Tag: risk psychology

I knew I needed emotional help the day I became so angry that I punched my bedroom door, stomped down the stairs, and kicked over a living room end table—shocking my wife and two boys, and, most of all, myself. I’ve always been known as the “laid back, non-emotional German from Minnesota.” I was furious [...]

… well I feel rather obligated to go through with my bullish ITM put spread but honestly, since I didn’t manage to get it on, I also feel a personality change in the market. For me, I sense these things through speed and rhythm and the s/r of yesterday and this morning, is striking my [...]

In short, …”tests show that Theory of Mind (ToM), rather than mathematical, abilities are better predictors of success in forecasting stock markets”.

60 seconds in and Ohio State is plowing down the field. As I write this sentence, they dropped the ball in the end zone. … Try it again – 3 and 10 and in!! Now the question relevant to trading and risk psychology is … 15 minutes ago did they KNOW that was how it [...]

Here’s an ironic twist – research shows it is easier for the human mind to comprehend and leverage probabilities and logic IF the question is posed in terms of people versus cards, numbers or objects. Yet research also shows that we continue to build arsenals of data in the form of numbers and that in [...]

A few weeks ago I trekked to Cambridge for Harvard’s annual Investment Decisions and Behavioral Finance conference. Excited to hear a speaker list that included renowned economist Richard Zeckhauser, MIT’s Andrew Lo and Michael Mauboussin who recently authored THINK TWICE, The Power of Counter-Intuition, I admittedly however didn’t know quite what to expect. Reflecting now [...]

Somewhere down the road, you just might find you agree with more than you expected. Or worse, learned a thing or two about making better decisions in the face of UOUP (rhymes with soup) – uncertain outcomes uncertain probabilities.

All this suggests that emotions are key information providers when deciding under uncertainty. They make us tuned to our environment. Actually, in some contexts of fast and intuitive decision-making in the face of unstable (high vol) conditions, one expects that the stronger the emotional uncertainty signals of the day-trader, the higher the performance.

I mean we also hear “believe in yourself” but where do these advisories leave you when a trading idea is going wrong? How do you handle the teeter totter that holds belief and conviction on one side and price and risk management on the other? What fulcrum can you depend on?

If you have tried reappraisal or what most call reframing or even reprogramming and it didn’t work for you, don’t waste one second wondering or worrying about why. The Darwinian nature of trading and the meaning of a red P&L is almost certainly a “bottom-up” emotion and behavioral & brain picture evidence says that strategy worsens the situation.