On side note, it would be nice if there is some easy way to automatically include related analysis posts in post body instead of manually adding links.
Prior analysis posts for current market correction is available here - Apr 13 2012, May 09 2012, and May 16 2012. Market behavior i.e., correction unfolded so far close to initial analysis posted on Apr 13 2012 with minor concerns in between. Current analysis and annotations are on the chart itself.
Now a days there is a lot of information available on the net about trading - techniques, psychology, money management etc. Yet most people lose in markets. One can write it off saying it is due to trader psychology or discipline etc. After watching to below presentation (19 mins), it feels may be partly it is a "last mile" problem and a good nudge that influences trader at subconscious level to cross the last mile might make a big difference.
I think one last mile problem for struggling traders is respecting and focusing on risk even though they know intellectually very well that big part of trading is managing risk. Another last mile problem could be having patience while entering or sitting with or exiting positions.
For example when you started trading and came across a new opportunity, what did you used to investigate first? - potential risk or potential reward? Now what do you investigate first? If there is a change in your focus order, what was the nudge?
One nudge that often pushes an individual trader to start respecting & focusing on risk at subconscious level would be blowing up an account. I think this applies to entities as well. For example, would JP Morgan be more prudent with risk for next few years? Is the blowing up multiple billion dollars by London whale be a good nudge? How about other banks? Would recent JP Morgan losses serve as a nudge to them as well? It seems often the nudges come in the form of pain.
I think one last mile problem for struggling traders is respecting and focusing on risk even though they know intellectually very well that big part of trading is managing risk. Another last mile problem could be having patience while entering or sitting with or exiting positions.
For example when you started trading and came across a new opportunity, what did you used to investigate first? - potential risk or potential reward? Now what do you investigate first? If there is a change in your focus order, what was the nudge?
One nudge that often pushes an individual trader to start respecting & focusing on risk at subconscious level would be blowing up an account. I think this applies to entities as well. For example, would JP Morgan be more prudent with risk for next few years? Is the blowing up multiple billion dollars by London whale be a good nudge? How about other banks? Would recent JP Morgan losses serve as a nudge to them as well? It seems often the nudges come in the form of pain.
Different traders likely will have different last mile problems. Also trading is a journey and not a destination. So the last mile problems likely change as a trader evolves and also as the market regime changes.
I am curious to hear your opinions on -
I am curious to hear your opinions on -
(a) What are the other last mile problems for traders? and
(b) Effective nudge(s) to influence trader at subconscious level to cross that last mile?
Talk Summary:
MacArthur winner Sendhil Mullainathan uses the lens of behavioral economics to study a tricky set of social problems -- those we know how to solve, but don't. Just like in trading, we know how to reduce child deaths due to diarrhea, how to prevent diabetes-related blindness, implement solar-cell technology ... yet somehow, we don't or can't. Why?
MacArthur winner Sendhil Mullainathan uses the lens of behavioral economics to study a tricky set of social problems -- those we know how to solve, but don't. Just like in trading, we know how to reduce child deaths due to diarrhea, how to prevent diabetes-related blindness, implement solar-cell technology ... yet somehow, we don't or can't. Why?
This is an interesting topic. Babies and young children are like the R&D division of the human species," says psychologist Alison Gopnik. Her research explores the sophisticated intelligence-gathering and decision-making that babies are really doing when they play. She takes us into the fascinating minds of babies & children, and shows us how much we understand before we even realize we do.
We all know that humans are natural born conformers - we copy each other's dress sense, ways of talking and attitudes, often without a second thought. But exactly how far does this conformity go? Do you think it is possible you would deny unambiguous information from your own senses just to conform with other people? How about when it comes to your trading?
Prior analysis for SP500 on May-09 is available here. Market is unfolding so far as per analysis i.e., formed 2 legged ABC correction into long zone as mentioned in prior post. Currently environment is bit tricky i.e., environment is news driven (Greece...), forming Head_n_Shoulders pattern and bearish in general. On other hand, the market is in uptrend and in a spot that meets my method criteria for going long. Trends often persist with non believers as fuel till it reverses. May be a smaller position?
More details on the chart itself.
A fascinating presentation (10 minutes) on Mirror neurons by Neuroscientist V Ramachandran. Only recently discovered, these neurons allow us to learn complex social behaviors, some of which formed the foundations of human civilization as we know it.
Does it mean traders who work in banks and prop firms with opportunity to watch veteran traders has an advantage from psychological side over retail traders?
This is the last part of the series. Success in meditation is just doing it. The process of observing our own breathing cycle is simple, although it is not easy. Just wait 2-3 minutes. The tendency to become distracted and stop observing out breath is inevitable. In 5 minutes, it may happen 10 or perhaps 50 times. It is very important not to judge ourselves when we get distracted.
Developing Concentration
First step in practicing meditation is developing our ability to concentrate and focus our mind. This will enable us to reduce the inevitable distractability that occurs when we practice. This is useful skill to develop especially for day trading. The forms of meditation that require continuous focus on a particular object are called structure meditation. The two most common types are - mantra and counting breaths.
Prior analysis for SP500 on Apr-13 is available here. Since then market seems to be unfolding as per analysis forming a 2 legged ABC correction. Actually the B leg unfolded slightly different from the way I thought it would. So I wasn't clear in between on what was happening. When it is not clear, best course in my opinion is to just wait till it makes sense.
Looks like now SP500 is back again unfolding as per analysis in prior post. Not much new to write. The shaded area (1335 area) on chart is a low risk zone for long positions. If up move materializes, there is enough distance to get paid without requiring market to make new high. The VIX (bottom panel) is extended to upside. If last VIX peak is an indication then may be 1-2 more higher bars. That will push down SP-500 to long zone (shaded area). The green line on chart is the first target area for partial profits with tight stop on rest to participate if the longer term uptrend resumes.
Right Technique
There is a right technique to proper meditation. Probably most important aspect is to sit in right fashion, which means sitting upright with our back straight either on the floor or in a chair. There seems to be certain energetic alignment from sitting up straight. It is not likely to happen when lying down although lying down is fine for other forms of relaxation.
There is a right technique to proper meditation. Probably most important aspect is to sit in right fashion, which means sitting upright with our back straight either on the floor or in a chair. There seems to be certain energetic alignment from sitting up straight. It is not likely to happen when lying down although lying down is fine for other forms of relaxation.
Right Attitude
The attitude that we bring to practice of meditation is critical. In fact, cultivating right attitude is a part of the practice. The success and ability to persevere with meditation will in large part be determined by the way we approach it. I guess one can say the same for trading as well.
For those who are interested, there are many good books that go much deeper on the right attitude for meditation. Following is a brief summary of eight aspects of right attitude required for meditation. Many of these develop automatically when one develops other attitudes. Fortunately the practice of meditation itself helps develop these attitudes. You know best whether developing these attributes are useful for your own trading.
Learning to Meditate:
Learning to meditate is a process that involves at least four distinct stages:
- Right Attitude
- Right Technique
- Developing Focus
- Cultivating Awareness
This series is not about general benefits of meditation or mindfulness. Most readers probably already know benefits of meditation. I think the process of meditation and trading has lot of commonality. So improvement on these common attributes and skills via meditation practice will automatically lead to better trading. Also cultivation of these via meditation is faster and cheaper with benefits that extend beyond trading. So this series is more about approaching meditation practice in a way that closely parallels trading process and cultivating the skills useful for better trading.
In daily life we are often exposed to one-sided information about various issues, disputes etc involving multiple parties. The same applies for trading. This study by Amos Tversky et.al is about how people jump to conclusions based on limited information even knowing well what the information they have represents only one-sided information.
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