3 thoughts about behavior

I use a little box to examine stuff.

Information comes in the left side. A "meaurement" input comes down into the box from the top.

Output results and pours out the lwer right corner.

 

Hershey

You still spouting in the market 100% of the time, no need for stops

For as long as you do – then the only box you deserve is one with bars on the windows, and steel securing the door


Please feel free to find a length of rope – and piss up it

Cheers
RN

 

The OP took up three things and he numbered them 1, 2, and 3.

Behavioral finance focuses in four areas and has determined the results A, B, C and D.

Behavioral Finance does measurement of information that is availalble.

Naturally, the field of behavioral science provides solutions for problems it discovers traders are having.

 

Here is a trader context pic.

The trader uses market infomation to accomplish four things.

He grows over time by using the results of behavioral finance in support of improving his level of performance.

I think it is worth looking at how a trader can take the trip to expertise and taking the market's offer.
Behavioral finance has made some interesting discoveries and there is a lot of clinical science available to point the way for the potential trader whi is willing to learn.

Genius, an extreme, has two characterisitcs that can be considered by anyone: creativity and the open mind.

The regular guy can learn from those who have made the trip and it is a good idea to have an open mind and take your talents and be creative with them.

 

The OP advanced three thoughts about behavior and suggested they related the the trader's planning strategy and routine.
The literature of behavioral science and behavioral finance has views on these things as do ET members.

 

BF says that most people have problems when trading.

The approach and methodology of a person can be refined to remove the shortcomings.

BF suggests that emotional awareness is the beginning point for detecting where reasonable changes can be made in trading techniques.

One of the more profound ways this processing of reasonable changes in techniques occurs is with smart traders.

smart traders can recognize "market anomalies" for what they are. They exploit them successfully.

It probably takes some thinking to deal with market anomalies as they occur. EMH continues to improve. The reason is this: smart traders are removing anomalies that they perceive by refining their exploitation of the markets.

Often the contemporary buzzwords of the market are where an exploited anomaly is going forth.

How does the expert trader take advantage od BF and EMH in combination.

The clue is the deal with the A, B, C and D of BF and the have plans, strategies and routines that are in synch with EMH.

Baron suggests I perform on as dignified a level as possible.as a means of dealing with ET members who are not the creme of ET membership. Good idea.

Two examples have come to the fore as a consequence of BF type behavior analysis and as a consequence of dealing with the opportunity the EMH represents. Serendipity strikes again.

 

BF matters A, B and D most closely relate to the trader's routine.

Most traders follow the routine that was made famous by John Boyd. It is a probabilistic risk taking kind of behavior.

It has several feedback loops and they DO NOT RELATE to the iterative refinement suggestions of BF and the BF recommentdations for explointing anomalies in EMH exhibited by market behavior.

This is the way it will continue for the foreseeable future and it is also true anyone can make the decision to step right of of this trap.

If one reads asiduously to understand how people do this and do it expertly, then they get to see the examples before their verey eyes.

Staying in the market all the time and not using stops may not be the first iteration a potential learning trader conceives of but it is possible that these two snippets of trading to hold considerable merit. Check in with how you would be feeling if you were always in the market and the market was always moving away from your stops. The emotional set is: comfort, support and confidence.

BF's A overreaction and underreaction has been eliminated.

BF's B post event continuation has been eliminated and so has post event reversals.

For BF's D, consistent irrationality, has also been eliminated.

Lets look at the feedback loop in red.

What are some reasonable changes in technique that could have happened.

Switching from an entry/exit orientation is there for sure. What would be the resoned basis? My opinion is that entry and exit are an identity.

This is not a probabilistically based idea and it is a major principle level consideration in trading.

Consider your emotions if you let yourself have and open enough mind to consider that an entry and an exit are an identity.

Computer scientists have no trouble with this one simply because they can write out the code and see that the code is the same words.

This, in many ways, IS an Ohm's Law problem. Do you have the power to overcome the resistance or impedence to switch from an entry exit orientation to a hold reversal orientation.

Bf suggests that if you get to an emotional point, then note what is going on and then see if your techniques could work better were you to make some reasonable changes in technique.

This thread is a good place to see how the feelings of contemplation might work. It may be possible to "empty" you mind for a while. Be mindful for a while.

Then come back to the decision you made to do entry/exit trading in the face of all markets where an exit and and entry are an identity.

You may be moving toward escaping probabilistic thinking just for a moment. Anyone can afford to think about using a nonprobabilistic way of thinkng. Thats how you drive your car to go from A to B.

