Personality can be defined as a dynamic and organized set of characteristics possessed by a person that uniquely influences his or her cognitions, motivations, and behaviors in various situations. One such situation is trading and the basis for the personality assessment that I created called the MAP (Market Awareness Profile). The Big Five factors of […]

The old saying “the trend is your friend” is easily one of the most widely used and accepted aphorisms of the markets. Looking back at what the market has done since March of 2009 it is easy to see why the trend is indeed your friend. It’s also easy to see why so many market […]

It seems so easy to focus on the things we do wrong. I can name hundreds of mistakes I’ve made in my life. I choose not to focus on what went wrong, but rather on how I can improve my standing and learn from my mistakes. I found one of the most frustrating aspects of […]

I’m presenting a psychology of trading webinar for free with the good folks at TradeKing. The webinar will be Tuesday, August 24th at 5pm ET If you’re interested, click the logo below to be taken to the page to register. I hope you’ll find the time to attend.

There is no feeling quite like that of success in trading. To take the time to perform analysis on a name, establish a trading plan and then profit from your hard work is an awesome feeling. Putting a string of winning trades together like that is priceless. However, the chance of overconfidence or believing that […]

There’s lots of research out there about business failure and for the most part, the same could be said for trading. Here’s a list of the 10 most frequented catalysts for business failure: 1. 78% lack a rigorously-developed business plan keyed to the realities of their market, including sufficient research on the business before launching […]

There is no feeling quite like that of success in trading. To take the time to perform analysis on a name, establish a trading plan and then profit from your hard work is an awesome feeling. Putting a string of winning trades together like that is priceless. However, the chance of overconfidence or believing that […]

When we confuse or frustrate a particular learned behavior it causes a reversion to an earlier learned behavior. This earlier learned behavior is typically less desirable, but comfortable and familiar. This regression of sorts occurs when we are unable to accept and perform at an expected level. Regression is a defense mechanism and can be […]

Fear has a way of making us focus on unfavorable headlines and price action. Fear impacts our ability to evaluate alternatives as it clouds objectivity. Fear is why profits are taken too quickly. Fear is a four letter word that comes in many flavors. Fear of losing: Nobody wants to lose—doesn’t matter if it’s a […]

Nothing gets my blood boiling like someone that would rather blame others for their issues rather than owning them. Not the best mindset for a therapist, I know, but I was aware of my bias and addressed it by choosing a system of therapy that agreed with me—a psychology of use. I couldn’t care less […]

It seems so easy to focus on the things we do wrong. I can name hundreds of mistakes I’ve made in my life. I choose not to focus on what went wrong, but rather on how I can improve my standing and learn from my mistakes. I found one of the most frustrating aspects of […]

As we approach that time of year where we adjust our clocks I take the opportunity to tie several other “to do’s” to this event. I change the batteries in the smoke alarms in my house. I change the water filter in my fridge. And, most importantly, I take inventory of what’s influencing me. Not […]

Over the years I’ve been fortunate enough to get to know thousands of market participants. Some are long-term investors others are scalping pennies per trade on thousands of shares while others manage millions of other people’s money. The interesting theme I picked up on with nearly every one of them is that they each experienced […]

Personality can be defined as a dynamic and organized set of characteristics possessed by a person that uniquely influences his or her cognitions, motivations, and behaviors in various situations. One such situation is trading and the basis for the personality assessment that I created called the MAP (Market Awareness Profile). The Big Five factors of […]

I had mentioned that I was re-reading one of my favorite authors/books this week, Kenneth Gergen’s “The Saturated Self-Dilemmas of Identity in Contemporary life.” I first read this book back in graduate school over a decade ago and the internet was all the rage as the dot com bubble was about to burst. A medium […]

Stock market bubbles exist when stocks are overvalued but can be difficult to truly measure as” value” is a subjective metric. Bubbles are easily seen in hindsight as the warning signs that may have suggested the bubble tend to glare; this is known as hindsight bias. However, the issue I have with hindsight bias is […]

Confirmation bias is the tendency for people to prefer information that confirms their preconceptions or hypotheses, independently of whether they are true or not. This bias can be commonplace in the financial world as research exists for both sides of the market. Throw in the growing social aspects of the web and it’s very easy […]

Flow: An optimal state of engagement in which a person perceives challenges to action as neither underutilizing nor overwhelming his or her existing skills and has clear, attainable goals and immediate feedback about progress. Athletes often experience flow when they perform at their peak as every ounce of strength and focus is needed to achieve […]

My take on the crash of 2:45 this past Thursday is that it happened and I’m curious as to why it happened, but there is so much more to learn from it. I heard from clients that I haven’t worked with in years as they were calling or emailing to get my thoughts on what […]

