3 thoughts about behavior

[jack hershey]

A lot of work, clinical and otherwise, has been done on sensing, and perception.

It has been thoroughly documented that three mind operators are involved in snesing in trading. They are the same ones used in driving a car which is a topic well understood by most people.

I put these in the trading routine box in a prior drawing and let the outputs go to a "perception" box.

Most traders use OODA as their routine. John Boyd introduced OODA via fighter pilot training. OODA basically makes a bet and sees how it turned out. After that the environment is modified to make the betting/ test more optimal. This routine orientation may be where a lot of the expressions that trading is gambling come from. There is also some general view that slower fractals are better for using OODA on.

See Dr Hu document for all the illustrations related to how the operators work and how stress is handled by the BOHR Syndorme, etc...

In BF, there has been a lot of work done that shows that big traders are under stress when they trade. The emotional sysmptoms reported are congruent with the CW trading emotions of fear, anxiety and anger.

Prior to the quote cited, there were two charts used as illustrations to begin the paper on page 1707. See attached.

 

[jack hershey]

The human eye is sensing and the optic nerve takes data to the brain where the mind is set up to "operate" and get some stuff to the short term memory for doing the trading routine.

Three operators do the work of converting what is sensed to "perception."

What is matched to the sensing (black) is the Blue stuff from the long term memory.


Look at the picket fence with the dog barking behind the picket fence.

You can "see" the dog and figure out what he is doing by looking at the space, the patterns and the movements.

BF suggests if you get an emotional signal where there is an anomally in what you are viewing, then you make reasonable adjustments in technique.

Throw in a "meow" instead of barking.

If you do, then you get to look at the illustration and see that a different set of blue stuff is helping you to get the proper red to the short term memory.

 

[jack hershey]

What a trader percieves goes into his trading routine. The OODA Loop which is so common is quoted below from the John Boyd site on the web. I left in some history that may serve to orient a potential trader who may want to gain some backfround.

" Military theories
During the early 1960s, Boyd, together with Thomas Christie, a civilian mathematician, created the Energy-Maneuverability, or E-M, theory of aerial combat. A legendary maverick by reputation, Boyd was said to have "stolen" the computer time to do the millions of calculations necessary to prove the theory, but it became the world standard for the design of fighter planes. At a time when the Air Force's FX project (subsequently the F-15) was foundering, Boyd's deployment orders to Vietnam were canceled and he was brought to the Pentagon to re-do the trade-off studies according to E-M. His work helped save the project from being a costly dud, even though its final product was larger and heavier than he desired. However, cancellation of that tour in Vietnam meant that Boyd would be one of the most important air-to-air combat strategists with no combat kills. He had only flown a few missions in the last months of the Korean War, and all of them as a wingman.

With Colonel Everest Riccioni and Pierre Sprey, Boyd formed a small advocacy group within Headquarters USAF which dubbed itself the "Fighter Mafia". Riccioni was an Air Force fighter pilot assigned to a staff position in Research and Development, while Sprey was a civilian statistician working in Systems Analysis. Together, they were the visionaries who conceived the LFX Lightweight Fighter program, which ultimately produced both the F-16 and F/A-18 Hornet, the latter a development of the YF-17 Light Weight Fighter. Boyd's acolytes were also largely responsible for developing the Republic A-10 Thunderbolt II or "Warthog" ground-support aircraft, though Boyd himself had little sympathy of the "air-to-mud" assignment.[4]

After his retirement from the Air Force in 1975, Boyd continued to work at the Pentagon as a consultant in the Tactical Air office of the Office of the Assistant Secretary of Defense for Program Analysis and Evaluation.