 

Jack,

Interesting diagrams. I always enjoyed Soro's description of "historical" processes and reflexivity. He laid out some clear cut examples of it's use in "The Alchemy of Finance". Years later, he recognized that in most cases "reflexivity" is not the dominant process in markets. Only rarely do biases become reinforcing which leads to "boom bust" cycles.

In the mid 90's while grinding through Alchemy, I created a participant based model of the Maritime Industry. It accurately predicted a number of changes that came to pass during my last 8 years in that business. Abstractions have value if carefully constructed. It would be an interesting exercise to overlay elements of market micro structure on top of the BF / Trader model you are outlining here.

Moving from entry / exit identity to full market engagement is a really tall order. Even the purest commercial uses (hedging) involve only covering partial risk exposures. At the small spec level, we have a simpler problem to solve, but unfortunately also significantly less resources available to solve it.

EMH is an abstraction. I'm not sure that market processes always move in a straight line toward higher efficiency. After all markets mechanisms in and of themselves operate on a for profit basis. As an example, in equity markets the trend toward decreasing profits for market makers, has resulted in a reduction in the number of market makers and also an increase in volatility. This (as far as I can see) lowers market efficiency. All the current rumors about eliminating "stop" orders, represent another potential decision that could lower market efficiency.

Great Post

 

'The fraudsters of Finance'

five guys controlling the world finance sit down and call the shots on how to rip off the state and taxpayers. or set economic policy for their own self-interest(greed)(selfishness)==evil

 

EMH is regarded as major principle And it is forwarding as a consequence of sysyemic iterative refinement.

As a consequence different players have to hold their own in the face of new influences that exploint opporutnities.

It is really exciting and fun to be a participant.

As a side note on some recent comments, consider this. What if a person can't correctly type an address.? What would happen if he confused the side of town the address is on? In my case that happened.

Also what does it mean if a thrid party isssues citations for illegal trading and then has to retract them? It probably means some accounts were involded and some money was made. If the SEC is looking at multiple accounts in a major brokerage does it mean they are looking at places that may bear fruit? They see what they are detecting over and over. If they are looking for whales doing insider trading and they keep getting hits, what do they do?

Lets call what the SEC did as Behavioral finance. They see under a type of "setup" a set of accounts operated under POA's. In EMH and BF terms this is a market anomally being caused by a person who "may be" influencing the market.

Is this perosn trading? Is this peson making money? They are looking at account records and they see a BF type B situation,namely: pre event abnormal returns and they do NOT see post event continuation on the part of this trader.

It is suggested to me to use a dignified approach to handle ET members who are less than organized or oriented.

Here is the situation. Because I fit the SEC profile for making money in a way that is abnormal and having high returns and the approach is flawless in BF terms, I must be a villan that takes advantage of normal market participants.

BF suggests that if a problem is occurrring, then reasonable changes in technique must be made.

That happened and the technique of the SEC changed to include thye possibility that some trading techniques could front run the market and, at the same time, not be criminal.

Anyone who wishes can check the SEC records and find out why they changed their technique to sharpen it up to not make mistakes.

Likewise anyone can change the side of town to the correct address and find, environmentally that part of town is 10 degrees cooler because of the neighborhood initiatives to eliminate heat islands community wide.

When people make mistakes, they get the consequences. Posters who make mistakes and reason poorly get to not have the opportunity to test the SEC's computers for insider trading profiles.

I have proven repeatedly to the SEC that I do not harm others by trading with a profile that simulates what they think is "insider trading". There are cool advantages of being a frontrunner who takes the market's off in terms of BF's "abnormal returns".

I'm going to use this "opportunity" as a segway to look at another third party effort to deal with reconciling X and Y where X is TA and Y is quantitative finance.

This group, the third party, will also attempt to create a lingua franca so a productive dialogue can begin.

EMH presently is being affected by a thing like HFT. For a trader using BF principles, we know this leads to examining the times when emotional flags suggest that there is a market anomaly at that time which is not handled optimally by the trader's approach. BF suggests making reasonable changes in technique to eliminate the anomally.

The segway begins with the third party saying: "In this paper we hope to bridge thgis gulf between tachnical analysis and quantitative finance by developing a systematic and scientific approach of technical analysis and by employing the now standard methods of empirical analysis to guage the efficacy of technical indicators over time and across securities." The third party is paid by several and, among others, NSF and the work is taking place @ MIT. See page 1708 of August 2000 Journal of Finance.

further, this group announces the general goal of TA: "The general goal of technical analysis is to identify regularities in the time seris of price by extracting non linear patterns from noisey data."

they found out somewhere that the human eye can perform this "signal extraction" quickly and accurately. In 2000 it was not common , they said, for a computer algorithm to do this.

So first, lets look at the human eye part with boxes.