Tag: psychology
Binary thinking
Imagine you are a caveman meandering through a landscape, you hear a rustle in the bush. “What’s that…?”
Your brain kicks into action and provokes a flight or fight response. It could be lunch, or it could kill you! Your primitive brain makes a really simple judgement and decides that the payoff here for ‘kill you’ is pretty bad, -100% in fact. The pay off for food is there as well, but it can’t offset the negative. So you walk …
Psychology in sport – Tennis
I started writing a broad piece on Psychology but it got too big, so I’ve broken off chunks and will list them on the blog for your interest.
Psychology everywhere
Psychology isn’t something that is limited to the minds of traders, it’s out there on the sports field and in the associated markets as well. I’ve observed all sorts of strange biases that just don’t have any place in a rational world, but feature heavily and persistently in the markets …
‘Gut feelings’ help make successful traders
While browsing various papers I recently came across an academic report publish in Nature, entitled the unfriendly – ‘Interoceptive Ability Predicts Survival on a London Trading Floor’.
Basically speaking, researchers show that ‘gut feeling’ does indeed contribute to successful trades. You can read the full report here: –
https://www.nature.com/articles/srep3298
If you don’t want to wade through this, here are the key elements: –
First off, Physiologists often use the term ‘gut feeling’ as a colloquial synonym for any interoceptive sensation …
A classic psychological flaw
Here is something that will help you understand the way people act and what you can’t do about it! But how you can benefit from it.
I made a comment on Twitter a little while ago saying something along the lines of “if I ever think going to lose my edge all I need to do is look at social media and I know that’s not going to happen”
Entrenched views
What I was commenting on was the proliferation of …
Apophenia
Apophenia is defined as, the “unmotivated seeing of connections” accompanied by a “specific experience of an abnormal meaningfulness”. For the full definition visit the wiki entry: –
https://en.wikipedia.org/wiki/Apophenia
Apophenia has come to imply a universal human tendency to seek patterns in random information, such as gambling or charts. It’s a flaw that afflicts many.
Apophenia and Gambling
Probably the best known appearance of this in gambling markets is the gamblers fallacy. This is when a long run of results lead …
How extrapolation trips people up when trading
A trend is your friend, until the end.
One of the most common mistakes I see in newbies is trend following. Trend following is when you latch on to a pattern and extrapolate it. It could be a horse that is heavily drifting or coming in, perhaps a football team on a great run or form, or a poor one. Perhaps a team has had 20 games under 2.5 goals. Is there a trend, why, or this a natural aberration?…
How you really make (trading) decision
If you haven’t seen this episode of Horizon it is worth a watch: –
It is titled, ‘How you really make decisions’
https://www.bbc.co.uk/iplayer/episode/b03wyr3c/Horizon_20132014_How_You_Really_Make_Decisions/
I’ve used some of the examples in this episode in my courses from time to time.
I became interested in sub-optimal behaviour when I started working out how to win the football pools. I figured that while there was an inbuilt edge against me in he market, most people wouldn’t use optimal behaviour to place their bets …
The missing link in trading
I’ve been on a very long journey to understand risk and trading as I do now. When I talk and examine risk I do so almost intuitively now, but I had to learn it all the hard way, from the ground up.
The journey has led me to re-examine myself a lot. I’ve had to learn and improve my ability in three distinct things, trading (the structural bit), modelling markets (the understanding bit) and finally a bit of psychology (the …
What does value look like, on a bigger scale
I did a post some time ago called, ‘What value looks like’. Here is the same effect but on a much grander scale, though you should not the familiarity between the two. Finding value is one of the hardest things to do in any betting market because usually the market is hyper efficient. But probably the biggest issue is the wild swings you can get and how they affect your psychology.
In the graph you can see we start …
Trading psychology in a nutshell
Some time ago I sat two people down and gave them each a simple trading strategy. I wanted to observe first hand how people executed them.
The reason I did this, was that it had become apparent to me sometime ago, that given the same set of instructions, people often execute differently. The difference appears to be psychological.
On one desk we had one person executing fairly well and making a small profit. On the other desk we had another …
Cardiff fans turn red over blue
Continuing the blue theme from yesterday. Cardiff fans up in arms as the bluebirds look like they will be forced to change colour. Full story: –
However, the owner may have a point. I pointed out some scientific research on a previous blog post. One element of this was looking at the effect of red and blue and how it affects sports performance or the interpretations of officials in sports tournaments. The results were fascinating.
See the original blog …
Why a lack of fuel is linked to sports trading
On the walk into the office this morning I passed the local petrol station, there were a queue right out into the road. I saw somebody I knew who had driven in from some distance and he revealed a similar story across a wide area. It’s all down the fuss about whether tanker drivers will go on strike. People are scared that fuel may run out if this happens. You can summarise this situation up quite simply, people are acting …
Is inability to trade a genetic trait?
When you look at any market that follows a random walk, upside and downside is created in equal proportion. So it’s impossible, if you participate at random, to lose money, apart from the cost of transacting in that market.
On the stock market it’s even more favourable as the underlying investment is net accretive, so it should be even less possible to lose money. But still people lose!
Having studied the markets for so long I now have a very …
Performance anxiety – Why players lose form
Lovely piece on psychology in the weekend FT. It examines why players of a sport often inexplicably lose their form. I’ve been studying this specifically in a few sports to come up with predictors of decline. My research was sparked by the collapse in form David Duval after he won the British Open golf and I started to dig around deeper and deeper for events that can lead to a decline. I’ve found it useful in Golf and Tennis which …
How to win at rock, paper, scissors
I posted this on the forum some time ago.
It’s actually a good analogy for the sort of though process you need to go through when trying to out-think others and one that I think is equally applicable in any market. Sometimes people don’t choose the most logical progression in a sequence of events. Even then is seems that people peoples decisions are often forced by an ‘invisible hand’. Anyhow, an interesting article I think: –
https://games.yahoo.com/blogs/plugged-in/win-rock-paper-scissors-215511514.html
…
iCons
As you may be aware now Steve Jobs passed away last night.
Whether you agree with everything that key figures have to say or what they do, or whether you feel they were lucky, or not. One thing you should do with people who have trodden a useful path before you, is to learn from them.
Throughout my life I have actively sought to try and work with, meet and learn from people better than me. It’s easy to find …
Cock ups, blunders & mishaps
You are either perfect or a liar and nobody is perfect.
Coming to terms with errors is the key to success in anything. If you stop or get put off by losses, errors or mishaps, you will never see the upside. Upside is always there, but a lot of people never ‘see’ it. Couple losses, cock ups, blunders & mishaps with a bit of psychology and it prevents you from getting to the good bits. It took some time, but …
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