There are plenty of great news aggregators out there so I’m not going to try and compete in an area that I feel is well served. Instead, I’ll focus my efforts on collecting articles that I feel offer great insight into us, the humans in the market. These articles may or may not have a […]

Quite a week in the markets as they continue to digest the “flash crash” from last week. Lots of exploration for levels of support and resistance and for the most part I sat on the sidelines and watched. Hope you have a great weekend and prepare yourself for option expiration next week. The ups and […]

I watched my beloved Rangers last night as they handed the A’s their hats out at the Ballpark in Arlington. The pitcher for the Rangers was Derek Holland, a 23-year-old lefty, who was just called up from triple A Oklahoma where his ERA this year was 0.93 in six starts. Holland’s season debut Wednesday couldn’t […]

I’ve been known to chase a white ball around from time to time and enjoy the game. I’m not the best golfer but when I go I set the goal to learn something about my game that can improve my performance. Golf, like trading, requires self-confidence in your skills and abilities in order to be […]

Over the years I’ve been fortunate enough to get to know thousands of market participants. Some are long-term investors others are scalping pennies per trade on thousands of shares while others manage millions of other people’s money. The interesting theme I picked up on with nearly every one of them is that they each experienced panic […]

For some, market participation is all about money, for others it is a lifestyle and for a few participants they see it as a challenge. Why do you participate? Are you “successful” in your endeavor? Would you consider a career as a financial advisor? What about starting a hedge fund? What would part II of […]

Interesting question posed to me recently amongst a small group of market participants that I meet with on a regular basis. We all come from different backgrounds and each of us approach the market in different ways. I think this variety and difference of opinions is what makes the group work and why I love […]

One of the five factors the Market Awareness Profile (MAP) measures is conscientiousness– the way in which we control, regulate, and direct our impulses. Impulses are not inherently bad; occasionally time constraints require a snap decision, and acting on an initial impulse can be an effective response. Nonetheless, acting on impulse can lead to trouble […]

If you’ve thought about becoming a full-time trader there are a few things you might want to consider before you turn in your two-week notice. First thing I suggest is to make an accounting of your obligations by putting pen to paper. I’ve done this exercise with budding traders before and for some it’s a […]

Stress comes from both external and internal forces with the latter being the only one we can control. As a market participant, there are stressors you can control but overall the profession is stressful. In other words, control what you can and accept the fact that trading is stressful. A few common examples of stress […]

Fear has a way of making us focus on unfavorable headlines and price action. Fear impacts our ability to evaluate alternatives as it clouds objectivity. Fear is why profits are taken too quickly. Fear is a four letter word that comes in many flavors. Fear of losing: Nobody wants to lose—doesn’t matter if it’s a […]

There is no feeling quite like that of success in trading. To take the time to perform analysis on a name, establish a trading plan and then profit from your hard work is an awesome feeling. Putting a string of winning trades together like that is priceless. However, the chance of overconfidence or believing that […]

Oftentimes traders tend to focus for long periods of time and thus they reach a level of attentional fatigue and the mind wanders. Trading mistakes are made when a buy to open should have been a sell to close and anger can set in. A simple Stroop Effect test provides insight into the cognitive effects […]

I recently read an interesting article about trader education in which Bill Luby wrote “As I see it, all traders are ultimately self-taught.” I can attest to this statement, even though I did have a mentor, as my market participation today is steeped in my own blood and sweat. The knowledge I now have wasn’t […]

As we approach that time of year where we adjust our clocks I take the opportunity to tie several other “to do’s” to this event. I change the batteries in the smoke alarms in my house. I change the water filter in my fridge. And, most importantly, I take inventory of what’s influencing me. Not […]

2010 is nothing but a memory now, much like when I rang in the new century with a closet full of canned food a generator with 50 gallons of diesel in the garage and 10k stuffed under my mattress (that whole Y2K thing was a great scam). I’m always looking to improve myself and those […]

It never ceases to amaze me how many people I interact with that when asked this simple question stammer.  The question is if they could only use one indicator what would it be. Waiting for the answer to come  can produce some funny and even uneasy pauses accompanied with jumbled thinking out loud. I’d say […]

When we are filled with the energy of Flow we are able to focus our attention which leads to action. The energy of Flow is neutral and like any other energy it can be used for our benefit or to our detriment. Flow can be had in several aspects of our lives including work, play, […]

We all have our own horror stories of the financial crisis and no doubt have heard countless iterations of others’ woes. Fear causes us to do some dumb things, no question. When it comes to losing money, research that suggests a loss of a thousand dollars impacts us much more than a thousand dollar gain.  […]

