3 thoughts about behavior

[olias]

Quote from TradeWrecker:

Dial the leverage down, reduce your trading frequency and come to terms with the honest potentials of trading and adjust your “hopes and dreams” around it in an appropriate way.

good stuff here

 

[TradeWrecker]

Quote from FreeMarketRider:

Nicely summarized - Question on 1 & 2:
Can you post any links to research? (I will google on my own when I have time). Bias? - Does this relate to personality types? Addictive behaviors?

3 is a gem - For me this has been a lesson learned only after repeated roller coaster rides. Emotion clouds perception which restrains action. The challenge of emotion seems to always be framed in terms of ego. I think you point here is that it can be much more than just that. Learning to see trading as a business is a big differentiating factor.

Great Post

FMR... sorry for the lazy late reply. I'd suggest two books to get started, one small, one big, both exceptionally notated with additional research.

The Little Book of Behavioral Investing - J.Montier
Advances in Behavioral Finance - R.Thaler

These will help you lay a foundation and provide some basis for my own "belief biases".

The trick with this kind of research is application: How do we actively apply it to our own decision making processes? I think the answer is a humbling one. We can't... At least not until we've engaged is significant study of how we make decisions with regards to our trades and then intentionally break them down and try to really analyze what we did wrong.

The real problem with that process (at least this is what I believe) is, it takes years and years to actually grow the skill sets that enable us to look at a market, access the over-load of data and make a calculated decision that actually has merit. I've often paralleled trading to becoming a surgeon. The amount of study required and the commitment to do it, to suffer through it, aren't common in most people. This is a very hard task, no matter how easy the retail bucket shops try to make it appear.

People should have a ten-year plan for trading and how they will survive that decade financially. If you make it before then, good for you, but no one should ever plan or assume they will do it quicker. Deep, deep, knowledge of your craft and the surrounding, hyper dynamic environment is required to survive, much less excel.

And the finger waggers will be on this post in 3,2,....1

 

[TradeWrecker]

Quote from bearmountain:

Pardon me for being blunt, but what you write is total BS. If you first don't control your emotions, they will override any sane realistic goals that you set. Trading is engineered from within, faulty belief system, self-sabatoage will kill all your best laid plans.

Research trumps replying to posts with no substance... this is Elite Trader not DailyFX.

You're assessment of the original point equaling "bull-shit" seems to contrast one's need to "control your emotions". If this post lit your fire you must be pretty new to the job.

"Trading is engineered from within". LOL... i'd love to read the research that is based on. Can I just "ohm" my way to success.

Do you sit in the house at night and dream of writing a book to teach others how to make ten percent a month... I bet you do. Good luck with that. If history has taught us anything it's that there really is a sucker born every minute... I'm sure your bag of tootsie roll pops are waiting for your triumphant entry into FxStreet.com where you to can be admired by thousands.

As I'm not a professional trader (i.e. money manger) anymore I don't really feel the need to avoid conflict, so if you want to engage in a debate by all means have at it. I'll eat your breakfast and show you the door to knowledge the hard way...

I can hardly wait for your next installment of deep experience...

 

[TradeWrecker]

Quote from jack hershey:

Relating behavior to markets is very interesting.

Being specific emerges from looking at about 6 things.

The bottomline is that any person can use his emotions as "tells" regarding his strengths and/or weaknesses.

When a person is less than optimally skilled and knowledgeable to partner with a market, his performance is less than optimal.

Personal emotions are very accurate for providing "tells" at just when these failures are ensuing.

te best emotional tells are constantly being explained as "problems" in ET. As you read, an irrational process is suggested as the solution.

Baron has suggested I use more dignified ways to address some people who are less than proficient. Good idea from him to me.

The literature is replete on whther BF is or is not BS.

What is penultimate is the bottomlines.

If emotions come into the picture for anyone at ant time and the emotions are warning relateed to survival (fear, anxiety and anger) the person is specifically being told at that time that something is amiss. Specifically a person is being told to flee; he is in danger.

The solution BF suggests is NOT "controlling emotions". The solution is to "make reasonable changes in technique".

Most anomalies can be eliminated in EMH by "making changes in technique".

My post is a death nell for a lot of people. Sorry about that.

When BF examine overreaction and underreaction, it is determined that they balance out quite well. This is just a statement that the participating community is screwed in two ways and both group are not going to do very well. No one is in both groups, it turns out.

The generalization I like best is about the TWO MOST SIGNIFICANT PRINCIPLES I DEAL WITH. Here are twp more failure components where people's emotions are providing "flee" instructions to the individual.

