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Neuroplasticity: Your Brain and Your Trading – #AnirudhSethi

  
Analysis, Education
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Neuroplasticity – HOPES Huntington's Disease InformationIn Neuroplasticity: Your Brain and Your Trading, we will explore how Neuroplasticity can help traders create a more accurate trading system. Neuroplastic is the ability of your brain to adapt to its surroundings and change through experience. Neuroplasticity is an exciting new area of research in which scientists are studying the ways that our brains change over time with various types of input.

Mental training has been shown to be a powerful tool in improving performance on tasks from memory recall, math calculations, motor skills, creativity, decision-making, and many others. Neuroscientists have found that mental training increases gray matter volume in specific areas of the brain responsible for those skills.

 

##What is neuroplasticity and how does it affect trading?:

 

In the world of neuroscience, babies are like sponges. They process data twice as fast and their brain is still developing due to new neural connections that form in response to stimuli. The thing about brains—they can adapt! Imagine what it would be like if your left speech center was damaged after an accident or stroke; you could learn how to use your right side instead because they’re always adapting with time (talk about a tough feat).

Your brain is more awesome than we even thought: not only does it have all this processing power but also some cells called “mirror neurons” which help us understand other people’s actions by simulating them ourselves–in short, mirror neurons make imitation easy for our children while giving adults empathy skill.

The conventional wisdom once said that we could never recover from the loss of brain cells, but now research has shown that you can grow new ones. For instance, if a senior is injured or ill they will experience significant changes to their neural pathways in response and this makes up for lost neurons by creating more connections between healthy neurons so everything can be sorted out again! (more…)

Emotions In Trading -Anirudh Sethi

  
Analysis, Education
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For many traders emotional trading is a problem and it stops them from being consistent in the market. We see what causes emotional trading in this article and I share six steps to greatly help reduce it, or stop it entirely.

Emotions in trading have always been one of the main causes of losses, and at the same time − the main driving force for all types of money. Remember the classic idea: buyers push the price up because of greed, and sellers sell because of fear of losses?

It still works perfectly in any market.

Popular training materials on market trading almost do not pay attention to managing emotions. This is understandable: any broker is the first participant in the trading process, which is vitally interested in having you leave your deposit to the market.

That is why most newcomers, especially those who passed the super-fast and super effective training in various brokerage kitchens, remain psychologically unprepared for trading. And even good technical training will not help such players save their money.

Assessing and reacting to market risk is one of the most important things you’ll have to do as a trader. Sadly, human being as a whole are so mediocre at this task, investors and traders reliably make decisions that economists consider “irrational.”

So obviously these are commonly more referred to as emotional trading.

 

Six Steps to Help You Stop Emotional Trading

Financial markets are a by-product of modern era and, in the grand scheme of things, our brains have evolved over millions of years for survival out in the open. They haven’t had the time to get good at making sound and perfectly rational financial decisions.

We have brain processes; an emotional one and a logical one that are constantly competing against one another for our future expression in the market. And normally, for the trader that has little to no market experience, who trades money they can’t afford to lose, or who has a short fuse overall, the stage is set for an incident.

But also more seasoned traders tend to make emotional trading decisions that they consider stupid in hindsight. Perhaps less often than inexperienced traders do, and with minor consequences, but those errors do happen.

Many a times, although we know with the logical part of our brain that we will get better results if we follow our trading rules, so many of us do exactly the opposite, despite clear knowledge of what we should do.

We remove stops, we cut winners short, we go in with too big of a size… I mean, we’re clearly

not purely rational beings ― and we can’t be because that would make us robots, not humans.

(more…)

TRADING IS WAR. PREPARE YOUR WEAPONS

  
  Education
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SUN TZU gives a very clear and succinct reason for his military treatise in the first three sentences when he says,

“The art of war is of vital importance to the state.  It is a matter of life and death, a road to either safety or ruin.  Hence it is the subject of inquiry which can on no account be neglected.”

Here is my interpretation for traders: 

“The art of trading is of vital importance to the success of the trader.  It is a matter of financial life and death, a road to either consistent profits or significant loss of income.  Hence it requires much thoughtful study that cannot be neglected.”

 SUN TZU and THE ART OF WAR                       THE TRADER and THE ART OF TRADING

Important to the StateImportant to the trader
A matter of life and deathA matter of financial life or death
Road to safety/ruinA road to consistent profits/significant losses
Subject of inquiry not to be neglectedSubject of thoughtful study not to be neglected

As we continue to explore SUN TZU’s ART OF WAR, keep the above table in mind for everything that follows in his treatise will be shaped by SUN TZU’s foundational premise, which is this: since war is a given fact whoever engages in it best be prepared because the warrior’s very survival is at stake.

Trading is war.  If you have been trading long enough I do not have to convince you that it is so.  Thoughtful study of the market and how we relate to it is the key to our success and our very survival.

Why Traders Fail ?Read These 20 points

  
  Education
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1. Lack of motivation. A talent is irrelevant if a person is not motivated to use it. Motivation may be external (for example, social approval) or internal (satisfaction from a job well-done, for instance). External sources tend to be transient, while internal sources tend to produce more consistent performance.

2. Lack of impulse control. Habitual impulsiveness gets in the way of optimal performance. Some people do not bring their full intellectual resources to bear on a problem but go with the first solution that pops into their heads.

3. Lack of perseverance and perseveration. Some people give up too easily, while others are unable to stop even when the quest will clearly be fruitless.

4. Using the wrong abilities. People may not be using the right abilities for the tasks in which they are engaged.

5. Inability to translate thought into action. Some people seem buried in thought. They have good ideas but rarely seem able to do anything about them.

