of traders. Yet, the majority of traders still experience a challenge that goes like this: “Why did I do that?” They have a plan, they swear they will not make that mistake again and BAM! they do precisely the thing they did not want […]

Reading Fiction Might Improve Your Trading

Back in 2007, Cal-Tech ran what is turning out to be a revolutionary study on how the brain predicts price moves. The authors found that predicting other people is the key skill behind correctly predicting price moves. In some circles, this skill is called mentalizing but until recently, skill development […]

“Negative” Feelings May Be A Positive

In a world steeped in the mantra of “remain positive”, what is a trader or portfolio manager to do when frustration mounts? Winning in the game of markets is hard. It really is hard. Sometimes, or maybe even quite a lot of the time, that fact is going to lead […]

Really Simple Ways to Improve Trading Results

In a culture where it seems like hard work will be an edge, many traders mistake the type of work that will indeed create the best results. Trading is not only an intellectual exercise but a physical and emotional one as well. It follows then that an edge or at […]

Nailing Better Trade Exits

Do you realize that almost no matter where you exit a trade, you are going to feel bad? If the trade is a winner, you wonder if you could have gotten more out of it or why you gave back part of what you had. It’s like a winner is […]

Should I Trade in Simulation?

In the course of my 20+ years in the trading world, the question of when or how to use ‘sim’ has come up dozens of times. When I traded full-time, I used to wonder. When I added coaching, I got the question all of the time.
This week a client told […]

The 3 “Eyes” of Trading Using Your Feelings

It’s unfortunately still the conventional wisdom that the best trading occurs from so-called purely rational (read: statistical) and non-emotional analysis. Alas, it’s just not true. In fact, it isn’t even possible for a human being to make a risk-decision devoid of feelings and the most-forward thinking research says it isn’t […]

Empathy and Intuition, Two Key Trading Thinking Styles

Two separate studies interviewing close to 200 successful portfolio managers and traders confirm what Jason Voss and Ravhee Mehta have reported in their books The Intuitive Investor and The Emotionally Intelligent Investor. Being able to read the feelings of other market participants, a form of empathy, and being able to […]

Brain Turns Statistics into Emotion!

In technical terms, the researchers call this projected emotion, “anticipatory affect”. In simple terms, the results of this meta-analysis of the brain’s reaction to probabilities in risk goes like this:

1. A trader or PM takes in information about the expected mean, variance or skewness of a trade.

2. The PM or […]

A Simple Parsing for Emotion in Trading Psychology

As we learn more about the importance of emotional information in trading decisions, it's challenging to switch to looking at feelings and emotions as data. It's doubly hard because there is so much misinformation still floating around! To that end, I was happy to see Psyblog publish

A “Philosophy” of Making Trading Rules

A coaching client in Hong Kong recently wrote this in response to a homework assignment. It is so good, in my opinion, that I want to make it available. Let us know what you think?

FROM: AN

You asked me what would be the smallest number of rules I would need to […]

Unnoticed Contexts & Trading Performance

Earlier this week, one of my clients with the title “Head of Equity Trading” wrote exactly this sentence copied and pasted from his email: “i had another one of those traading days where i let my loss just go to its fullest, and had a really bad day.”

SO… how does […]

Emotional Intelligence circa 2014

Fast Company recently wrote that EI or emotional intelligence is beginning to be considered along SAT scores in college admittance – at Yale no less! Likewise, the New York Times reported on how emotional awareness tactics are helping discouraged job seekers find work.

What’s up with this? Why is emotion – […]

How Traders can Leverage the New 4 “Basic” Emotions

Did you know that no one knows for sure how many “basic” (irreducible) emotions there are? Many scientists have long believed in six, a new study indicates four and a growing body of work by the teams emerging from Lisa Feldman Barrett’s labs makes a very credible case for only […]

A New Trading Psyche for 2014

What can a trader do (really do) to optimize their mind for trading? Is it “plan the trade, trade the plan”? Is it “control their emotions”? Is it something else?

Here’s what works.

Realize that like professional sports, trading is a performance discipline.
#1 means that the interaction of body, mind and “spirit” […]

Understand and Eradicate the Mysterious Riddles in Your Trading

What phenomenon does this partial quote describe?
“…people all of whose human relationships have the same
outcome: such as the benefactor who is abandoned in anger
after a time by each of his protégés, however much they may
otherwise differ from one another, …or the man whose
friendships all end in betrayal by his friend; […]

Key Layers of Trading Related Emotions

First of all, neuroscience is teaching us that trying to separate risk decision making from feeling or emotion is at best a waste of time and at worse, a sure way to eventually trade-out (like act out) the feeling/emotion that is present. Second, there is a logical fallacy in the […]

Fear, Affect, Emotion & Psychological Science

Forms of fear permeate the process of trading. Every market decision bets on a fundamentally unknowable future and as such, trading implicitly includes a factor derived from the spectrum of panic to overconfidence. Moment to moment, a trader’s beliefs can ameliorate debilitating or palpable fear but as most honest traders […]

Do I want to be Right or Do I want to make Money?

As I prepare for The Galtere Institute’s Behavioral Finance symposium, I am doing what I always do before I speak – catching up on the latest studies on emotion and risk decision making. For example, did you know that there is actually still much disagreement in science about what emotion […]

How to Stop Giving Trading Money Back

Traditionally trading psychology advice regarding giving money back has focused on being disciplined and staying focused. Yet traders of all stripes complain to me that while they intend to be disciplined and to stay focused, they find themselves in trades they didn’t intend.

It’s almost like (they say) someone else was […]

How Well Do You Really Know your Own Trading

If you are not at a hedge fund or proprietary trading firm (and in some cases even if you are), you might not really know your own trading. It’s quite easy to look at an equity curve and think that it all you really need to know.

In reality however there […]

Simple Things for Creating a Great Trade

Research is showing how powerful our mental context is in making risk decisions. But the thing is, most traders think mental context is about what they know – their insights, their indicators and their experience. In reality, it goes much further and deeper than that.

Recent experience that seems totally unrelated […]

Improving your Market Movement Calls

Price action in the markets is “the tell” – as they used to say. (It seems that is one of those words that has come and gone). But the problem is this said ‘tell’, tells you different things – it can be interpreted many ways. It is what is known […]

THE Trading Dilmemma

Maybe the toughest challenge in trading – or market risk decisions – is resolving the conflict over now or later? Should I get in now or later? Should I get out now or later? One can throw a whole bunch of so-called facts at the question and still be no […]

The Very First (and I what I thought would be the last) Words I Wrote on Trading Psychology

Shull’s first article “What Would Freud Say? Stroll Down Freud’s Mental Path to Profits”, December 2004.

When I wrote this I had NO idea whatsoever that I would ever publicly write or say ANOTHER word on the psychology of trading. It was just an idea I had based […]

Neuroscience & The Risk Manager including White Paper The Art of Algorithmic War

Coates, Shull, other experts weigh in on risk professionals’ attention to their discipline

Thursday, May 02, 2013,
Risk Professional Magazine (published by the Global Association of Risk Professionals – GARP)
By Katherine Heires
Over the past 20 years, advances in brain imaging technology and other methods of analyzing neural activity […]

ReThinking Trading Psychology 101 (version 2)

Originally posted on Business Insider, April 17.

Conventional wisdom in trading psychology used to depend on two primary tenets – discipline and ‘control your emotions’. But that was before neuroscience started putting traders, poker players and other risk-gamers into brain scanners. Now that we know that all decisions depend on the […]

Trader Psychology

There is a LOT of it out there.

