Archives of “Behavioural sciences” tag

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WHO chief Tedros: Using the word ‘pandemic’ carelessly has no benefit

  
  Analysis
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Says it could amplify unjustified fear and stigma, paralysing systems

Tedros
  • Calling it a ‘pandemic’ may also signal that we can no longer contain the virus, which is not true

He won’t be making many friends with the remarks above but I don’t think he is completely wrong. The last thing the world needs is to engage in full-blown panic and to turn on governments for not treating this seriously enough.

But the fact is that no country wants to be the first one to let this virus turn into an uncontrollable disease. Let’s face it, even though it had originated from China, they are arguably the only ones to be able to combat the virus on such a large scale.
At the same time, this is a good social experiment to explore how much human greed has affected our day-to-day lives in this world; if the virus wins that is.
Humanity can easily survive and contain the virus outbreak if we all put healthcare over the economy – even for just a little while. But the hard truth is that money is really what makes the world go round. And it always will be.

Herd Behavior in Financial Markets

  
  Education
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HERD-ASROver the last twenty-five years, there has been a lot of interest in herd behavior in financial markets—that is, a trader’s decision to disregard her private information to follow the behavior of the crowd. A large theoretical literature has identified abstract mechanisms through which herding can arise, even in a world where people are fully rational. Until now, however, the empirical work on herding has been completely disconnected from this theoretical analysis; it simply looked for statistical evidence of trade clustering and, when that evidence was present, interpreted the clustering as herd behavior. However, since decision clustering may be the result of something other than herding—such as the common reaction to public announcements—the existing empirical literature cannot distinguish “spurious” herding from “true” herd behavior.

     In this post, we describe a novel approach to measuring herding in financial markets, which we employed in a recently published paper. We develop a theoretical model of herd behavior that, in contrast to the existing theoretical literature, can be brought to the data, and we show how to estimate it using financial markets transaction data. The estimation strategy allows us to distinguish “real” herding from “spurious herding,” or the simple clustering of trading behavior. Our approach allows researchers to gauge the importance of herding in a financial market and to assess the inefficiency in the process of price discovery that herding causes.

The Model
Let’s give an overview of the model that we brought to the data and try to explain why herding would arise. In the model, an asset is traded over many days; at the beginning of each day, an event may occur that changes the fundamental value of the asset. If an event occurs, some traders (informed traders) receive (private) information on the new asset value; although this information may be imprecise, these traders do know that something occurred in the market to alter the value of the asset. The other traders in the market trade for reasons not related to information, such as liquidity or hedging motives. If no event occurs, all traders only trade for non-informational reasons. (more…)

Don’t Let Negative Emotions Control You

  
  Education
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Successful traders do not allow negative emotions to affect their decision-making. Trading is a stressful process, and you will experience many setbacks. Expect them, however, and don’t see losses as indications that you will never succeed. Instead, be prepared to identify your negative reactions and act on them in positive ways.

Successful traders turn fear into gain. They realize that losses are a part of their business, and they expect them. But while they know that some trades will cost them money, they let those same trades become a gain in knowledge. Remember that each time you have a loss, this gives you some guidelines on how to alter your strategy. Perhaps your stop loss needs to be set higher, perhaps you need to alter how you identify trends, or perhaps you need to use new indicators. (more…)

12 Reflections on Life and Markets

  
  Education
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I’ve never seen a trader succeed whose explicit or implicit goal was to not lose. The trader who trades to not lose is like the person who lives to avoid death: both become spiritual hypochondriacs.

No union was ever destroyed by a failure of romance. It is the loss of respect, not love, which ends a relationship.

Love, once present, never dies. It must be killed.

Sometimes we select markets–and trading styles–much as we choose romantic partners: by their ability to validate our deepest-held images of ourselves. Our choices generally succeed, for better or for worse.

Many a trader fears boredom more than loss, thereby experiencing the two in sequence.

(more…)

Apply Will Power in Trading

  
  Education
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Much of successful trading has to do with having the discipline, the willpower, to follow the trading plan. And much of a good trading plan goes counter to a human’s natural reactions to the market. Hence the greater your willpower, i.e. the better you are able to have self-control or self-regulation, the better your trading.

Below are some key points from the article and Roy Baumeister’s YouTube videos, and my thoughts on how they apply to trading.

The Nature of Willpower

  • Willpower is a limited resource that gets depleted when you use it.
    • I typically find that my trading at the early part of the session is good. I would follow my trading plan well and profits usually follows. However towards the later part of the morning, I start to make mistakes and go counter to my trading plan, that’s when my results suffer.
    • Be aware of when you have run out of juice. I find that once I start make a few consecutive trades that violate my trading plan, I recognize that my willpower has been depleted, I am not making good decisions, so I go take a break, or stop trading for the day entirely.
    • Some traders recommend not trading for more than 3 hours a day. Yes you may miss a run away market after you stop trading, but recall your experiences when the market trended very well the entire day but yet you lost money. To extract money from the marketsrequires willpower to make the right trading decisions. When you are not able to follow your trading plan, the probabilities favor you giving money to the markets instead, regardless of the market situation.
  • When your willpower is depleted, you feel your emotions more intensely (more…)

How to Handle a Justifiable Loss

  
  Education
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  • Accept the loss and forget about it.
    • Record it in your record book and do not rehash it.
  • Do not discuss the loss with anyone.
    • Do not recruit anyone’s sympathy or sorrow.
    • Do not feel sorry for yourself.
    • Do  not soothe your loss by going overboard on food, drink, or sex.
  • Do not feel as if you have been punished.
    • Do not punish or hate yourself for losing.
    • Do not allow yourself to accept any punishment from loved ones.
    • Do not accept ridicule or blame from your broker.
  • Do not blame your trading system.
    • Do not alter your technique, system, or methods.
  • Do not fear making the next trade
    • Do not respond by allowing your market studies to fall behind.
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