- I haven’t seen much correlation between good trading and intelligence. Some outstanding traders are quite intelligent, but a few aren’t. Many outstanding intelligent people are horrible traders. Average intelligence is enough. Beyond that, emotional makeup is more important.
- As I recall more than half the course revolved around developing the right attitude, guarding against debilitating emotions, how to think about risk, and how to handle success and failure.
- Teaching the turtle system itself doesn’t take very long. I was saying you need less than 12 degrees of freedom in a system; versions of the turtle system had three or four.
- We spent a lot of time talking about our theories on how to control risk; that was actually the bulk of the course. Attitude, emotional control, discipline; those things are harder to teach. All the turtles learned the system and learned the strategy; that was the easy part, but some of them brought the right attitude and right mental set to it and they prospered and became very rich. Others had a more halting career and did not succeed as well. They had the same training, but maybe they did not have the same emotional make-up.
Archives of “neuroscience” tag
rssSuccessful, positive people have different brain connections
Scientists have for the first time observed a connection between particular brain centers and the presence of talent, success and positive lifestyle choices in people. The fMRI technique opens the door to extensive research which could improving human cognition.
The research was undertaken by the University of Oxford’s Centre for Functional MRI of the Brain (FMRIB). It took a large sample of 461 individuals, and crossed them with 280 behavioral traits, as well as demographic, traits – including language, vocabulary, education, income and others.
Strong correspondence between a set of brain links and positive lifestyle/ behaviour traits http://t.co/T6uPlytCfc pic.twitter.com/X7fUZvSZkI
— Oxford University (@UniofOxford) September 29, 2015
The initiative was part of the $30 million Human Connectome Project (HCP), funded by the US National Institutes of Health, aimed at studying the neural pathways of the brain. In this particular study, the Oxford team wished to create an average map of the brain’s processes.
“You can think of it as a population-average map of 200 regions across the brain that are functionally distinct from each other,” Professor Stephen Smith of Oxford University, said.
“Then, we looked at how much all of those regions communicated with each other, in every participant.”
The resulting maps, which the scientists called connectomes, included 280 behavioral and demographic traits for each subject. Compiling all data, a ‘canonical correlation analysis’ was able to establish correlations between the two data sets.
Gambling vs. Trading
“Gambling is taking a risk when the odds are against you. Speculating is taking a risk when the odds are in your favor.” Victor Sperandeo
“the only difference between gambling and trading is that your amount at risk and amount of potential reward varies with trading.” I agree, but there’s more to it. The parallels are obvious, from the lack of control over outcome to the illusion of knowledge to the physiological effects of having a stake in the outcome. However, the differences are substantial…and mostly mathematical.
The expectancy in gambling is ALWAYS terrible, while market speculation at times offers outstanding opportunities. To get a 2:1 or 3:1 opportunity in gambling, one needs to accept incredibly low odds of victory. In financial markets, those 2:1 or above opportunities come around like clockwork and offer high enough probability that long-term positive expectancy is possible. Not only that, but the market speculator has the opportunity to adjust his or her position after the game begins…when was the last horse race where you could take a little off the table after the first turn? Or reclaim most of your bet when your horse stumbles out of the gate?
I’ll leave the neuroscience to the experts, but it seems to me that we need to coordinate our left brain(rational) and right brain(experiential) in laying out the role of each. We want to allow our intuition to shine through, but within the overall structure of positive expectancy. No matter how hard one tries, the math of gambling can’t come close to touching the opportunities for building a business out of the markets.
Ultimate Goal For All Traders
In my opinion, this is the ultimate goal for all traders: Get to the point where you can make confident decisions on your own and trade with complete independence. While I tremendously respect the opinion of my colleagues, I DO NOT rely on them. I can turn off Blue Channels, and all communication to the outside world…and still be fine with making my own decisions and letting THE MARKET tell me if I’m right or wrong. I apologize if this sounds cocky, but it’s simply the truth.
How do you get to this point? Make decisions and learn from them! I openly admit that I have made TONS of mistakes in the market, and I still make mistakes EVERY DAY. The key is I’ve learned from them and now try my best to minimize those mistakes. As Tony Robbins says: “Good decisions come from experience, and experience comes from bad decisions.” The key is to MAKE a decision without worrying that you might be wrong. As long as you learn from it, you can correct it the next time. Again, just make the decision! Who knows, it might end up being a good one
Defination -RUMOR
Rumors have always been the fuel of financial markets. The modern Wall Street saying “Buy on the rumor, sell on the news” would not have been surprising to any Dutch trader in the 17th century. As Joseph de la Vega wrote in Confusion de Confusiones, his book about the Amsterdam Stock Exchange, in 1688:
The expectation of an event creates a much deeper impression upon the exchange than the event itself. When large dividends or rich imports are expected, shares will rise in price; but if the expectation becomes a reality, the shares often fall; for the joy over the favorable development and the jubilation over a lucky chance have abated in the meantime.