In short, how much is based on the very latest out of the neuroscience labs? How much or which of many many practitioners actually pay attention to what is being learned about how the brain processes uncertainty and decisions like when to enter […]

The Problem with Cyprus

The market reaction to the weekend announcements regarding Cyprus shows the degree to which confidence and context affect investors’ and traders’ decisions. It is impossible to believe that European Union, IMF and Cyprus government officials were not aware of the effect their proposal would have on confidence in the entire […]

Sustainable Investing & Trading Success via Psychological Strategies

In response to the post and discussion here by @ppearlman, @andrewunknown asks:

Phil’s last line: “So, even awareness is overrated. Its a start but really its about your choices. Its where the training begins, not ends.” Denise: “What is standing in between the “knowing” and the “doing”?”

These quotes rather concisely introduce […]

The Human Trading Condition

Just a few moments ago, I hung up the phone after speaking with a client who heads a trading desk at a bank everyone in the world has heard of. It would be easy to think – “well, that guy has it made”. (Government’s intention to break-up banks and stop […]

The Secret Ingredient to Success in The NYTimes

Last Sunday, the most successful trader I knew from the Chicago Options pits texted me this – “Self-examination is the key to noodle making and other accomplishments.”

Now you should know two things – 1) this guy NEVER texts – we have been friends for going on 20 years and […]

Huge Market Moves

There it is – the market up 200+ points and you didn’t make a dime. Man is that maddening. You knew (at least kind of) that it was coming but you didn’t take a position. You saw a small pullback but hesitated.

Now you are aggravated – mad at yourself and […]

Why Does the SEC Love Press Releases?

At the Compliance Exchange, I posted some thoughts on the SEC sending a Wells Notice to Netflix and their CEO, Reed Hastings.

It turns out that that Holman Jenkins at the WSJ agrees with me.

A Fallacy in “plan the trade, trade the plan.”

I followed the dictum for years – or at least I followed it as well as I could. “Plan the trade, trade the plan”. But like everyone else I had trouble with the second part and often chastised myself. That was until neuroscience proved that within uncertainty – like when […]

Denise talks Trading & Golf Psych on CNBC’s Squawk Box

to discuss her recent book
Market Mind Games

Griffin of Citadel on Trading Judgment

Thanks to one of our favorite clients, Rob from Australia, this quote made it’s way into my inbox this morning.

“Nothing is constant, nothing is the way it has always been. So what I find is that people who are really good at this have great intuition, have great instinct. Their […]

Trading Truisms that are really “Trading ‘Psychology-isms”

Here’s a few –

Plan the trade, trade the plan.

3 losers in a row and stop for the day.

Make just $500 ($5000, $50,000) every day.

Control your emotions.

Each one of these is really about the mental game of trading. But each and every one reduces your odds of being a successful trader.

1. […]

Risk & Uncertainty: Better Judgment

It’s easy to confuse the two but as Frank Knight wrote almost a century ago, they are two different things.

Little did he know, that in addition to his logic, the brain reacts to each differently. With risk, or KNOWN probabilities, the brain can handle it in a more or less […]

Dates & Times for Monthly Group Coach – for “Access your Psych Cap” students

This fall we are going to do all of the sessions on Friday afternoons. They will be recorded.

We will be reconstituting the list – drawing everyone who has ever enrolled in “Access”. Expect to hear from us on the 13th of September. If you think your name should be on […]

The MIT Sloan fellows were great!

~ a ton of fun! Yes at MIT!

The psychology of risk about which I speak applies to any business decision. It’s great fun to get out and talk to people who are learning to make better risk decisions – even if they aren’t necessarily market decisions.

Thanks to Katherine Kaminsky […]

It never ceases to amaze me ho…

It never ceases to amaze me how “Regret Theory”, while SO instructive, has been missed by psychologists & economists. http://t.co/lNfxouQ2

CNBC Squawk Box on Market Mind Games

In case you missed it, here’s my segment on CNBC Squawk Box this morning. Had a ton of fun with Joe and Andrew. More later.

FRIDAY the 10th … and yes, this Joe, this approach DOES work with putting too! In fact, it may work even better with putting because there […]

The Psychology of Why Europe Will NOT Implode

In two words – “cold war”.

Psychological research shows that whether we know it or not, everything we perceive, analyze and decide upon, we do so from a social-emotional context. We like to tell ourselves that we are being objective but our beliefs and our confidence in them come from our […]

Trading w/out Psych Cap LIKE Athlete Playing Injured

Trading is relatively more of a mental game than say football. A couple of football pros I know have been telling me how they work to play without thinking. Clearly one has to think to trade.

But that doesn’t mean trading IS NOT a physical game that demands a plan for […]

Instant Intelligence

We all like to think we are smart. We all admire, sometimes in awe, intelligence. But did you know that our understanding of the composition of intelligence is rapidly changing? Did you know that one research study showed that hand movement improved one’s ability to do complex math?

To become […]

The Latest Trading Mind Games Workshop ~ Reviews

Just Monday evening we presented our latest interactive workshop to a group sponsored by HindSight Trading. Here is what they thought –

“We are also compiling some great emails with fantastic reviews of the event so please let me know if you have a certain place you’d like us to post […]

Jamie, Psych Risk Management & Living to Trade Another Day

This is a true story.

3 years ago today (I have this weird memory for dates), I spotted Jamie Dimon and Bill Daley sitting outside Gibsons in Chicago. I just happened to have come from a lunch with Patricia Crisafulli who had written the House of Dimon and I had her […]

Trading Does NOT Have to be THAT Hard

Traditionally brokers and industry lore report that only 5% of independent, single traders make it. I don’t know if that stat is true or not. Recently one of the currency brokers said that 25% of their accounts were profitable.

Here is what I do know – in a nutshell. All […]

% Independent Traders Who are Profitable

For as long as I can remember, industry lore has “stated” that only 5-10% of individuals who speculatively trade their own accounts are profitable. Recently I heard someone say it is only 3%! I myself have often been asked but in reality I think/thought that only the brokers could know […]

Golf Proving our Eyesight depends on our Feelings

Lisa Feldman Barrett and her colleagues at The Affective Science Institute have been talking for a couple of years now about how even our eyesight needs emotion to actually work. She says that without emotional input we can see, but not identify, an object.

Now even more evidence of the validity […]

All About Alpha & Psychology Today

Here are the links to my thoughts on the needed new paradigm in risk management (All About Alpha) and the three things anyone can do to be more successful in the financial markets.

What were they thinking? From MF to LTCM

3 Things anyone can do better to understand the psychological side […]

MARKET MIND GAMES, A Radical Psychology of Risk

Risk ain’t what it used to be – if fact, most of the time it isn’t even risk at all. Instead it is something called Knightian Uncertainty – or the fundamental inability of humans to know for sure what will happen tomorrow. Yet we have to make decisions about tomorrow […]

The Days it Goes One Way

Today is one of those market days when the price goes basically one way.

For some, these days can be their best money makers – they know how to push the pedal to the metal when the time is right. For others, they tend to be their worst days – […]

What Was Corzine Thinking?

Totally revamping emotions as data allows for the evaluation of alternative emotions like "what if I am wrong". And that is the only way to get out ahead of any concept or fact of our brain's ostensible "system 1" and "system 2"

PJDA – that’s what it’s all about.

…and no it doesn’t say “PDA” although it may be that “it” is also all about that too.

I am talking – PERCEPTION, JUDGMENT, DECISION & ACTION – the sequence we all go through all the time. It is the sequence that we all want to improve in order to make […]

Report from The Society of Neuroeconomics

Last weekend, a group of the world’s preeminent neuroeconomists met in Evanston and the research findings reported on were strikingly different from even two years ago. Virtually nothing about system 1 (logic) and system 2 (emotion) and a new found appreciation for the integrated role of feelings and emotions in […]

The Social Market – Theory of Mind

It’s easy to forget that markets are nothing more than a mechanism to transmit value and value is nothing more than perception. Hence markets are nothing more than perception. Likewise, it is easy to forget that in all of our fundamental, technical and economic analyses, we are trying to decipher […]

Discard What You were Taught about Your Brain

In the past few days, as the markets have swung wildly from the proverbial trees, I have had the occasion to be interviewed by a number of journalists. The questions underscore how much the general public has yet to learn about what the experts know about the brain. For example.

