Archives of “crowd psychology” tag

rss

Weekend news – record number of US coronavirus cases and hospitalisations continue

  
  Analysis
#  #  #  #  #  #  #

Fears of wave after wave (is the US even out of the first wave?) of COVID-19 in the US continue as cases, hospitalisation and deaths mount.

While case counts can be (and are) rationalised away citing increased testing, hospitalisation and the death toll cannot be swept under the carpet in the same way.
Via Reuters:
  • Arkansas, North Carolina, Texas and Utah all had a record number of patients enter the hospital on Saturday
From the same report at Reuters:
  • most states are not considering a second shutdown as they face budget shortfalls and double-digit unemployment. Many went ahead with reopenings before meeting government infection rate guidelines for doing so.
Health concerns are likely to keeping ‘risk’ in check.
Fears of wave after wave (is the US even out of the first wave?) of COVID-19 in the US continue as cases, hospitalisation and deaths mount.

Money-Mind-Method

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #

Mind: The key to winning is inside the Mind. As Master of your mind, you have to manage and understand your emotions very well. It is extremely important to understand not just the individual’s psychology, but also the crowd psychology of the markets. To become a successful trader, you must have sheer perseverance and discipline.

Method: There is no Holy Grail in the search for the perfect method to trade. Follow the wisdom of ‘Plan your Trade and Trade your Plan’. A good trading plan should cover your entry, exit and position sizing requirements. My method consists of discretionary trading techniques that combine both fundamental and technical analysis, in addition to my own proprietary automated trading system. Coming up with a good trading plan requires lots of market experience, as you modify, conquer and solidify your trading techniques. Don’t be duped by charming salesmen selling get-rich-quick-without-effort secret recipes. 

Money: Overall profit/loss depends on money management. The first goal of money management is capital preservation. If you lose 10% of your capital, you have to make 11% just to break even. If you lose 40%, you need to make 67%, and if you lose 50%, guess what? You have to make 100% just to recover! So before you think about making big money, first you got to think about not risking your capital unnecessarily. Money management is too important to be overlooked.

Herd Behavior in Financial Markets

  
  Education
#  #  #  #  #  #  #  #  #  #

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…)

Hank Pruden on "Behavioral Finance" and Technical Analysis

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

Hank Pruden’s theory of “Behavioral Finance” proposes that human flaws are consistent, measurable and predictable, and being aware of and utilizing this phenomenon can benefit a trader.

“For the better part of 30 years, the discipline of finance has been under the thrall of the random walk\cum efficient market hypothesis. Yet enough anomalies piled up in recent years to crack the dominance of the random walk. As a consequence, the popular press has been reporting the market behavior,” said Pruden. One of these new methods discussed is “behavioral finance.”

Pruden is a professor in the School of Business at Golden Gate University in San Francisco. He was a featured speaker at the 20th annual Telerate Seminars Technical Analysis Group Conference (TAG 20). (more…)

Trading Book Review Of the Week: The Three Skills of Top Trading

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

This book is written about how three mutually reinforcing skills make a complete trader.

1). Pattern Recognition and Discretionary Trading.

Using the Wyckoff method you will see chart representations of how hot growth stocks are accumulated in bases for long periods of time. They eventually have pull backs then break out to new highs and trend. You will also see how they eventually have exhaustion tops on high volume that fail to rally and they begin to break down in distribution with lower lows and lower highs. The author encourages discretionary trading through experience by being able to identify market action through the models from past stocks. This work ties in nicely with the school of thought from legendary traders William J. O’Neil, Jesse Livermore, and Nicolas Darvas.

2). Behavioral finance and systems building.

The book teaches that readers must be flexible in their trading. We are merely a ship on a sea of market participant opinions. Follow the prevailing sentiment during the middle of the the trend, and go contrary to it at the extreme tops and bottoms. Hope, fear, and greed are the dangers and the movers of the market that cause support and resistance,  trends, and chart patterns. The action of the stock market is nothing more than a manifestation of mass crowd psychology in action. The Pruden model shows a chart of how accumulation, mark-up, distribution, and markdown works in the market tied to price, volume, sentiment, and time. It truly explains how the price pattern and charts in growth stocks generally play out historically. (more…)

Go to top