1. pre event continuation of pre event abnormalities,

2. balance with post event reversals.

I suppose this is a behavioral measure of the fact that people are lagging traders for the most part; meaning they are doing the wrong thing and doing it at the wrong time as well. reminder, your emotions are signalling to you to "flee" this circumstance.

Lastly is the major BF correlation. People above all are irrational in a very consistent and correlated way. On ET this is charcterized often as empathetic posts among those having the same emotional warnings.

The good news, BF has determined smart investors take advantage in EMH by exploiting mispricing and irrational investors.

So the best contribution that can be made from BF results is that any trader at any skill and knowledge level have an emotional guide.

If someone learning wants to take advantage of his spent time, he can keep a journal. The prompt for making an entry is clear from BF. when you get emotional "flee signals", that is the time to log in your journal.

Having the logging you know just when and where you are in trouble with your methodology.

BF instructs you to do one effort: MAKE REASONABLE CHANGES IN YOUR TECHNIQUE.

Thus the above outlines how iterative refinement works in the learning process of learning to trade.

As you make methodology improvements, you get graded on these improvements. You figure out something and you apply it. You get an emotional response to this iterative improvement in your trading.

Not to be unkind or anything, I notice a person who is contributing to a person who is an ininformed OP somewhere else. This contributor is criticised and his critics are staightened out by historical references.

I notice the money maker is also not winning on all trades. I also notice he watches the market all day long and is almost never in the market more than three times and for only a few minutes each time. He trades forabout 45 minutes over 6 1/2 hours. The OP is losing money and telling everyone no one can make money.

Both have emotional signals coming to them, neither leeps logs or journals although the successful guy posts in ES P&L daily.

Here is the thing,, trading P&L's have to be plotted on semilog graphs. Suing a journal to log emotional signals nd then make reasonable changes in technique is how to shift the P&L curve most frequently going point to point.

BF states the errors made by people. BF finance states how to detect where and what methodological mistakes occur. BF states how to itieratively refine a methodology.

Personal note: in my trading I use two principles: Continuation and reversals. (see Dodd/Granville). BF confirms thee are cardinal circumstances for when the EMH is underfire by poor traders. BF says these are the places where smart traders exploit irrational traders.

An exit is an identity with an entry. In five stages, atrader can examine the end of continuation, the beginning of change, optiimum change, the end of change and the beginning of continuation. This casan keep atrader IN the market ALL the time and ON THE CORRECT SIDE OF THE MARKET ALL THE TIME.

Whatare the emotions accociated with this? They are comfort, support and confidence. Thus if I feel even a tinge of the "flee" emotions, look immediately to see which of the five stages I am in regarding a reversal at optimum. There is always a consideration at that time of looking at my smart trader leading indicator, the DOM, my OTR charts (YM and ES) and the T&S with particular interest to BBid, BAsk and block size rate of change.

If you pilot on a regular basis, you grab some scot's towels and scotch tape. you cover a lot of the panle indicators. you fly without seeing at them, but you DO check out your supposed dependence upon them whic detracts you form perception of flying conditions. some times an Eagle hangs out around a wingtip. you know sooner or later he is going to come over a bash the canopy and then take fly to circle higher and higher above your climbing the same thermal. He's laughing at you too.

Find out why you can't see the thermals on your indicator panel. Find out how to fly with egles. Get BF straight to begin with.

Sorry I am being so unpleasant to those who are mistaken.

IMHO... there is a tremendous amount of good information in this post.

 

[SarahNGuyen]

Psychology is way overrated in trading literature. When you understand this:

%win x avg win > %loser x avg loss = profit

the right state of mind naturally follows.

I'm not saying that experience doesn't matter, but writing 500 page on trading psychology? no way

 

[FreeMarketRider]

Quote from jack hershey:

Relating behavior to markets is very interesting.

Being specific emerges from looking at about 6 things.

The bottomline is that any person can use his emotions as "tells" regarding his strengths and/or weaknesses.

Personal emotions are very accurate for providing "tells" at just when these failures are ensuing.

The literature is replete on whther BF is or is not BS. What is penultimate is the bottomlines.

The solution BF suggests is NOT "controlling emotions". The solution is to "make reasonable changes in technique".

Most anomalies can be eliminated in EMH by "making changes in technique".

When BF examine overreaction and underreaction, it is determined that they balance out quite well. This is just a statement that the participating community is screwed in two ways and both group are not going to do very well. No one is in both groups, it turns out.