1) […]

The Vacuum of Context – the S&P Downgrade

As we get ready to watch markets on the other side of the globe open, it might be helpful to think about how we think. Our brains use both the social and emotional context of a situation to decipher its true meaning. But what happens when something completely new happens?

For […]

The Debt Deal’s Social Map

So Sunday night came and went without a market meltdown. And now the market talk is of “we all know they will make some kind of deal” so … what’s the big deal?

Let me ask you, what if they don’t? What if Congresspeople who truly don’t understand how financial markets […]

The Affective Landscape of Trading

First, you start out with the fact that all incoming information of markets amounts to an ambiguous soup. In other words, no matter what you do, you can’t escape the ambient uncertainty… yet many researchers and thinkers (Keynes and Ellsberg for two) have shown that we shy away from ambiguity […]

Emotional Context – the eC – is the Clue to Behavioral Finance & Economics

The now vast field of behavioral finance can outline and articulate the mistakes we make in our choices. We look at questions that are in effect the same depending on how the question is worded, we evaluate the gain or loss of the same amount of money in a lopsided […]

Emoting, Thinking, Doing

A huge misconception exists across both the professional world of psychology as well then as the average human decision maker. It is axiomatic to believe in “controlling emotion”. Professional researchers talk in terms of “emotion regulation” but it is the same thing – and there is a very very good […]

An Infuriating Scam …. trader abuse.

THIS JUST CAME IN AN EMAIL TO ME…. makes me livid. For now I have removed the header…. is it just the relentless rain?

1) Turn on the computer in the morning (9:15 AM EST)

2) Place an order at the “Bounce Line”

3) Make money

4) Turn off computer at 11:00 AM EST

5) […]

Raj’s Possible Fractal Unconscious Psychology

Like Madoff, who one could argue wanted to be liked and to feel part of the in-crowd more than anything, if you ask yourself what would Raj’s unconscious motivation be, the ironic answer probably revolves around wanting to feel like an insider!

Without talking directly to him, one can only speculate […]

Positive Thinking isn’t All It’s Cracked Up to Be

In the US at least, it’s taken as a given that feeling good is better than feeling bad. We “look on the bright side” as a matter of social pressure. If you say you feel angry, sad or anything else “negative”, you get pushback and even disdain. But a recent […]

Subjective Expected Utility

How many traders realize that the better models of decision making rely on a foundation of subjectivity? In other words, don’t most of us on or around Wall St. think that we are supposed to be trading via a maximum value, maximum utility or “rational man” model? I mean that […]

Rainy Day and Mondays….

Fortunately or unfortunately, I am old enough to remember this song. Unfortunately or fortunately, my memory however isn’t completely sure whether it was Karen Carpenter or not….

But in any event, the point I want to make is that Mondays and particularly Mondays after a holiday sit within one of the […]

How to Think in the Gap between the Facts & Success

We have a tendency not to notice that our emphasis on numbers and logic leaves out a crucial part of the thinking processes we actually engage in to make decisions. In order to make the best decisions – and to perform at our highest levels – we need to get […]

“Reading” markets

Generally traders, analysts and expert commentators focus purely on numbers when it comes to markets. Rarely do they /really/ look at why they do. Take the news numbers – like consumer sentiment or housing starts… why does anyone care? Well because it gives a glimpse into what people are feeling […]

Disaster and Uncertainty

Earthquakes, tsunamis and literal fall-out – while we sometimes use these words metaphorically, we are now faced with their literal ramifications. We can’t escape the absolute uncertainty the world, and the tragedy-laden Japanese people, must deal with.

The first thing to do – if you want to make the best decisions […]

Why Did I Do That? Again!??

Having had the privilege to coach hundreds if not thousands of traders in my roles as first a trading desk manager and then as a mental trading coach, I can promise you that not matter how much capital someone is trading – $10,000 or over a billion dollars – everyone […]

Fractal Markets, Fractal Psychology

The other day a trader wrote me and his letter is published here on the previous blog post… the following is the very end of that letter.

“I’m curious about something. How is it that for thousands of traders, each of whom has his or her own personality, childhood traumas, cultural […]

A Real Trader Writes about Working His Psychological Capital

Dear Denise,

I hope you are well and that your book is coming along nicely. I haven’t written in awhile, but I’ve been having quite a time with the Access course. When I began, I made steady progress through the first four or five chapters, and my trading was improving as […]

“Why” of Financial Crisis only on p. 4 as Dow hits 12K

We need a revolution in our own conscious minds that makes us see ourselves as we are once and for all. We need to admit that how we feel makes all the difference in the world to what we do or decide.

Executive Function & Emotion – from Boulder NIMH Conference

To quote The ReThink Group’s great intern, Clay Berry a senior at Rutgers, “The first speaker of the day, Luiz Pessoa from The University of Indiana, talked about “How do emotion and motivation interact with cognitive control?” Pessoa noted how the older notion of emotion and perception/cognition being two […]

Dieter vE AMBIGUITY

It’s not black, it’s not white, I can’t even fight

I hate it !

I hate it !

I hate it !

My stomach crawls & rumbles

My palms sweaty,

A rat caught in the eyes of a snake,

I begin to shake,

So many wrong choices, only one right,

Hindsight laughs in my face.

Does she love me ?

Or […]

Todd – My Aversion to Ambiguity

To Trade or Not to Trade

Hey I took a trade today

I sit and watch it with dismay

Will the plan follow as I have laid?

Away you indefinite penny arcade

The stench of fear invades my being

Wondering if what I am seeing

Is solid as I think it is

Confirmed or antithesis

Time to jump out […]

Ted On Ambiguity

I woke up this morning, still thinking about ambiguity and my natural aversion to…. Well, mornings.

After a cup of Joe and a slice of shingle with a shimmy and a shake, I set myself down the ponder:

Ambiguity

Coveted by politicians and poets… Distained by science and law.

“political science” or “poetic justice”?

Artist, […]

Ryan The Peak

the peak

n

e

a

r

i

n

g

the

snowy

summit

the comforts

of the slow and

steady climb slip away

the air has changed

gazing off the windy peak

inside churns – excitement erupts

voices clamoring to be heard

Maslow entices me to take it to a higher level

Darwin implores – be careful, you’ve got to survive this

and all the insane monkeys screaming, “just go for […]

Robert An Ode to Ambiguity

An Ode to Ambiguity Aversion

They say the market’s ambiguous – well that’s a lot of crap!

I’m right – that’s all I need to know, but why then won’t the money flow?

I’ll show them and prove to mum that I’m not just some lazy bum like dad.

I’m smarter than my grandfather […]

Michael – Ponder my Aversion to Ambiguity

Why I have not accepted ambiguity in the markets?

Well first I had to learn what it was, and then I had to come to understand how it controlled my actions on the unconscious level. Now that I have become aware of Ambiguity Aversion, I have accepted its energy and […]

Jenny The Light Side of Ambiguity

I look at the chart and see all of the people

Bars move up then down, forming a steeple

I envy that run, but miss all the fun

Unclear of direction, I pray to the sun

Today’s a new day and the markets deceptive

I’m feeling alert and focus on being perceptive

But why can’t I […]

Lauren – That Pesky Ambiguity

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 […]

Malaya Uncertainty’s Consort

Uncertainty’s Consort

The wind waits for no one

Without warning, her sweet caress seduces
the wild and innocents
There is no satisfaction
She is faithful consort only to uncertainty

Shivers of rumors and unrequited stirrings
shake to the cadence of loss
A signal sights
The silence sounds
Shards of knowing
A touch felt […]

Allan – Ode To Ambiguity

To the melody of the Jungle Book’s Bare Necessities, here’s a little song about ambiguity aversion. Best sung with Louis Armstrong playing the original in the background!

