Archives of “Social psychology” tag

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Examine Your Beliefs

  
  Education
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There is lot of talk of trading psychology , but what exactly are the 3 or 5 things you can do to improve your psychology.
If you want to increase your muscles you go and lift weight
If you want to improve your stamina, you go and run daily
If you want to reduce weight you eat less and exercise more
What exactly do you need to do to improve your psychology.
First starting point if you want to improve your psychology is by examining your beliefs
You can only trade what you believe in.
Your beliefs drive your behavior. (more…)

Emotions as Information for Traders

  
  Education
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Start with a premise: Suppose you were empathic and could experience the emotions of the trading crowd.

You could feel their fear.
You could sense their greed.
What they felt, you felt.
If that premise were true, then emotion would not be something you would fight, ignore, or minimize.
Nor would emotion be something you’d blindly follow.
For the empath, emotion would be information: valuable information. It would be an indicator no less than market price or volume.
How would it change your trading to view every trading emotion as information to be scrutinized? How would it change your experience of your trading? 
Amazing what a difference a premise can make.

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…)

1+14 Mental Behavior of Traders

  
  Education
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  1. Boredom: The trader wants some “action” so they put on a trade. Trades are for when entry signals are hit not to alleviate boredom.

  2. Pessimism: The trader starts to have a negative attitude about losing money. Be positive if you are learning form losses becasue you are paying tuition for this education.
  3. Frustration: Frustration comes from expectations not being met. Don’t focus on your P& L, focus on executing your trading plan.
  4. Overwhelm: Focus and simplicity are the keys to profits, complexity and lots of information are the road to be overwhelmed and unprofitable.
  5. Disappointment: Disappointment should not come from losing trades, disappointment should only come because of a lack of discipline in trading your plan.
  6. Doubt:Only trade a system AFTER you have thoroughly researched, back tested, or studied it in real time. Trade only with proven faith in a system, naive hope quickly leads to doubt and failure. (more…)

Mistakes Were Made (But Not By Me)-Book Review

  
  Education
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MISTAKES-WERE MADEOne of the best things I came across this  past week was this terrific review by  Morgan Housel where he shared insights  from the book “Mistakes Were Made (But  Bot By Me)” by Elliot Aronson and Carol  Tavris. Several members have  recommended this book to me so I was  very interested to read his review.
According to Mr. Housel, this are the six  most important things all of us should  learn from this book, many of which are  very important to investors and traders alike:

1. Everyone wants to be right and hates admitting the  possibility of being wrong.As fallible human beings, all of us share the impulse to justify  ourselves and avoid taking responsibility for any actions that turn
out to be harmful, immoral, or stupid. Most of us will never be in a  position to make decisions affecting the lives and deaths of  millions of people, but whether the consequences of our mistakes  are trivial or tragic, on a small scale or a national canvas, most of  us find it difficult, if not impossible, to say, “I was wrong; I made a  terrible mistake.”
The higher the stakes — emotional, financial, moral — the greater the difficulty. It goes further than that: Most people, when directly  confronted by evidence that they are wrong, do not change their  point of view or course of action but justify it even more tenaciously. Even irrefutable evidence is rarely enough to pierce  the mental armor of self-justification.

2. You brain is designed to shut out conflicting information.In a study of people who were being monitored by magnetic  resonance imaging (MRI) while they were trying to process  dissonant or consonant information about George Bush or John Kerry, Drew Westen and his colleagues found that the reasoning  areas of the brain virtually shut down when participants were  confronted with dissonant information, and the emotion circuits of
the brain lit up happily when consonance was restored. These mechanisms provide a neurological basis for the observation that  once our minds are made up, it is hard to change them. (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…)

The Good Psychopath’s Guide to Success-Dutton & McNab :Book Review

  
  Education
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the goodAccording to a controversial 2011 study by researchers at the University of St. Gallen, traders are more reckless and more manipulative than psychopaths. The traders in the study were intent on getting more than their opponents; in fact, “they spent a lot of energy trying to damage their opponents.” They behaved as though their neighbor had the same car, “and they took after it with a baseball bat so they could look better themselves.”

I suppose Kevin Dutton and Andy McNab would characterize these traders as bad psychopaths. They possess some character traits that could propel them to great profits, but if left unchecked these traits may lead to financial implosion instead.

The Good Psychopath’s Guide to Success: How to use your inner psychopath to get the most out of life (Apostrophe Books, 2014) is co-authored by a (good) psychopath and a psychologist. McNab is an SAS (British Special Air Service) legend who, as he himself claims, is “considered to be one of the top thirty writers of all time”—I assume by someone whose education was tragically cut short. Dutton, a research fellow at Oxford, has spent a lifetime studying psychopaths. The book, reflecting the penchants of the authors, illustrates self-help principles with rough and tumble adventure tales.

A psychopath has a distinct subset of personality characteristics, including ruthlessness, fearlessness, impulsivity, self-confidence, focus, coolness under pressure, mental toughness, charm, charisma, reduced empathy, and a lack of conscience. Depending on how these traits are dialed up, down, or omitted, the psychopath can be either good or bad.

(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.

Our Favorite Non-Investing Books About Investing

  
  Education
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A few people have asked me over the past couple of weeks to share some of my favorite books outside of finance that are applicable to investing. The majority of these books are based on psychology because it plays such an important role in making better investment decisions. Here’s my list:

Mindless Eating: Why We Eat More Than We Think by Brian Wansink
The analogy between your finances and losing weight has been used over and over again throughout the years. It’s a useful analogy because the decisions in both activities are mainly affected by people’s behavior (or a lack of behavioral change). A couple of my favorites stats from this book: (1) People make an average of over 200 food-related decisions each day and (2) It’s estimated that 95% of all people who lose weight on a diet gain it all back.

Influence: The Psychology of Persuasion by Robert Cialdini
This one has been recommended by Charlie Munger on a number of occasions so I finally read it this year. It’s one of the best psychology books I’ve ever read. This book really helps you step into the shoes of the mind of a marketer or sales-person trying to get you interested in their product. These people are masters at getting into people’s heads to get them to act. Cialdini also touches on the social proof theory, which states that most people look to see what others are doing to figure out acceptable behavior. (more…)

HUMAN MISJUDGMENT- 22 Points

  
  Education
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1.  Under-recognition of the power of what psychologists call ‘reinforcement’ and economists call ‘incentives.’

2. Simple psychological denial.

3. Incentive-cause bias, both in one’s own mind and that of ones trusted advisor, where it creates what economists call ‘agency costs.’

4. This is a superpower in error-causing psychological tendency: bias from consistency and commitment tendency, including the tendency to avoid or promptly resolve cognitive dissonance. Includes the self-confirmation tendency of all conclusions, particularly expressed conclusions, and with a special persistence for conclusions that are hard-won.

5. Bias from Pavlovian association, misconstruing past correlation as a reliable basis for decision-making.

6. Bias from reciprocation tendency, including the tendency of one on a roll to act as other persons expect.

7.  Now this is a lollapalooza, and Henry Kaufman wisely talked about this: bias from over-influence by social proof — that is, the conclusions of others, particularly under conditions of natural uncertainty and stress. (more…)

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