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Trading Psychology: Watch out for that dopamine

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The market is not your enemy. You are. Well not you, but some of your innate biochemistry is. Not to make this article a major lesson on biology but I want to point out one of the major buggers that messes with your head: Dopamine. It’s a neurotransmitter chemical that drives so much of our motivations and behavior. Call it nature’s motivator drug. Vegas casinos know all about it. In fact, the gambling industry’s entire business model is designed around how to maximize how much fun dopamine is having in people’s brains to extract value from the gullible millions. Scientists have studied the effects of dopamine in detail and came up with some surprising results:

We all know when something nice happens to us we experience feelings of bliss and joy. Gamblers get excited when the lights go off at a slot machine and coins fall into the slot below. Traders experience giddiness when they have a nice winning trade. So far so good, but here comes the wicked revelation: Studies show that the ‘near-miss’ effect triggers dopamine levels not only as equal but they even grow stronger over time versus a winning experience. (more…)

"Men's Hormone Levels Might Affect Financial Markets"

Hormones can affect the body and mind in a number of ways, and now it turns out that they may even have an impact on men’s financial risk taking.

A new study published today in Scientific Reports suggests that alterations in the levels of cortisol and testosterone in male market traders may predict risk taking and price instability, at least in lab experiments designed to resemble real-world financial markets.

The researchers conducted two experiments. First, 142 men and women played an asset-trading game in groups of about 10 people each. The game mimicked some of the characteristics of real-world financial markets, in which multiple participants trade stocks as buyers and sellers, and the behavior of each trader is affected by the behavior of other traders. The researchers measured naturally-occurring levels of cortisol and testosterone in saliva samples taken from the people in the study. They found that, in men, high levels of cortisol were linked to increased trading activity as well as the likelihood of mispricing and overall price instability.

In the second experiment, the researchers administered cortisol to 34 men ages 18 to 30, and testosterone to 41 men in the same age group before the men played the asset-trading game. The participants in both groups were also given placebo in a different stage of the experiment so that the researchers could compare hypothetical effects of both hormones on risk-taking behavior with placebo. The investigators found that the men in the study were more likely to invest in riskier assets after receiving either of the two hormones than they were after receiving placebo. (more…)

Richard Donchian’s Trading Rules (Father of TrendFollowing)

Richard Donchian developed a plan in 1934 (no, that is not a typo) that he soon published as a set of guidelines. The majority of those guidelines are still relevant to every investor today:

  1. Beware of acting immediately on widespread public opinion. Even if correct, if will usually delay the move.
  2. From a period of dullness and inactivity, watch for and prepare to follow a move in the direction in which volume increases.
  3. LIMIT LOSSES, ride profits – irrespective of all other rules.
  4. Light commitments are advisable when a market position is not certain.
  5. Seldom take a position in the direction of an immediately preceding three-day move. Wait for one-day reversal.
  6. Judicious use of stop orders is valuable aid to profitable trading.
  7. In a market in which upswings are likely to equal or exceed downswings, a heavier position should be taken for the upswings for percentage reasons – a decline from 50 to 25 will net only 50% profit, whereas an advance from 25 to 50 will net 100%.
  8. In taking a position, price orders are allowable. In closing a position, use ‘market’ orders.
  9. Buy strong acting, strong background (markets) and sell weak ones, subject to all other rules.

(more…)

Cancer May Soon Be Detected By a Simple Blood Test

A new study is all set to change the course of medical history in the field of cancer detection forever, as it has identified roughly 800 biomarkers present in the blood of cancer patients which can be found out through a single blood test, making early detection of cancer a possible reality in the future.

This study is the very first to comprehensively review and identify cancer-specific blood markers for future clinical development. Almost 19,000 scientific papers were analyzed and more than 800 biomarkers were identified.
This research aimed at using a single blood sample for developing a screening test to identify multiple cancer types. Every type of cancer is known to produce markers in the blood. Therefore, developing a general screening test for many different forms of the disease may be feasible.

Study author Ian Cree, a Cancer Research UK funded scientist at the University of Warwick and University Hospital in Coventry said in a press release, “This is a new approach to early detection and the first time such a systematic review has been done. A single blood-based screening test would be a game changer for early detection of cancer which could help make it a curable disease for many more patients. We believe that we’ve identified all the relevant biomarkers; the next step is working out which ones work the best for spotting cancers.”

The research is poised to be presented at the National Cancer Research Institute (NCRI) Cancer Conference.

What did the ancient Hindus ever do for us?

Narendra Modi, Indian prime minister, has relaunched his country’s controversial claims to some of the world’s greatest scientific achievements with his suggestion that ancient India was adept at genetics and plastic surgery, including the grafting of the elephant’s head onto the god Ganesh.

His remarks – ironically made at the opening of a high-tech hospital in Mumbai – have revived a political debate about the growing influence of the right-wing Rashtriya Swayamsevak Sangh (the Organisation of National Volunteers) over the governing Hindu nationalist Bharatiya Janata party.

Hindu fundamentalists are delighted by Mr Modi’s words, left-wingers are appalled or mocking and many foreigners are simply bemused that India’s real cultural, scientific and medical achievements are being overshadowed by simplistic references to the mythological past. (more…)

Benefits of Mindfulness in Trading

Mindfulness in trading can be of significant benefit to traders.  Mindful trading will positively impact traders and their trading in a number of ways:

  • Reduce loss aversion
  • Mitigate the disposition effect (i.e., cutting winning trades short and letting losing trades run)
  • Help traders get into “the zone”
  • Reduce the negative effects of cognitive biases and heuristics on trading decisions
  • Directly reduce stress
  • Help traders see the market more clearly
  • Increase awareness of the trader’s internal state and how it impacts their trading
  • Increased ability to maintain focus on the market and the trading task at hand while trading, even when emotions are running hot
  • Increase internal emotional regulation
  • Other positive effects on trading and trading behavior

The Development of Mindfulness Skills Helps the Trader

  • Reduce stress
  • Tame the fear response
  • Counter the strong tendency toward loss aversion
  • Strengthen decision making
  • Strengthen internal emotional regulation
  • Improve and develop emotional intelligence
  • Reduce the dominance of intuitive decision making and cognitive error
  • Increase deliberative attention
  • Better see the market and its trading opportunities
  • Stay on task
  • Overcome the negative‐reinforcing properties of ineffective trading
  • Enhance overall psychological well‐being.