Embrace the ambiguities

The simple ambiguities

Don’t chase every tick in every move

Just face the unpredictability

The financial markets’ recipe

For bringing opportunities to you

Throw away your stochastics, […]

New Model of Thinking and Emotion

At the recent Neuroleadership summit in Boston, Lisa Feldman Barrett articulated a whole new view on the appropriate model for understanding our thinking and our feelings.

“Lisa challenged some of the most deeply held ideas about how the mind works in her session. She stated that Daniel Goldman’s theory on emotional […]

Self-Analytics

As I go about proselytizing about the value of being aware of one’s state of physical, mental and psychological capital, I routinely get the same questions –

1. Exactly how to be self-aware

2. How long will it take?

Let’s assume you believe that it is as important for your trading to be […]

Feel the way you feel, and /that/ will change the way you think!

Feelings and emotions are information. Feeling tired tells you you need rest, hungry - need food. Angry - something is wrong. Afraid - something to consider. Every time we recast our feelings and emotions as this kind of data is one more time that we move further forward faster. Ironically, this feeling thing also clears the cognitive "thinking" part of your brain so that it can do its more linear work.

Chilean Mine “75% Science, 25% Miracle” …

… or so says the WSJ today. “It was 75% engineering and 25% a miracle,” said topographer Macarena Valdes as she was speaking of her own role in the rescue. I submit that maybe only 75% was engineering but the miracle portion occurred within Ms. Valdes’ brain!

She acknowledged using “gut […]

Chop n’ Slop births Short Squeeze?

You see it all the time… a market that goes back and forth and back and forth and back and forth over the same price range. I learned to call this “chop n’ slop’ back in my Chicago LaSalle street days.

Something I observed since then, with the help of talking […]

MORE than Animal Spirits

For the past 50-60 years it has been popular to relegate the very relevant and powerful dimension of emotions to the category of “to be controlled”. On one hand, we talk all the time about how confidence, which is a a feeling more than anything, is so important in all […]

Truly Understanding your Trading Decisions

In many ways, many traders end up shrugging their shoulders to the tune of “oh well I will do better next time”. The question becomes /what exactly/ will make them perceive, decide and act “better” the next time? I mean it isn’t like there aren’t tons of methods and tools […]

It isn’t about NO emotion, it is about “picking” the right one.

You hear it in the press and from ostensible experts all of the time – versions of “have no emotion”, “remove emotion”, or “emotion got in the way”.

What is so amazing about this is how they don’t notice that emotion is necessary for everything – perception, decision, action and of […]

Hurricane Earl – Even More Objective Probability than the Markets

A few moments ago, CNBC broadcast a weather report showing the best and worst case scenarios for the potential left and right track of Hurricane Earl. They projected it will “brush the East Coast on Thursday”. Weather channels, however, are saying “Friday” is the H-day. Who’s right?

There is literally no […]

The Real Probabilities of Trading

We all like to talk about knowing the probabilities … and then just sticking to them. Most of us like to harangue other traders for not doing so while finding it not so easy to do ourselves.

It isn’t so easy for a number of reasons –

1. Whether you are conscious […]

“Travesting” and the fC’s in decision making under uncertainty

Two new terms you will (eventually) read in this book I am feverishly working on. (It’s true – I am having a blast and really want nothing else but to be able to work on it… hence, my choice of the word feverishly): “Travesting” – meaning the combination of trading […]

An Ironic Trick for Trading Better

By putting yourself into your potential future emotional contexts, you can make better "risk" judgments in the here and now.

“Never short a dull market”

Last New Year’s eve I was on CNBC with Mark Haines and I had prepared some truisms for the new year … “The Trend is your friend” being one of them. Mark exclaimed but “C’mon Denise, you haven’t told me anything I didn’t already know!” …Well yes Mark … but […]

“All I want to be is a day-trader.” … Why do so many people feel that way?

When I first found short-term trading, before the internet and before the term day-trader was invented, I was hooked. I was on my way to a PhD and said “skip that”. So… I have no room to talk when I ask the question with maybe a hint of perjorativeness…. but […]

The Power of Frustration

...doing the emotion analytics - and taking into consideration my own emotional architecture - turns frustration into progress.

Trader Diagnosis’ Latest Thoughts

Here are some of the things I’ve been thinking about:

The two areas in trading that separate the men from the boys (so to speak) are:

1.) The ability to divide environmental perceptions in half and process them separately. First I ask myself what I am feeling and in doing so I […]

Beyond Behavioral Finance to the Brains Making the Decisions

The market meltdowns of last few years spawned an interest in the research and theoretical field of Behavioral Finance that simply didn’t exist before. Books like THINK TWICE, Harnessing the Power of Counter-Intuition garner great attention and great crowds for Michael Mauboussin the author. Calls to our office for talks, […]

Everyone is asking about Jon’s books…

… and I talked to Jon about that and this is what he said –

(Referring to a specific inquiry)… “but I really encouraged him to do whatever he could to purchase your course since that is what gave me the context to get so much more out of the books […]

My Journey to Self-awareness, by JON

I knew I needed emotional help the day I became so angry that I punched my bedroom door, stomped down the stairs, and kicked over a living room end table—shocking my wife and two boys, and, most of all, myself. I’ve always been known as the “laid back, non-emotional German […]

New from The French PhD Chick over at Trader Psyches – Are we as Irrational as They Claim?

Now Dr. Elise Payzan Le Nestour is about to begin her professorship in Finance at The Australian School of Business but she has graciously taken the time to summarize the findings from her recent research.

“(My) research shows that under certain conditions, investors can cope with the instability encountered in financial […]

This is really confusing for a numbers guy…

I am about to give a talk on what I call “emotion analytics”…. because to me, I really don’t see any reason that we can’t get as systematic and effective about analyzing our feelings and emotions as we are about analyzing markets or anything else.

But what is simple to me… […]

The Social-Emotional Context

…everything we think, feel and do is related to this. ReThinking Thinking is about analyzing these evolving contexts – and understanding that thinking is hardly just about “smarts” – that is where we go wrong. …. Wrong in risk management, wrong in analyses and definitely wrong in perceptions.

Don’t want to be an alarmist … but

As long as we do not know what caused the flash crash, why isn’t sabotage on the table? Or, is it on the table and we don’t know it.

I mean are we looking at the obvious and overlooking what we don’t want to see? Why would P&G, MMM and […]

The ? They Aren’t Asking about “Flash Crash”

1. Was it purposeful?

2. Were specific orders entered that would “sweep the book” in PG, MMM and Accenture? Why those stocks?

3. Why 2:40 pm? Isn’t that a suspicious time in terms of margin calls from clearing houses and expiration of limit down rules @ NYSE?

4. What kind of […]

Market Personality Change

… well I feel rather obligated to go through with my bullish ITM put spread but honestly, since I didn’t manage to get it on, I also feel a personality change in the market. For me, I sense these things through speed and rhythm and the s/r of yesterday and […]

Still bullish… “the trend is your friend”

Well between the margarita’s and the great NYC weather (and the garden and the dogs and …), I have yet to learn tos analytics… so my trade isn’t on. But… it is about to be (or at least I am dedicating the rest of the afternoon to the analytics part)!

Yes […]

Know Your Tools

This bullish spread for June would be on right now if I really knew how to use the analytics that I have … but alas I don’t. And patience to learn them… well I have to consciously invoke that. Working on it now.

