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 ideas I teach originate with […]
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 programs for this ability were […]
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 trader’s brain responds with an […]
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 know, price action “mis-behavior” can […]
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 is and how it works? […]
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 two explanatory problems:
1) Everyone agrees […]
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 our brains see markets – […]
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 the world called…
Yet underlying much […]
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.