What do our brains do when a down-trend becomes an avalanche – when
some snow gets rolling at the top and picks up steam and snow and speed
until it hits bottom – with no regard for anything in its way?

Two things to know -

First, it tends to assume it will get the same result from the next
event as it got from the last event. In market terms, this means that
looking at losses predisposes all of us to expect more losses – the
timeframe is basically irrelevant – at least as far as the brain is
concerned.

Neuroeconomics research also indicates that the emotion resulting
from a “first” event also colors any? analysis of the next event -
without us knowing it and before we are conscious of what is happening.

Put the two together in today’s market and the third fact that fear
can easily spread from one person to the next and presto, feelings of
worry turn to fear turn to panic and then morph into limit down.

Interwoven into these human psychological realities, facts like
deleveraging (otherwise known as margin calls) force additional selling
which exacerbates the selling and creates more of the brain’s above
decision cycle.

This is where we are today and the “engineering” behind how the
markets tend to extract the most money out of most of the people.

The opportunity lies in interrupting YOUR brain from taking this trip.

The way to do that is to use what we call EMOTION ANALYTICS.
Researching and dissecting whatever feelings and expectations wash over
you – versus just taking action – gives anyone who tries it a window.
Windows give you the ability to see a more accurate picture to predict
what is really likely to happen next!

The WSJ’s Intelligent Investor …

The weekend edition of the WSJ included Zweig’s column on fighting the herd mentality. In many ways it is good article… but it does what all articles and commentary seem to do… in the end it says “get rational”. The problem with this is when you feel terrified it is extremely hard to use your analytical mind to overcome that.

The trick is the counter-intuitive and ironic one of allowing yourself to feel what you feel.

Just remember that feeling afraid doesn’t dictate you take an action. If you listen to the panic it will actually allow you to think more clearly as the act of listening alone will calm what your psyche is doing to you.

I know it goes against conventional wisdom but let me ask you to try it. Try it with anything – something that makes you feel a little nervous. See what happens when you say “Okay Denise you are really nervous about…..”

… just sit there for a few minutes (or longer) and explore the feeling inside of you. Ask where it is coming from. You will find that using this approach is the fastest and most effective way to induce a greater sense of calm as you will realize that you are most likely unconsciously imagining total disaster and chances are that is not really the situation. Once you realize that, you have automatically got a more reasoned perspective on whatever is inducing the panic – public speaking or plunging markets.

and oh btw, this fits with what we know about emotions firing before thought… “anticipatory affect” is what they call it in the labs. Learning to use this tendency of the brain can be to your great advantage.

Of course you are panicky. I mean who wouldn’t be? Do we have any experience with major US companies, banks in particular, going out of business one right after the other? Have any of us lived through this? Even if you were alive and remember the crash of 1929 or the depression that followed it, you didn’t experience it in a 24 hour news cycle where each 12 hours brought the next major name to either its demise or the brink of disaster. This is scary stuff…

and it would be ultimate in irrationality NOT to be afraid.

But alas there is a difference between feeling fear and jumping out the window.

This idea is central to making the best decisions – whether you run a big hedge fund or your own modest trading account. Feelings, thoughts and actions are three separate things. The best way to decide on the most rational action is to experience and analyze the feelings that are being induced in you by the market’s behavior.

Oftentimes taking an action is simply a way to reduce the discomfort of a feeling. Instead, try to figure out what you are feeling and what is really driving it? If you allow yourself to go through this process of “emotion analytics”, it will become much much easier to choose actions that make the most sense.

Turn off the tv when they tell you to calm down … the quickest way to calm down is to give your feeling their due-listen. Attempting to ignore them only makes them more intense.

Of course you are panicky. I mean who wouldn’t be? Do we have any experience with major US companies, banks in particular, going out of business one right after the other? Have any of us lived through this? Even if you were alive and remember the crash of 1929 or the depression that followed it, you didn’t experience it in a 24 hour news cycle where each 12 hours brought the next major name to either its demise or the brink of disaster. This is scary stuff…

and it would be ultimate in irrationality NOT to be afraid.

But alas there is a difference between feeling fear and jumping out the window.

This idea is central to making the best decisions – whether you run a big hedge fund or your own modest trading account. Feelings, thoughts and actions are three separate things. The best way to decide on the most rational action is to experience and analyze the feelings that are being induced in you by the market’s behavior.

Oftentimes taking an action is simply a way to reduce the discomfort of a feeling. Instead, try to figure out what you are feeling and what is really driving it? If you allow yourself to go through this process of “emotion analytics”, it will become much much easier to choose actions that make the most sense.

Turn off the tv when they tell you to calm down … the quickest way to calm down is to give your feeling their due-listen. Attempting to ignore them only makes them more intense.