I am not a linear learner (my own […]

And then there is timing…

Even though this options (learning) gig allows me write while I have a trade working – and not be staring at the screen all day … TODAY is a good example of how the intraday movement gave me an opportunity to get in BUT I missed it. Now I […]

Analysis Session #1 for June Bull Put Spread

UPDATE TO POST “Joining the Options Counter Culture”

1. Nice to have a tutor in thinkorswim software … better to have it be the same guy you drink margaritas at home with.

2. A put spread risks less than just buying calls.

3. I am actually bearish for May and bullish for June.. […]

Getting this Bull Put Spread Off the Ground

Ok… so I have my idea … and I have my time-frame …. i.e. after maybe a “pro-longed” (relative to recent history – after all, ALL market moves only occur in context) swoon/retracement over $GS, we will resume the march known as “markets climb a wall of worry”.

Now think about […]

Joining the Options-Trading “Counter Culture”

Despite the fact that the guy who got me into the trading business in 1994 had been almost an original CBOE floor member, despite the fact that one of my best trades ever was a covered write on LU in July of 1999 (think sell Lucent @75), despite the fact […]

My take on Behavioral Economics & Finance

It took a major meltdown to jar them from their biases but the intellectual powers that be, from the Hudson and Charles rivers to the shores of Lake Michigan, finally are giving serious credence to the reality that most people, even professionals, don’t and even can’t act rationally in the […]

How We Decide

Between the avalanche of neuroimages, the financial crisis and its aftermath and Jonah Lehrer’s book entitled How We Decide, interest in figuring out the answer has probably never been so attenuated.

Allow me to submit a new model that I will believe will come to be the way we understand our […]

Behavioral and Neuroeconomics

Well the wave has finally hit… it seems everyone on or connected to a Wall Street event is interested in hearing more about behavioral finance. PBS’ Nightly Business Report is doing a year-long special, private wealth managers are calling me to speak almost monthly, the largest “alternative investment” conference in […]

Risky Business, It Ain’t What You Think

We like to believe we make well-analyzed, rational decisions. We consciously evaluate data, massage statistics and assign weights to the pros and cons of what we think are potential outcomes. Yet time and time again, we realize in hindsight that we didn’t make a rational decision – buying that stock […]

Everyone is Talking about Behavioral Economics

No matter where I go, no matter who calls, no matter when I check twitter… there it is – “behavioral finance”. In an effort to understand the great financial crisis of 2008 everyone it seems has turned to what the academics call the “biases and heuristics lit”. I mean it […]

What You Need to Know to Trade

There must be 10,000 lists like this… let me add mine – hopefully with many useful twists.

1. You need to know what you are looking for – both to enter the market and to exit.

2. You need to know what the variations on #1 are – and what they are […]

Exploring the Nature of Trader Intuition: Research from Cal-Tech

In short, ..."tests show that Theory of Mind (ToM), rather than mathematical, abilities are better predictors of success in forecasting stock markets".

The Rose Bowl & Risk Decisions

60 seconds in and Ohio State is plowing down the field. As I write this sentence, they dropped the ball in the end zone. … Try it again – 3 and 10 and in!! Now the question relevant to trading and risk psychology is … 15 minutes ago did they […]

Risky Business

Here’s an ironic twist – research shows it is easier for the human mind to comprehend and leverage probabilities and logic IF the question is posed in terms of people versus cards, numbers or objects. Yet research also shows that we continue to build arsenals of data in the form […]

What I Learned/Re-Learned @ Harvard

A few weeks ago I trekked to Cambridge for Harvard’s annual Investment Decisions and Behavioral Finance conference. Excited to hear a speaker list that included renowned economist Richard Zeckhauser, MIT’s Andrew Lo and Michael Mauboussin who recently authored THINK TWICE, The Power of Counter-Intuition, I admittedly however didn’t know quite […]

An Emotional Conversation over at Tyler Cowen’s Marginal Revolution blog

Somewhere down the road, you just might find you agree with more than you expected. Or worse, learned a thing or two about making better decisions in the face of UOUP (rhymes with soup) - uncertain outcomes uncertain probabilities.

Market Hangovers by Trader K

The biggest part of trading is not trading, staying away from the markets when your psychological capital is low, when you are incapable of seeing who is giving you a real green light and who is just teasing.

“Emotional arousal” is not something to avoid, but to master. By Elise Payzan Le Nestour

All this suggests that emotions are key information providers when deciding under uncertainty. They make us tuned to our environment. Actually, in some contexts of fast and intuitive decision-making in the face of unstable (high vol) conditions, one expects that the stronger the emotional uncertainty signals of the day-trader, the higher the performance.

Conviction, Anxiety and Belief

I mean we also hear "believe in yourself" but where do these advisories leave you when a trading idea is going wrong? How do you handle the teeter totter that holds belief and conviction on one side and price and risk management on the other? What fulcrum can you depend on?

New Risk Psych from Academia Pt. 2 – Social & Affective Neuroscience Conference

If you have tried reappraisal or what most call reframing or even reprogramming and it didn't work for you, don't waste one second wondering or worrying about why. The Darwinian nature of trading and the meaning of a red P&L is almost certainly a "bottom-up" emotion and behavioral & brain picture evidence says that strategy worsens the situation.

Understanding & Leveraging Advanced Market, Trading & Risk Psychology

In order to really understand either what went wrong in the credit housing bubble or to improve institutional or individual risk management processes, one really needs to take a step back and rethink their thinking. We tend to believe that we know how we think or even worse, that we […]

Risk Psychology & Neuroeconomics Society 2009

Back and rested from a weekend trip to academia –

The annual Society for Neuroeconomics meeting, held in Evanston this year, reviews a cornucopia of pre-publication research papers centered on the topic of decision making under risk and ambiguity. With everything from electrodes being implanted into patients who were having brain […]

Another one-year later post – with a twist

A year ago tonight I was merrily watching my Cleveland Browns actually win while on a Jet Blue flight to the CME’s Inaugural Global Financial Leadership conference when my first cell beep on landing was Bill Long calling to say LEH was BK and ML was BAC. 365 days after […]

The SEC misses Madoff – not once, not twice but five times in 16 years?

Per the Washington Post “But in each instance, inexperienced officials, at times ignorant of other agency probes into Madoff, took his explanations at face value and did little to verify them.”

Why would anyone – no matter how inexperienced – take a potential criminal at face value? I mean no one […]

The Six-Step Antidote to The Black Swan

Figure out how to differentiate implicit learning from impulse.

Fear, Facts & Fundamentals

It also brings up some thoughts about the markets really do work - or the infinite loop between fundamentals, facts and fear

Trader W – my trading today vs. yesterday

Today

Set the alarm for 6:40 am, but ended up going to bed pretty late.

6:40 am alarm rings, still super tired, so decide to sleep in till 7:30 and then see if I want to trade

7:28 wake up without alarm, feeling good.

7:45 ish, notice the market has really sold off. […]

High School, College, Grad School Trading

There is this bizarre overlooked contradiction in much of what passes for trading wisdom - or at least smart trading psychology. On one hand, developing a trading strategy/tactics and a plan are OF COURSE the foundation to work on but on the other, the most successful firms ask their traders to spend years learning judgment while the independent/retail world is taught not to think!

Morgan Stanley, Tom Watson and Recovery

Today's neuroscience proves that the residual feelings resulting form one event can completely color your beliefs about the next event. It also proves you can't act - or even make a decision - without emotional inputs. Therefore, managing those inputs - in the way that works - is a singularly profitable (and winning) endeavor.

Twice Stopped and One Preceding Cocky Feeling

object lesson in double-checking the exact state of one's psychological capital before they take a trade. In my case, the bucket was TOO full and almost more importantly I didn't realize that I was wanting something in particular - something having nothing to do with trading.

Echoes, Emotional Architectures & Performance Patterns

The arguably most famous and respected trading psychologist on the planet makes a point that we are not and should not be trading for personal development. I respectfully disagree.