The figures shown at the right in this painting of the Amsterdam exchange, painted around the time of de la Vega’s book, appear to trading the latest hot rumor:
Deliberately spreading false rumors was one of the most effective tactics for profiting on stocks in the 18th century. In his pamphlet “The anatomy of Exchange-Alley,” published in 1719, Daniel Defoe wrote: (more…)
Should You Trust Your Trading Intuition?
I’ve heard from many traders that they often take decisions based on instincts. Actually, all non-quants use intuition in some form or another. If you are not using a program that takes all signals that your system produces, how do you decide between several equally good looking trading setups with similar risk to reward? Do you take them all or do you concentrate on only a few? The odds are that you are doing the latter and your ultimate choice for capital allocation is subconscious.
Even though we are defined by our decisions, we are often completely unaware of what’s happening inside our heads during the decision-making process.
Feelings are often an accurate shortcut, a concise expression of decades’ worth of experience.
The process of thinking requires feeling, for feelings are what let us understand all the information that we can’t directly comprehend. Reason without emotion is impotent.
This is an essential aspect of decision-making. If we can’t incorporate the lessons of the past into our future decisions, then we’re destined to endlessly repeat our mistakes.
Nothing can replace personal experience: (more…)
Inside the Mind
When I impulsively take the first type of countertrend trades (i.e. missed a good trend), here’s what is going through my mind:
- Woah, the move has already gone quite a distance.
- Sigh, I should’ve taken that entry earlier. I shouldn’t have followed my trading plan so strictly.
- Should I get in now? No, I cannot get in any more, I cannot chase the market, it’s too risky, I have no logical stop nearby, you don’t know when it might reverse down quickly.
- I have already missed the move. I need to wait to enter in the opposite direction when the trend ends.
- The trend has gone too far, it must turn soon
- Look! There’s a bit of resistance, the trend is about to turn, go short! (for an uptrend)
And the countertrend trade is made! Below are what I think are the psychological process at work:
- Observation
- Regret
- Trading is always full of regrets. You always think you can do better.
- Indecision, uncertainty, anxiety
- Fear of losing out starts to take hold.
- When you don’t have a well-defined trading plan that caters for all scenarios, or if you don’t believe in your trading plan, you will face indecision and anxiety.
- Resignation
- I accepting that I can no longer enter in the direction of the trend.
Inside the Mind
When I impulsively take the first type of countertrend trades (i.e. missed a good trend), here’s what is going through my mind:
- Woah, the move has already gone quite a distance.
- Sigh, I should’ve taken that entry earlier. I shouldn’t have followed my trading plan so strictly.
- Should I get in now? No, I cannot get in any more, I cannot chase the market, it’s too risky, I have no logical stop nearby, you don’t know when it might reverse down quickly.
- I have already missed the move. I need to wait to enter in the opposite direction when the trend ends.
- The trend has gone too far, it must turn soon
- Look! There’s a bit of resistance, the trend is about to turn, go short! (for an uptrend)
And the countertrend trade is made! Below are what I think are the psychological process at work: (more…)
Improve Cognitive Performance-3 Simple Steps
Here are three simple practices that can improve alertness, concentration, and overall cognitive performance:
1) Hydration – Thanks to Henry Carstens for pointing this one out. A lack of proper hydration has been found to negatively impact mood among women and decrease alertness and concentration among men. A wide range of studies link dehydration to declines in short-term memory, concentration, alertness, visuomotor tracking, motor skills, and computational performance. Water is essential for feeding the brain.
2) Power Naps – Sleep is a restorative. Although sleeping on the job has a negative connotation, research finds that power naps improve creativity, memory, energy level, and general cognitive functioning. Naps also improve decision-making and problem-solving, with naps of different lengths offering different benefits. A 20-30 minute nap is ideal for improving alertness.
3) Moving Around – Prolonged sitting carries a number of health risks. Standing at the desk for a portion of the day can also increase energy and improve mood. Exercise during the day improves sleep quality, energy level, and mood.
So what does that tell us? The traditional way of working as a trader–sitting at the desk all day, hunched over and focused on screens, guzzling coffee and soda–is bad for our cognitive performance and bad for our health. If you’re a world-class athlete, you will do everything possible to maintain your body in peak condition. If you’re a world-class trader, keeping your brain in peak condition is equally important. It makes little sense to spend time looking for more and better trade setups when our minds are poorly maintained to act upon those.
Mauboussin: Three Steps to Effective Decision Making (Video )
Making an important decision is never easy, but making the right decision is even more challenging. Effective decision-making isn’t just about accumulating information and going with what seems to make the most sense. Sometimes, internal biases can impact the way we seek out and process information, polluting the conclusions we reach in the process. It’s critical to be conscious of those tendencies and to accumulate the sort of fact-based and unbiased inputs that will result in the highest likelihood that a decision actually leads to the desired outcome. In this video, Michael Mauboussin, Credit Suisse’s Head of Financial Strategies, lays out three steps that can help focus a decision-maker’s thinking.
Make the Right Choice: Three Steps to Effective Decision Making