Boyd is credited for largely developing the strategy for the invasion of Iraq in the first Gulf War. In 1981 Boyd had presented his briefing, Patterns of Conflict, to Richard Cheney, then a member of the United States House of Representatives.[1] By 1990 Boyd had moved to Florida because of declining health, but Cheney (then the Secretary of Defense in the George H. W. Bush administration) called him back to work on the plans for Operation Desert Storm.[5][6][1] Boyd had substantial influence on the ultimate "left hook" design of the plan.[7]

In a letter to the editor of Inside the Pentagon, former Commandant of the Marine Corps General Charles C. Krulak is quoted as saying "The Iraqi army collapsed morally and intellectually under the onslaught of American and Coalition forces. John Boyd was an architect of that victory as surely as if he'd commanded a fighter wing or a maneuver division in the desert."[8]

The OODA Loop
Boyd's key concept was that of the decision cycle or OODA Loop, the process by which an entity (either an individual or an organization) reacts to an event. According to this idea, the key to victory is to be able to create situations wherein one can make appropriate decisions more quickly than one's opponent. The construct was originally a theory of achieving success in air-to-air combat, developed out of Boyd's Energy-Maneuverability theory and his observations on air combat between MiGs and F-86s in Korea. Harry Hillaker (chief designer of the F-16) said of the OODA theory, "Time is the dominant parameter. The pilot who goes through the OODA cycle in the shortest time prevails because his opponent is caught responding to situations that have already changed."

Boyd hypothesized that all intelligent organisms and organizations undergo a continuous cycle of interaction with their environment. Boyd breaks this cycle down to four interrelated and overlapping processes through which one cycles continuously:

Observation: the collection of data by means of the senses
Orientation: the analysis and synthesis of data to form one's current mental perspective
Decision: the determination of a course of action based on one's current mental perspective
Action: the physical playing-out of decisions

Of course, while this is taking place, the situation may be changing. It is sometimes necessary to cancel a planned action in order to meet the changes.

This decision cycle is thus known as the OODA loop. Boyd emphasized that this decision cycle is the central mechanism enabling adaptation (apart from natural selection) and is therefore critical to survival."

 

[jack hershey]

Here is a schematic look at OODA.

The official ones are quite detailed and have several feedback loops that show how O and O are modified.

It is getting pretty apparent as to how probability got into the dynamics of trading.

Keep in mind that BF explains how smart investors and traders are continually exploiting the markets.

A lot of clinical analysis of people under stress has been done and this stress leads to behavior of certain types in trading.

these behavioral shortcomings have been categorized and how they lessen performance is well known.

BF gives a way to solve shortcomings.

 

[ammo]

do you fight with your spouse, kids, folks, friends,store clerks ,customers,traffic snarls....trading....these are all uncontrolled emotions ,which in the end altered your day or you,and in such controlled you...so these emotions are every where...not just trading...where do they come from...negative memories and negative projections...these aren't going away but they can be minimized......said this before but here goes...if you have bad memories ,childhood,teens, adulthood. relatives ,teachers bosses neighbors friendships..and have'nt let them go ....they are going to change the flavor of every thought..like putting a drop of dishsoap on your tongue before dinner....so you forgive every mistake that anyone ever made that affected you...if your a parapalegic from a drunk driver , this would be a lot more difficult but all the more necessary because you have more to deal with.. i know 2 and the accident in there teens is the farthest thing from there minds...now most of us didn't go thru that...so if you are thinking "i can't forgive "...get over yourself..now if you did that move on to forgiving yourself... i failed before so i will fail again...fear...forget about failure ...how many times does a 6 -11 month baby fall doing pushups before crawling and standing before walking,we've all been there literally...... now that you did that refrain from making personal judgements about yourself or anyone else..the blame game ...come up with one memory of blaming someone for something ever ended with a positive result...waste of time...negative energy.....after those 3 tasks are out of the way...you are left with...." just the facts maam"...now you trade knowing you could be wrong,you also know that if wrong you will get out....over time you get better at reading the market and placing trades and your safety net is you, you know how to take a loss..don't trade with your emotions,trade with common sense

 

[jack hershey]

So how does the trip from observer to expert trader turn out?

for some people, it turns out that we fit into Larry Harris's hierarchy in a particular place that allows us to be parasites of the Conventional Wisdom.

This classification is technical and anticipatory.

We anticipate BF's A, B, C and D and we use reasonable changes in technique to optimize plans, strategies and routines.

It is just a morphing of the CW into an effective and efficient system to continually extract the markets offer on any fractal in any market that has liquidity.

For me, it happened shortly in 1957. At that time the 70 some trend monitoring and analysis public substantive information items were sufficient to handle becoming a parasite of the CW in order to exploit the market operation under EMH.