Playing the game wherein the object is to take money out of the hands of very many other smart people who […]

Irritation, Annoyance, Frustration or Fury

Sooner or later, it is bound to happen. The markets conspire to converge in a way that fits your optimal trading strategy. You see it, you know it and then at the same moment, the phone rings, or the boss yells or the ….. Something happens that interrupts your ability […]

Counter-intuitive Foundation of ALL Decisions

The answer lies in each individual learning a whole lot more abut their own feelings. There are impulsive feelings and there are intuitive, unconscious pattern recognition feelings - one is helpful and the other is deceptive.

Trading the Market’s Profile – 6/10/09

When actually I finally listened to someone who understood auction market theory I realized that every thing I more or less knew about TA was encapsulated in a market profile chart.

Learning a whole new way

Or better put, get your psychological capital in line - front and center - and always the thing to be managed alongside of the probabilistic or mathematical risk.

Confidence – Brain or Body

When you feel confident, presuming you do sometimes feel confident, where do you feel it? Can you feel it in your brain or is it in your thorax (i.e. middle part of your body)? Better yet, why do I ask?

Well if you think about it, part of our mission here […]

What is this thing I talk about anyway

Psych cap – emotional intelligence – judgment – feelings – ambiguity perception…. can we get this organized?

Ok

1. Markets are only human

2. The numbers are only a clue

3. The brain knows it

4. The brain believes it is in the jungle fighting for survival

5. The brain knows how to survive and uses […]

Pre-eminent Physical Experience

The way we see it, the brain will always win in the end so why not get started as soon as possible on working in concert with a brain and a body that work together to assess and address uncertain situations - price movement or sand traps.

How to Leverage Emotion in Market Judgments

The thing is - all of this requires both a change in perspective and more importantly, putting the same effort into understanding your internal signals as you put into the ones the market is providing!

The Ultimate Quant? I wondered …or, wonder.

Back in March I read Alpha magazine’s ranking of the 25 top hedge fund managers and was struck by the reported fact that Renaissance Technologies’ disparity between their funds. The flagship fund produced an 80% return, (after fees!) in 2008 but it open only to “partners, employees, ex-employees and friends”. […]

Lose that “old brain, new brain” stuff

learning how to leverage emotional data - both as a risk management tool and as a tactical judgment factor is an investment that will pay off in spades (and trades).

Revolutionary Trading Psychology

Everyone thinks the market is a game of numbers. We use complex models, umpteen oscillators or retracement calculations and even a fundamental analysis of supply and demand - all based in numbers and about numbers. But in reality, the numbers of the market are but an illusion.

Consistently Good Decisions and Losers

The simple (but not easy answer) is all you need to do is understand the feelings - preferably both macro level (what you expect of yourself and echoes from your past) and micro or in the moment reactions to the result of a trade or price movement.

Did Quant Models Fail? No, Not Exactly

Learn to research and evaluate internal feeling based data. Both value it and beware of the risks it brings - a double edge sword.

To Blackman Capital re: How I Trade

The real clue is that the numbers (and the bars and lines they draw) are only a clue - not the real answer.

Love and Trading By Trader K

“I return from holiday rested and relaxed, to quote Ben Lichtenstein, “I have tasted the sweetest Mediterranean tomatoes brought to me by dusky maidens and washed down with oaky red wine in the shade of orange trees, I have felt real warmth from the sun on my skin again.” Pulling […]

Action, Actionable are Over-rated

CNBC – fast, accurate, actionable…. (never mind the middle one)…. BOOK EDITOR – “but what are they supposed to do?” MAG EDITOR ” – but they need things to act on” …………..

UGH>>> doesn’t anyone understand the value of thinking before acting anymore? Doesn’t anyone understand that understanding is key to […]

Trader W Strikes Again!

Reading your work, applying it, monitoring myself, writing down my feelings, is really paying off. I am trading less, and making more money. This week and last week have been incredible.

AMBIGUITY – Is it going Up or is it going Down?

Faced with ambiguity, your brain naturally resorts to filing through unconsciously stored patterns and communicates with you through your feelings as much as your thoughts.

Communique from Trader W

This is the advanced trader psychology of managing our psychological capital as carefully, if not more carefully, that you manage your cash capital.

“Blood” by Trader K

I love the smell of blood in the morning. To wake at dawn and find your order filled, a steady stream of red staining your screen, and as the day progresses to the inevitable climax, when at five in the afternoon your first targets are filled, and you witness the […]

Advanced Trading Psychology Course

…because a few have asked where on the blog they can find info yet I would prefer to keep the blog as a discussion, here is the link to the info on the new self-driven study course.

http://traderpsyches.com/selfdirected.php

A more complete description and the download of an introduction is available here.

Merci beaucoup […]

What Scares Traders

I always know if my randomly generated “Psych Cap Tricks & Tips” hits the nail on the head by the number of unsubscribes I get. If I tell it like it is – i.e. you need to plan to use judgment in your trading plan… I get 5 people who […]

Pain, euphoria and the reality of missing out by Trader K

I have to start by declaring my genius. This is no place for false modesty. I am the bee’s knees. The caterpillar’s spats. I was long 30 year Bonds last Wednesday before the Fed spoke, from 124/13, and exited the second half of my trade at 131/16.5, lower than I […]

Trading Strategies, Perception and Judgment

Every trader devises a strategy for interpreting their markets. It might be Peter Steidlymayer’s original Market Profile (now taught so eloquently by Tom Alexander), it might be a global macro perspective for a discretionary hedge fund or it might be hyper high-frequency day trading. Whichever, it pays to understand WHY […]

Proposed Trader Tax will end short-term trading

THIS WAS PASSED ONTO ME – but I also heard it from Eliot Wickersheimer Principal of Mirus Futures. I hadn’t had much time and was thinking “oh they will add $5.00 or something to each trade” … WRONG!

http://www.foxbusiness.com/video-search/m/21948997/congressman-sounds-off-on-taxing-trades.htm#q=defazio

According to what I have been told – here’s impact on futures trade: […]

Zweig is Almost Right – Today’s WSJ

that some other human being is going to be willing to pay a different price than you pay at some moment in the future. Markets are no more and no less.

Brett Steenbarger Great Post on Price Movement

Brett and I may not agree on our core ideas about trading psychology but this is an EXCELLENT description of reading price action intraday. Clearly in my mind, this is Trader-Steenbarger speaking … and thanks to one of our readers for asking me to comment.

http://tiny.cc/i1r2e

Within the words is the real […]

Recognize this?

“I have blown out my account twice because I write down the rules, but then a few hours go buy, I get caught up in the in the emotions and the volatility, and then I notice I never followed my rules, wtf is wrong with me? am I just too […]

PERCEPTION – It’s Not Rocket Surgery… to borrow a great line

Bear markets mean lower lows and lower highs ... and we are in a bear market until we get higher lows. and higher highs ... which is decidedly NOT today.

Psych Cap, Negative Self-Talk and Reality

The only way to do that is to help them understand the reciprocal role between acting, feeling and thinking .... and then to help them learn how to deal with, manage and even LEVERAGE their emotions.

The F’s of Trading …. No G ….

Because I was tired. I just finished reviewing the new self-driven workshop and I just reviewed the research that says if we are tired we take greater risks... and I guess I felt obliged to prove them right.

Do You Know where your Strategies Are?

It seems like it would go without saying but it doesn’t. A key to making money as a speculator is knowing what combination of market factors you are looking for – and then waiting for the elements to converge. This starts with knowing what your factors are…. can you describe […]

What We Trade

It is very easy to think that we trade the chart or the probabilities – but in fact we trade against other people’s choices in response to the price movement.

It is then easy to say “well how do I tell the difference?” Ask yourself the question “what is everyone […]

Gregg M., CMT at Morgan Stanley sent this….