6. Lack of product orientation. Some people seem more concerned about the process than the result of activity.

7. Inability to complete tasks. For some people nothing ever draws to a close. Perhaps it’s fear of what they would do next or fear of becoming hopelessly enmeshed in detail.

8. Failure to initiate. Still others are unwilling or unable to initiate a project. It may be indecision or fear of commitment. (more…)

Risky cravings

  
  Education
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“When you are threatened with extinction, you act like nothing matters,” said Andrew Lo, a professor at M.I.T. who has studied the role of emotions in trading. Mr. Kerviel, he said, is a case study in loss aversion.

“The best traders are the ones who have controlled emotional responses,” Mr. Lo said. “Professional athletes have the same reaction – they use emotion to psych them up, but they don’t let those emotions take them over.”

The Trading Plan- Discipline

  
  Education
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Trying to win in the markets without a trading plan is like trying to build a house without blue prints – costly (and avoidable) mistakes are virtually inevitable. A trading plan simply requires a personal trading method with specific money management and trade entry rules.
Discipline was probably most frequent word used by the exceptional trades that I interviewed.
There are two reasons why discipline is critical. 

  • Its a prerequisite for maintaining effective risk control.
  • You need discipline to apply your methods without second guessing and choosing which trade to take.

A final word, remember that you are never immune to bad trading habits – the best you can do is to keep them latent. As soon as you get lazy or sloppy, they will return !

Perceptions in Trading -Anirudh Sethi

  
Analysis, Education
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Image result for PerceptionsPerceptions are a normal part of daily life. It is normal to have a perception of someone, something or a situation, but this perception is often judgmental. One tends to allow feelings, emotions and looks to affect the perception. Despite being a normal and inherent part of human psychology, perceptions can be highly problematic if left uncontrolled in the case of traders.

A trader cannot allow perceptions to cloud his/her judgement and decisions. Perceptions can be deceiving and they thus need to be kept in check as they could lead to erroneous decisions.

In a perfect world, a trader will manage to be completely rational. He/she would be able to assess all facts so as to base decisions and choices on sound information and data. Such a perfect scenario would not allow emotions, perceptions and feelings to come into the picture. As a result the decision making process and the resultant decisions should be ideal. However this is an unreal scenario as we all know that this is not possible in a real world. This is what makes trading psychology so interesting, and yet so complicated and complex. However one should consider this in a positive way as it after all lies at the foundation of why the market and the life of a trader is so challenging and exciting.

The basic idea is to try to keep perceptions under control as much as possible. Despite all efforts though, even seasoned traders may find it hard to be veyr rational at times. One cannot forget that there is tension, pressure, emotion and various other aspects which come into play while a trader is trying to make up his/her mind about the best and the safest course of action. (more…)

The Market Makes You Feel Bad Majority of the Time

  
  Education
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  • Unless you nail it right exactly, you will feel frustration / regret / fear in all other outcomesTraders are always choosing among the lesser of the evils. Feeling regretful is practically inescapable.
    • When you get the trade direction wrong
    • When you got out too early
    • When you got out too late
    • When you miss a trade
  • Regret Theory says that people have the desire to avoid future regret when they make their decisions.

How Stress Produces Trading Losses

  
  Education
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  • Nothing is stressful unless it is perceived as being a thread (losing money)
  •  Worry has a great effect on human performance, because it represents conscious mental activity.  Since it is conscious, it takes up processing capacity.
  • Often, the trader is too preoccupied with the potential results of what he id doing, rather than the process of being a trader.
    1. Losses scare me. The model calms me.  Trade your plan.
    2. Concerned about losses.  Preoccupation. Tunnel vision
    3. View losses as negative because fear of not having money.  A loss is a character building exercise that is needed to go through to obtain positive expectancy.
    4. Low Volatility/High Volatility  Multiple Intra-weekly signals
    5. Close at a profit/Close at stop
    6. Nightly distractions (Family, Businesses, Work, Vacation, Lack of Internet)
    7. Greed leads to confirmation bias, other bias in holding position
    8. Money motivated, need results for success, freedom for family
    9. Need to evaluate relationships with parents/money deeper to get to depths of self-esteem
    10. Tasks
      1. Daily Self-Analysis
      2. Daily Mental Rehearsal
      3. Focus and Intention
      4. Developing a Low-Risk Idea
      5. Stalking
      6. Action
      7. Monitoring
      8. Take Profits/Abort
      9. Daily Debriefing
      10. Be Grateful for What Went Right
      11. Periodic Review

Ways to Increase Willpower For Traders

  
  Education
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  • Plan in advance and operate on the basis of habit
    • You need to have a trading plan that covers all permutations that the market can possibly throw at you. You need less willpower to follow a clearly defined plan than to try adhering to broad principles in reaction to the market.
    • Keep practicing applying your trading plan, so that you can make following the rules a habit. It is like driving, the more you do the less effort it requires progressively.
  • Motivate yourself, remind yourself of the importance of what you are doing
    • You need to remind yourself of the importance of achieving good trading results, of the importance of not throwing your hard-earned money away.
    • Use visualization techniques to picture situations where you follow your trading plan successfully. Thinking that you have lots of willpower actually makes it so.
    • Think of some trader you admire that have lots of self-control and unfazed by market movements (e.g. Ed Seykota)
  • Exercise your willpower
    • Willpower is like a muscle, the more you exert your willpower in whatever tasks, the greater your capacity for self-control.
    • You can get yourself to follow rules such as sitting up straight, opening doors with your left hand, etc.
  • Have sufficient food
    • Exercising willpower uses up glucose. Being hungry means you don’t have the energy to exert willpower.
  • Have sufficient rest
    • You can replenish your ‘willpower’ stores through sleep. Get sufficient sleep every day.
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