As those who know PEP and its applications: PVT, SCT and SSR, there is no betting in the MADA routine because it is based upon deduction and the Scientific Method.

A Lo on page 1729, bottom put volume in its place beginning with a topical sentence in the first of three paragraphs: " Given the prominent role that volume plays in technical analysis , we also construct returns conditioned on increasing and decreasing volume."

This section of the research report is one of the most humorous found in the whole product.

The last paragraph in troduces the "curse of dimensionality.

With BF getting to the characterization of traders and what they do, and with the characterization of how to emotions as a signal for locating problems, why do so many people fail in trading or in reseach as Lo and his buddies did?

It doesn't matter if people cannot learn from this circumstance of CW and the financial industry.

In the "precise science thread, it will be possible to lay how extracting the offer of the market is done.

 

[outsource]

FEAR MATRIX
Primary source of fear : bank account --->Desire to increase capital overrides our ability to rationalise the larger picture--->Risc becomes apparent the moment a trade is placed and becomes live in the market.
Reducing The Fear
Trade with reasonable equity management guidelines--->Fear is reduced,proper execution of our trade begins and we have small effect on our overal financial picture - bank account.

 

[FreeMarketRider]

Gents - These are all Great Reply's - Nice work.

Many years ago I pretty much banished "fear" out of my life, but it's been an ongoing struggle to banish "stupidity"

When I was doing "engineering ops", Jacks description of OODA was more less how good responses were made. Time was a critical factor. Failures were usually on the second O (observation), if you got that right then D was easy.

In trading most never assemble a reliable perspective. Trouble (and memory of past trades) impair decision making ability. This is why so much of what goes into an individuals rules is really about decision support (or decision removal).

I like ammo's take - ya have to be able to let these emotions go. I like Jack's take - you have to work to improve because the market is always improving. I like outsources FEAR MATRIX. We all live with it in the front / middle / back of our minds.

At a very simplistic level - trading leveraged instruments sort of like playing checkers. The price usually moves up or down. Simple choices Buy or Sell. This is what is fed to the noobs. We all know its a bit more complex. All those account disclosure documents are a nice way of informing the noob that if you lose - WE WILL BURN YOUR HOUSE DOWN

(Sorry, I am not as smart as the rest of you guys - but I hope the last paragraph made you laugh. When clueless people used to ask me about my trading I tried to explain it with the checkers model - Interest usually went to zero when I got to the part about house burning)

 

[TradeWrecker]

Quote from FreeMarketRider:

... In trading most never assemble a reliable perspective. Trouble (and memory of past trades) impair decision making ability. This is why so much of what goes into an individuals rules is really about decision support (or decision removal).

For me this is a very important concept. Few traders understand how to train for improved decision making, but it is a must. Once you understand the approach all you need then are the years to learn from it and then turn that information into an edge... Which, if you're smart, you will never disclose until it no longer works.

 

[jack hershey]

Some very nice and thoughtful comments in this thread.

Personally I feel it is like being at a fork in the road.

Do you concentrate on the mind of the trader (building your mind or leaning how behavior works) or do you concentrate on attaining the knowledge and skills that embody expertise.

Both are easy to do when a person is organized.

the last 60 years were such a neat experience as anyone can read. For me, ISAGA was a terrific assemblage of individuals and movements that made the bridge to the public being informed and operational. The process of getting there was probably more significant that the results everyone now takes for granted.

Boyd's story is a terrific one. Working on problems of the time was like that.

As stated "perspective", your second "O" is the lynch pin of OODA. Timing is in the 10 to 100 MSec range for maunal chains of events. Webs of events is a better descriptor.

The "light weight fighter" is not far off either for getting the job done.

OODA at least eliminates the concept of "trend following" and converts it to trend monitoring and analysis. Monitoring and analysis is what turns perception into perspective.

Trend following is the "too small too late" symptom that BF brings out so well.