Black Swan pattern confirmed ....

The River of Hope Flows with Denial

The vast majority of the investing world wants to feel as if we have seen the bottom. They never put their flashlights down looking for the glimmers of hope, or mustard seeds as Kudlow calls them, that the worst is behind us.

But why should it be?

Technically the market has to […]

Sullenberger “Fear mixed with Focus”

I have said it before and will say it again, FDR was wrong. It is not that the only thing we have to fear is fear itself, the only thing we have to fear is no fear at all.

Greed is Good – Weekend WSJ

Most likely I am preaching to the choir but I sure wish President Obama understood this. It is all too easy to blame “greedy Wall St.” What about the homebuyers, mortgage officers and most of all the rating agencies that really got us into this mess? And furthermore, how does […]

Knowing How to Play Poker Isn’t Enough

See probabilities are not enough if you don't also listen to your instincts and learn to tolerate the miserable feelings of being nervous or predicting that something could go wrong. That kind of Emotion Analytics would have saved Boaz .... or Brian or.....

The Beginning of Discretionary Trading

Today a very sophisticated systematic (quantitative) trader said “Discretionary trading wasn’t around before the 1980’s.” I am still stunned. Maybe he is 22 years old or something…. but can anyone explain this to me? He might have met “money managed in a discretionary manner” but still…….

New York Magazine “Professional” Traders

Every now and then someone calls me and asks me to recommend a “prop” firm and now I can just send them to this article –

Surfing the Tsunami, New York Mag, Feb 2 issue

Evidently this is news to the magazine but from my vantage point, this is no different than […]

The First Religious Ritual of 2009

…that is always how Fed afternoon strikes me. All of us short-term, high-frequency traders staring at the screens ready at least to watch the fireworks. Sometimes I find myself laughing at 2:14:30 Eastern time. Some of us love it (me) and some of us think it is insane (me too) […]

Longing for Volatility

Just when we were getting used to 500 point intra-day ranges, we are back to the pre-credit crash markets. Ahhh those were the days – only a few short months but it feels like an eternity. I mean the WSJ journal headline this morning was “Lending Drops at Big Us […]

an Uncertainty circuit

With apologies for being out of touch, I would like to make a couple of notes on psych cap. First, and I have said this before in different way, it really does appear that our brains have special “curcuits” for detecting imprecision or uncertainty. In other words, that feeling that […]

What Does Buying TARP Assets have to do with day-trading?

Everything.

I said it on the Cavuto show on Friday November 14th – “they will come back to buying the assets because the market needs a bid. It has to find a bid somewhere and nothing will be fixed until it does.” I have said it before in this blog but […]

Emotional Finance

If you heard the term, what would you think?

to be continued ….

Neuroeconomics – What You Need to Know

Right after “what the heck is psych cap” should come “what the hell is neuroeconomics”? Neuro on one hand and econ on the other? … Could they be more different – microscopic brain cells versus broad based financial interworkings?

Having just received (Thanks Sandy!) my copy of NEUROECONOMICS, Decision Making and […]

Nits, Gnats and Moods

Frankly I am in a lousy mood right now. I think it is because of all the little annoying things one must tend to when they have a website and a business that involves suppliers. … One of which is, we changed our subscribe feature to this blog. We wanted […]

What the hec is Psych Cap?

Okay it’s the name of this blog and a term we banter about but what do we mean? In short, we mean the power of an entire human psyche – intellect, thought, senses, feelings, emotions and energy. Each factor weighs in on the judgment, decisions and performance a trader (or […]

The Ascent of Money by Ferguson

This is a book everyone should read (even if this Economist link isn’t exactly flattering). My virtual sister-in-law gave it to us for Christmas (trader/market shrink and economist/options trader in the house after all) and I am very glad she did. In these days of blaming the bankers and even […]

Catch a bid

I have been wondering since mid-October when they were going to give in and do the basic thing one needs to do to stabilize a market – provide a deep-pocketed bid!

In fact, I said it on the Cavuto show and have said many times since, until the Treasury starts bidding […]

Keynes said it before us

Someone named Robert Skidlesky wrote a book called John Maynard Keynes: 1883-1946: Economist, Philosopher, Statesman. He says that Keynes said “not all future events could be reduced to measurable risk. There was a residue of genuine uncertainty and this made disaster an ever-present possibility, not a once-in-a-lifetime ‘shock’. Investment was […]

So you doubt the unconscious do you

Check this out ….A study done in conjunction with a Harvard neuroscientist – unconscious processes in the most unlikely of places – a complete loss of vision.(Today’s New York Times Science Times)

Go see the video at the website of Beatrice Gelber

The brain is an amazing thing.

Happy Merry to ALL

DKS

My Personal Take on the Made-off Made-up World

We didn’t believe it at first. We were amazed that traders transferred their deepest emotional architectures and echoes onto the prices… but alas, they do. In fact, just like markets themselves, traders personalities exhibit an effectively fractal pattern wherein they react in the moment as if the situation were from […]

Fraud & Fear: Weekend Papers report on Facts & Feelings

WSJ Weekend: “Fund Fraud Hits Big Names”. New York Times Sunday Business: Schiller talks confidence and beliefs and Ben Stein talks fear.

Madoff’s investors “felt confident” in his long-time consistent returns. Yet every article indicates there were multiple red flags. No investment fees? Not even a 1% management fee when most […]

Weren’t we supposed to be down today?

This morning CNBC was calling for the markets to collapse. Even my highly esteemed hometown boy Dennis Gartman was a bit negative (understatement) in his overnight letter.

So how did we end up on the day? Could it be that the failout (just made that word up) of a bailout is […]

Rollover Chop and Slop

Were you listening to the S&P pit this afternoon? or, just watching the ES trade…. now THAT is the movie of chop and slop. Typical for rollover time – days better spent doing something more productive than trying to catch a decent intra-day trend!

The Wonderment of Modern Psychoanalysis

Modern Psychoanalysis investigates, identifies and resolves mental and emotional resistances to change.

It differs from the ubiquitous common approaches to helping others by avoiding the inescapable self-consciousness created by the process of setting goals and standards and then attempting to enforce them. These techniques tend to make clients feel guilty or […]

Having Forgotten to Doubt, “Modern Finance” drove us Insane

Portfolio selection: Let’s exhume the buried man!

In his milestone paper “Portfolio Selection” published in the Journal of Finance in 1952, Harry Markowitz, the pioneer of “modern finance,” recommends to use the Expected return-Variance (E-V) rule, both as a working hypothesis to explain investment behavior and as a guide to “investment” […]

The Big Money Day-Traders

Remember that nasty term from the internet bubble – day trading?

Hushhhhh! NO ONE wanted to be called a “day-trader”. All of those horrid types drove the market up and then drove it down and made everyone go broke…. right? … and they were stupid to boot.

Well day-trading is back …..but […]

Confidence

What is confidence?

Some of the definitions from dictionary.com say -1) full trust, 2) belief in the powers, 3) reliability of a person or thing (the market? your trading strategy?) 4) certitude.

But how is confidence experienced? I mean how do you know you have it or not? In other words, where […]

Risky, Uncertain or Ambiguous?

If you ask a neuroeconomist about the markets, they will say markets are NOT risky. In fact, they are 100% certain that risk is not the issue in markets.

What you say? Isn’t that the whole point – judging risk? Well yes… but, well actually no.

Let me explain. To a neuroecon […]

A Guy Thing?

Sunday’s NYTimes included an article about the study done by John Coates at Cambridge – you know – the one that talked about hormones – particularly testosterone fueling male traders to take more risks and cortisol to show up when traders are losing money.

I don’t know about the experimental design […]

Bottom-feeding, Oh but Why?

Last night I turned on the 7pm CNBC show and listened to not one but two money managers make the case that October 10th was the low.