The generalization I like best is about the TWO MOST SIGNIFICANT PRINCIPLES I DEAL WITH. Here are twp more failure components where people's emotions are providing "flee" instructions to the individual.

1. pre event continuation of pre event abnormalities,

2. balance with post event reversals.

I suppose this is a behavioral measure of the fact that people are lagging traders for the most part; meaning they are doing the wrong thing and doing it at the wrong time as well. reminder, your emotions are signalling to you to "flee" this circumstance.

Lastly is the major BF correlation. People above all are irrational in a very consistent and correlated way. On ET this is charcterized often as empathetic posts among those having the same emotional warnings.

The good news, BF has determined smart investors take advantage in EMH by exploiting mispricing and irrational investors.

So the best contribution that can be made from BF results is that any trader at any skill and knowledge level have an emotional guide.

If someone learning wants to take advantage of his spent time, he can keep a journal. The prompt for making an entry is clear from BF. when you get emotional "flee signals", that is the time to log in your journal.

Having the logging you know just when and where you are in trouble with your methodology.

BF instructs you to do one effort: MAKE REASONABLE CHANGES IN YOUR TECHNIQUE.

Thus the above outlines how iterative refinement works in the learning process of learning to trade.

As you make methodology improvements, you get graded on these improvements. You figure out something and you apply it. You get an emotional response to this iterative improvement in your trading.

Here is the thing,, trading P&L's have to be plotted on semilog graphs. Suing a journal to log emotional signals nd then make reasonable changes in technique is how to shift the P&L curve most frequently going point to point.

BF states the errors made by people. BF finance states how to detect where and what methodological mistakes occur. BF states how to itieratively refine a methodology.

Personal note: in my trading I use two principles: Continuation and reversals. (see Dodd/Granville). BF confirms thee are cardinal circumstances for when the EMH is underfire by poor traders. BF says these are the places where smart traders exploit irrational traders.

An exit is an identity with an entry. In five stages, atrader can examine the end of continuation, the beginning of change, optiimum change, the end of change and the beginning of continuation. This casan keep atrader IN the market ALL the time and ON THE CORRECT SIDE OF THE MARKET ALL THE TIME.

Whatare the emotions accociated with this? They are comfort, support and confidence. Thus if I feel even a tinge of the "flee" emotions, look immediately to see which of the five stages I am in regarding a reversal at optimum. There is always a consideration at that time of looking at my smart trader leading indicator, the DOM, my OTR charts (YM and ES) and the T&S with particular interest to BBid, BAsk and block size rate of change.

If you pilot on a regular basis, you grab some scot's towels and scotch tape. you cover a lot of the panle indicators. you fly without seeing at them, but you DO check out your supposed dependence upon them whic detracts you form perception of flying conditions. some times an Eagle hangs out around a wingtip. you know sooner or later he is going to come over a bash the canopy and then take fly to circle higher and higher above your climbing the same thermal. He's laughing at you too.

Find out why you can't see the thermals on your indicator panel. Find out how to fly with egles. Get BF straight to begin with.

Quote from wrbtrader:
I think the main reason why we tend to see threads about how to keep emotions in check while trading is that most traders try to keep it simple as possible even though such may be counter-productive. In contrast, if they had to sit down and plan realistic trading goals, analyze the impact of their inherent bias...it's not easy for most to sit down to closely examine how they interact with the markets let alone sit down to develop a plan involving how to manage that interaction with the markets.

Quote from TradeWrecker:
The trick with this kind of research is application: How do we actively apply it to our own decision making processes? I think the answer is a humbling one. We can't... At least not until we've engaged is significant study of how we make decisions with regards to our trades and then intentionally break them down and try to really analyze what we did wrong.

The real problem with that process (at least this is what I believe) is, it takes years and years to actually grow the skill sets that enable us to look at a market, access the over-load of data and make a calculated decision that actually has merit. I've often paralleled trading to becoming a surgeon. The amount of study required and the commitment to do it, to suffer through it, aren't common in most people. This is a very hard task, no matter how easy the retail bucket shops try to make it appear.

People should have a ten-year plan for trading and how they will survive that decade financially. If you make it before then, good for you, but no one should ever plan or assume they will do it quicker. Deep, deep, knowledge of your craft and the surrounding, hyper dynamic environment is required to survive, much less excel.

Jack Hershy - Interesting take on BF; Reading your emotions; Journaling, and the iterative improvement process.

bearmountain - I don't think the TradeWrecker was offended, but I don't think he was prepared to defend BF in this thread.

wrbtrader - Nice summation.

