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Ten Destructive Trading Thoughts

  
  Education
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  1. That resistance is way too close, I really shouldn’t have taken that signal. 
  2. I should definitely trade that breakout. My method doesn’t trade breakouts,but that’s areally good-looking trade.
  3. I’m long, this is a downtrend.  What the heck was I thinking?
  4. This going to be a loser, for sure.
  5. Price has ripped so far away from me – please don’t turn into a signal.
  6. This is clearly in a congestion range.  I’m going to ignore that signal and wait for a breakout.
  7. Buying spikes – this short is doomed.  See ya, money.
  8. Yippeee! It’s not turning into a signal!
  9. Ooh, nice profit – I should take that while it’s still there.
  10. Take the profit. TAKE THE PROFIT.  TAKE THE DAMN PROFIT!!!!!

Great Hunter, Lousy Trader

  
  Education
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Making money in the market is an unnatural act. We humans are predators and hunters evolved to track game on the horizon of an African savanna. Modern humans are maybe 5 million years old, but civilization has been around for only 10,000 years. Our brains have not had time to make the adjustment. In the market, this means that if a stock has gone up, you believe it will continue. This is why market tops and bottoms see volume spikes. To make money, you have to go against these innate instincts. Some people are born with this ability, while others can only learn it through decades of training.

Ten Destructive Trading Thoughts

  
  Education
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  1. That resistance is way too close, I really shouldn’t have taken that signal. 
  2. I should definitely trade that breakout. My method doesn’t trade breakouts,but that’s areally good-looking trade.
  3. I’m long, this is a downtrend.  What the heck was I thinking?
  4. This going to be a loser, for sure.
  5. Price has ripped so far away from me – please don’t turn into a signal.
  6. This is clearly in a congestion range.  I’m going to ignore that signal and wait for a breakout.
  7. Buying spikes – this short is doomed.  See ya, money.
  8. Yippeee! It’s not turning into a signal!
  9. Ooh, nice profit – I should take that while it’s still there.
  10. Take the profit. TAKE THE PROFIT.  TAKE THE DAMN PROFIT!!!!!

The psychophysiology of trading

  
  Education
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The paper is old (2002) but still interesting. Andrew W. Lo and Dmitry V. Repin in “The Psychophysiology of Real-Time Financial Risk Processing” report the results of their experiment to measure the emotional responses of ten traders—five highly experienced and five with low to moderate experience. They wired up these traders to plot real-time changes in their skin conductance, blood volume pulse, heart rate, electromyographical signals, respiration, and body temperature.

Although the sample is very small and hence just a first stab, the authors noted some significant differences between the two types of traders. The less experienced traders, for instance, seem to be more sensitive to short-term changes in such market variables as deviations and trend reversals. Both sets of traders, however, saw spikes in their blood volume pulse in the face of volatility events.

Lo and Repin conclude that “emotion is a significant determinant of the evolutionary fitness of financial traders.”

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