What makes reading A. Lo and his buddies in the Journal of Financeso exhilarating is the smugness and arrogance of their orientation and then they blow it by fumbling on the kick off and never gaining possession again. Thats not our problem, though.

the problem is getting a grip on how to analyze quickly and accurately toover come the problems of BF's A, B, and D. (reaction, events, and irrationality). Creativity and an open mind are the assets to use. Personally, I proffer the open mind and creativity test as an entrance exam. There is no way to deal with others. Don't waste time and as Baron says use a dignified approach to make points.

The sequence for getting there is dealing with Action>>>decisions for action>>>prespective for decisiions>>>Analysis for perspective>>>monitoring for data sets for analysis.

I came to the conclusion on action that it must be a hold reversal action orientation. BF's B consideration wrapped this up as a gift to all concerned.

B deals with events. BF shows that traders do NOT deal with events at the time of the event. Pre and post behavioral considerations prevail.

By looking at EMH and understanding that market data processing shows up anomalies with respect to EMH, then a person gets to see that anomalies are a discussion of event mistiming, the B of BF.

events relate to two things: continuation and reversals. A Lo could be examining such. He looks at patterns (10) over a 31 year period. He finds they occur and he finds their frequency. He blew it as any trader or investor knows and as he knows from watch his sample of skilled TA practitioners.

There is no lingua franca. LOL... Yes, who can unndertand the gibberish of jack hershey. search me and find a treatise on my writing skills. I suggested that I speak in a foreign language. I do regarding academia and regarding CW. BUT I don't when I am with expert traders in a group. TraderExpo, for example, during the two hours AFTER a session entitled "Great Traders You Have Never Heard of".

Here is the sequence for one of those sessions. Lunch with the owner of TradersExpo. Think up this years questions for the panel. Meet 5 minutes before panel. Begin Panel. ask a few of the questions. WATCH OUT! stop moderating. Let the good times roll. Stop the session time ran out. Moderator leaves, audience leaves. really get down and deal with trading for two hours. Excahnge info and keep in touch.

Events have pre and post stuff and the stuff can be classified and measured. This means that you have triads around events.

BF says when you have emotional signals, then you make resonable changes in your technique.

So the first thing a potential trader does is journals his feelings (fear, anxiety and anger) and associate those with the three parts of an event: pre event, event, post event.

If a person is seeing up, down, up he has not begun to journal.

If a person is seeing either part of BF B, then he is dealing with his affiliation with the timing of events. He has two courses of action: soup up his data input or soup up his mind to be able to get perception>>>perspective>>> decisions>>> timely action.

Souping up data input comes under exact science, another thread.

Souping up the mind means ADDING MORE INFERENCE TO GET PERCEPTION. Inference is what is in long term memory. It comes from short term repeated experiences which contain conscious and unconscious inputs. when you sleep the pieces are put together and become long term memory.

Some people do this for 10,000 hours to achieve a standard. Print the boot camp's 1938 pages and see that it takes a lot less than 10.000 hours.

Once a person discovers the three elements of BF's B, he has a principle that is available to deal with. The principle is: "THE ORDER OF EVENTS".

BY USING THIS CONCEPT IN A LOT OF APPLICATIONS, A GREAT DEAL OF INFERENCE PILES UP FAST AND THE MIND ORGANIZES IT ACCORDINGLY.

The mind is what does all the work iif it is allowed to. By doing short term repitition repeatedly, inference is built. Inference is organized as you sleep, primarily. Inference comes from the unconscious primarily.

Several posters have explained why 90% of traders fail. They learn and organize repeated failure.

Learning to trade is unforgiving. The bottom line is if you make a decision regarding a belief, you get the consequences.

Here we examined the emotions around events and found a principle. Events are where actions take place and on each side of an event is a characterizable and observable market happening. A triad results and the principle of "THE ORDER OF EVENTS" appears.

At advanced beginner and the beginning of intermediate, in ES, a person learns to pick up 2 ticks during pre event and 2 ticks during post event. He is doing 15 trades a day by this time. so consequence is an iterative refinement of 15 points a day. Fifteen points is half a contract's margin. This alone allows the potential learning trader to double his capital every other day by virtue of the tirad consideration alone.

This reflects into his trading Routine, his trading Strategy and his Plan.

I have been persistent for several years in having people look at the "change" window (in BF'ese "reversal" window). It opens, remains open and it closes.