TradeWreaker - Thanks for the book references. How long in your own evolution did it take for you put your emotions in their rightful place?

I've had a funded account since 1994, but have only traded off and on when I've had time to work at trading. I'm coming back to trading after over 5 years of not looking at markets. In my work life example (engineering ops), I beat back my fears / stresses by building deep level component / system / process knowledge. It took me about a year to fully integrate the theoretical training (engineering degree) with the real world actions.

Duplicating the required assessment / reaction skills in markets is the make or break challenge we all face. I'm a profitable trader (but not sure I would label myself consistently profitable). I'm making a choice to re-engage because I have more time to devote. I do love the intellectual challenge of trading

Anyone else what to volunteer how long they've been trading?

Great Comments All; Have a great weekend

 

[bearmountain]

Quote from TradeWrecker:


"Trading is engineered from within". LOL... Can I just "ohm" my way to success.


As I'm not a professional trader (i.e. money manger) anymore I don't really feel the need to avoid conflict, so if you want to engage in a debate by all means have at it.

My BS comment seemed to have pushed quite a few of your buttons. Other than a few silly personal attacks and something about fx, I didn't hear anything of substance.

btw. its "om" my way to success. and not "Ohm". Ohm was a German physicist. Ohm's Law defines the relationships between power, voltage etc I don't think you would want to short circuit your brain.(joke)


Yes, I would like to debate you sir, it will, I believe further my understanding. Where would you like to start?

PS. my background is in computer science and not psychology. I study psychology to become a better trader. Thanks.

 

[TradeWrecker]

Quote from FreeMarketRider:





Jack Hershy - Interesting take on BF; Reading your emotions; Journaling, and the iterative improvement process.

bearmountain - I don't think the TradeWrecker was offended, but I don't think he was prepared to defend BF in this thread.

wrbtrader - Nice summation.

TradeWreaker - Thanks for the book references. How long in your own evolution did it take for you put your emotions in their rightful place?

I've had a funded account since 1994, but have only traded off and on when I've had time to work at trading. I'm coming back to trading after over 5 years of not looking at markets. In my work life example (engineering ops), I beat back my fears / stresses by building deep level component / system / process knowledge. It took me about a year to fully integrate the theoretical training (engineering degree) with the real world actions.

Duplicating the required assessment / reaction skills in markets is the make or break challenge we all face. I'm a profitable trader (but not sure I would label myself consistently profitable). I'm making a choice to re-engage because I have more time to devote. I do love the intellectual challenge of trading

Anyone else what to volunteer how long they've been trading?

Great Comments All; Have a great weekend

I was "lucky" enough to have been a research assistant at Dean Witter in 87 & 89, while in college... I saw the immediate direct effects of over trading by my senior manager who "managed" to wipe out a handful of accounts through both of those rocky years. I was just entering the fray of professional trading in 2000 when the markets collapsed again. At the time I was over-leveraged in my personal accounts and paid the price. Once bitten, twice shy...

I sucked it up and dug back in for three more years to reestablish my track-record. What I experienced in those years emotionally was completely different than what I felt at DW or when trading my funds earlier. When your exposure is in check, it's only the worst decisions that get you looking for the Maalox.

 

[Redneck]

Quote from bearmountain:

Pardon me for being blunt, but what you write is total BS. If you first don't control your emotions, they will override any sane realistic goals that you set. Trading is engineered from within, faulty belief system, self-sabatoage will kill all your best laid plans.

BM,

What say we dispense with the niceties – AND cut through the bullshit...

You are dead nuts correct

RN

 

[NoDoji]

Quote from SarahNGuyen:

When you understand this:

%win x avg win > %loser x avg loss = profit

the right state of mind naturally follows.

If this were true, the vast majority of traders would be profitable because there are so many excellent trading books, CDs and seminars that teach you how to trade with positive expectancy, statistical edges and positive reward:risk ratios. Statistically, all you have to do is follow a set of rules and you can't help but be net profitable over time. The rules to follow aren't difficult understand, trade execution and management have never been easier, and you don't even need huge sums of money to get started (my son's friend started with $300).

I'm consistently profitable using really basic methods found in trading books I either checked out at the library or bought on Amazon.com, or saw demonstrated in free on-line webinars. I saw some of these webinars and read some of these books very early in my trading career and continued to trade inconsistently, make mistakes again and again, and realizing nasty losses for a significant period of time.

Knowledge and understanding in no way guarantees that the right state of mind (and consequently the right actions) will follow, because the hard statistics tell us that over 90% of traders are not profitable despite free educational materials and almost no barriers to entry.