It would make me wonder if they have ever heard of momentum but in reality, what they are doing is finding confirming data in […]

TARP – Treasury Acts ….

Treasury Acts Ridiculously _____________________? …. fill in the blank.

If the markets are based on confidence (or lack thereof) then where are we in the spectrum between panic and overconfidence? We are certainly on the left-end of this tug of rope. The panicked selling seems to be gone but now we […]

Stock Market Psychology & Trading Levels

well they asked…. and yes we are in a bear market i.e. sell the rallies and buy the dips.

I hated to sound like a downer but hey, Roubini I am not (although so far…. )

MONEY MATTERS on ABC NEWS NOW

Having said that, 900 in the S&P futures held like a […]

Financial Engineering Brought to You by Engineers

… most of which are human.

I saw this in the NY Times… and here is says from the WSJ but in any event, the word is out. Math wizzes are human. The human brain does funny things with biases and predispositions that causes it to not see the data clearly.

In […]

Elise Payzan Le Nestour on “The Brain on Risk”

On The Ubiquitous Missing Information in Markets: What Neuroeconomics Has to Say
‘Ambiguity’ is the Hallmark of Trading and Investing
The situation of taking a position when the odds are uncertain because of missing information is referred to by economists as “ambiguous”. F Knight in his book Risk, Uncertainty, and Profit was […]

Shiller, Negative Affect & Psych Cap

Robert Shiller writes in the New York Times about the role of group-think during the upward phase of our blown-up housing bubble. He recounts the polite discounting of his warnings in Irrational Exuberance (see all of Shiller’s books) and says “speculative bubbles are caused by contagious excitement.”

He segues to the […]

Shiller, Negative Affect & Psych Cap

Robert Shiller writes in the New York Times about the role of group-think during the upward phase of our blown-up housing bubble. He recounts the polite discounting of his warnings in Irrational Exuberance (see all of Shiller’s books) and says “speculative bubbles are caused by contagious excitement.”

He segues to the […]

David Brook’s “Behavioral Revolution”

The NY Times esteemed Op-ed and they leave out the best part – as mentioned in our earlier post today.

It is all fine and well to notice that we behave irrationally, it is all fine and well to say that some things are Black Swans… what it is NOT fine […]

World-class MIT Guy….

” Lo went on to say that research in the past decade shows that rationality and emotion are not as dichotomous as we might assume.? In fact, he says that we need to be able to feel emotion in order to be ?logical?.? In other words, emotion and logic are […]

Maniac-Depressive Algos

Uh…. up almost 1000 points at the relative speed of light?

The pace of the markets has changed a bit wouldn’t you say?

In other words, take a quant driven hedge fund, add an intraday momentum algorithm, put a server at the exchange and HOLD ON for dear life. For now let’s […]

When Will It Stop? … (the advice that is)

The unexamined truism, old wives tale advice …

from a CNBC guest blog …scroll down the the part where it says this -“2. These are trading markets where the ability to execute without emotion is the key to success.”

I realize that neuroeconomics is a new field and that the word […]

Evidently chop and slop can be in 100 point increments …

Wow – what a chopfest. … which I have heard is the sign of a bottom. I could really see and feel the fight for value – with about equal players on both sides. Hard NOT to get aggravated in that and even harder to apply the “well if it […]

Panics, Limit-Down and Windows…

What do our brains do when a down-trend becomes an avalanche – when
some snow gets rolling at the top and picks up steam and snow and speed
until it hits bottom – with no regard for anything in its way?

Two things to know –

First, it tends to assume it will get […]

Deep Breaths, No TV and Calm

The WSJ’s Intelligent Investor …

The weekend edition of the WSJ included Zweig’s column on fighting the herd mentality. In many ways it is good article… but it does what all articles and commentary seem to do… in the end it says “get rational”. The problem with this is when you […]

Who’s on third?

It is all too easy to forget the underlying mechanics of price movement. Price chops around in a small range (remember when it did that) when very few buyers/sellers (PEOPLE) have any real conviction (FEELING) or need (MOTIVATED = feeling) to buy or sell.

On the other hand, price moves directionally […]

Markets R Human

Markets are nothing more than the reflection of human beliefs and feelings. It doesn’t matter how anyone decides upon a price at which they might buy or sell, once they “are in” it is a belief about the future (10 seconds or 10 years) that is at least the underlying […]

A thousand points?

a 1000 points???? are they kidding…….

Richard Bookstabber in Demons of our Design had it right when he described how interconnected all trading and all markets are…. the only part he didn’t really cover in detail is this:

it is NOT fear and greed – it is fear and fear2. Fear2 is […]

brilliant, sad but true…

Human Market Makers

After Sept. 11th when the markets were closed for a week I pointed out to a WSJ reporter I know that this makes it clear that we should never have all electronic markets – the risk is too great. People have to be able to meet and make trades.

This market […]

FEAR in capital letters

At this point, it goes without saying – the entire world is gripped in fear. .. and for good reason. Forgive me for disagreeing with FDR but it isn’t that “the only thing we have to fear is fear itself” but “the only thing we have to fear is acting […]

Getting Help

Oftentimes when I speak as I have been doing lately we get lots of requests for help. Here is what you can do –

1) Sign up for the newsletter on the Independent Traders page and while you are at it, check out the link to the archives just below the […]

Auction Market Theory

We still believe this is the best way to read price action. In fact, we would go so far as to say that it is the best way to integrate the ideas out of behavioral finance into a way to actually trade the markets. Put simply, being able to easily […]

Finally… exchange-traded – gee what an idea!

Months ago we said that the complex products known as securitized mortgage products needed to be more standardized so that they could have been exchange-traded. (We admit this would not have been easy but to that we say, were option chains easy when they were first developed?)

Exchange-traded means the market […]

Turning Emotion into an Advantage

The question I get all the time is “Okay I buy this idea that emotions infuse all decisions and that is indeed the way the brain works, but how do I handle that any differently?”

Regardless if you are building a probabilistic model to trade gold against oil or tape-reading the […]

Neuroecon 2008

A professor from Northwestern, Dr. Camelia Kuhnen, who was co-author on the 2005 study showing emotion circuits firing before “deliberative choice” circuits in a simulated stock/bond investing game invited me to this annual meeting of the Society of Neuroeconomics. All of the presentations and something called “poster sessions” review the […]

Judging Performance in Unprecedented Markets

Last week the markets, as measured by the e-mini S&P contract, moved in ways (and for reasons) that we have not seen in our lifetimes. When you judge your performance for the week, judge it against that backdrop – good or bad. Or, should I say, bad or good?

It is […]

Wow! …what a market & CME’s Global Financial Leadership

Last Friday we all knew SOMETHING was going to happen. But who could have predicted the week that now was? LEH, MER, AIG and even RTC2…. 500 down, 500 up: certainly a time to understand the new science of decision-making!

Early in the week, I had the enormous privilege of attending […]

Human Risk

The idea of human risk offers a different angle on the idea of psychological capital. It is easy to think about markets and pricing as abstract entities when in reality they are the sum total of human decisions. Hence, human decisions are at the core of all bubbles, crashes, rallies, […]

Panic & Decision-Making

Of course you are panicky. I mean who wouldn't be? Do we have any experience with major US companies, banks in particular, going out of business one right after the other? Have any of us lived through this? Even if you were alive and remember the crash of 1929 or the depression that followed it, you didn't experience it in a 24 hour news cycle where each 12 hours brought the next major name to either its demise or the brink of disaster. This is scary stuff...

Emotions for the Markets

Decision-research basically proves that we need our emotions to make a good risk-reward decision.

What is Psychological Capital?

We've all heard of human capital and the importance of the human element. The concept of psychological capital takes that discussion to another level - a level where we can begin to further understand, analyze and actually build on our most significant asset.