Seems like yesterday I was working with a client who suffered from an addiction to Adderal. He was prescribed the stimulant, many years before we met, to help him focus in school. Now out of school with a wife and kid along with a mortgage, car payments, credit card bills and other financial obligations, he […]

Think you know a lot? Try wrapping your head around the information that was recently released in a study from USC. Here’s a few of the results followed by a fascinating video you have to watch more than once to fully comprehend the numbers. Crazy thing is that technology has exponentially increased in the last […]

If you stop and think about it, the markets are amazing. There is always someone there to take the other side of the trade. Sure, it may be a market maker or some algorithm, but there’s always someone or something on the other side. I like to think of that someone or something on the […]

I’m convinced that we as humans have a tendency to complicate things on every level. It’s been my experience that less truly is more, especially when it comes to trading. I believe that when we choose to complicate our trading that opportunities are missed. What was the cost, both financially and mentally, of that missed […]

Everybody loses at times, it comes with the territory. Anyone tells you otherwise is blowing smoke. When I first began trading losing was a daily occurrence that eventually led to a loss of self-confidence. After all, a stock can only go up or down so I had a 50/50 chance, right? Not exactly, but you […]

An inefficient market suggests that the actual trading price differs from the fundamental value of a security. A trader who is overconfident will attempt to exploit every mispriced opportunity they find. The knowledgeable trader is different from the overconfident trader because: They know the difference between luck and skill and build on the latter They […]

It’s finally nice to see some dip buyers get their assets handed to them. A strategy that has worked well the past six months is not playing out so far and I’ve seen a few seasoned traders take some losses. Who can blame them? Taking that risk for the potential reward is what trading is […]

If you’ve hit a rough patch in your trading, it may be time to do a little house cleaning. I’m talking about the influences on your market participation. I thought I’d share an exercise that I do with clients (did a similar exercise as a therapist as well) when they’ve either become stagnant or underperforming […]

Before the recent pullback I wanted to gauge sentiment a bit differently by assuming the trader was profitable. With the recent run in  equities it’s hard to believe that someone wouldn’t be up so I presupposed the gains were 35%. Depending on the account size, that’s not a bad start to the year so I […]

As a therapist, when dealing with adjustment disorders and/or anxiety issues, one of my favorite questions to ask my clients was “what will your life look like in 5 days?” The logic that spewed from that point would offer up a window into that individual sitting in the chair on the other side of the […]

In the trenches of the markets we make decisions on a daily basis as to whether and where our capital is put to work. Perhaps the decision is something as quick as a short-term scalp lasting mere seconds or a longer lasting swing trade that may take 2-3 days to reach its potential. Regardless of […]

Barclays Wealth has a new report out entitled “Risk and Rules: The Role of Control in Financial Decision Making.” This report looks at people and personalities and how they influence financial decision making. It also explores the strategies people use to manage their behavior when making investment decisions. Something I’ve noticed over the years in […]

One of the hardest lessons I had to learn was that every trade didn’t have to be a winner. In fact, it was OK if I took a loss on a trade as long as it was within my risk parameters  and my winners were allowed to reach their potential. I know that over time […]

Risk: A state of uncertainty where some of the possibilities involve a loss. Uncertainty: The existence of more than one possibility. The “true” outcome is not known. Trading is about making decisions under conditions of uncertainty and risk. You can’t have risk without uncertainty but you can have uncertainty without risk. As an example, there […]

We are half way through 2011 as another quarter has just ended and smart traders are reviewing their prior trades (metrics) and journal entries between back yard barbeques this weekend. This review can only occur if trade metrics are kept and journal entries made so if you don’t keep a journal or track your trade […]

Of the five traits measured in the Big 5, neuroticism, has the best potential to impact your trading negatively. Those who score high on Neuroticism experience primarily one specific negative feeling such as anxiety, anger, or depression, but are likely to experience several of these emotions at the same time. Neurotics are emotionally reactive which […]

It should come as no surprise that trading is a difficult profession. It’s even more difficult if you’re not wired correctly to deal with the side-effects of market/portfolio swings, time-frames aside. It is my hope that over the next few weeks I’ll publish a series of posts related to the “Neuroticism and Trading” post. Up […]

We all have our ups and downs but it’s those times when the downs appear to lack a bottom that can keep us from being a profitable trader. Just like the recent price action in the markets our psychological capital can see a similar trend. It’s not fun sitting, waiting, watching the swings, second guessing […]

July was one of those cycles that served as a gentle reminder of why I trade the way I do. Most people would never take a trade where they risk $9 to make $1 but I do it every month. The edge I have is that odds are significantly in my favor and thus it […]

Trading is like any other skills based activity in that it takes time and practice to become proficient. There are no short-cuts, at least none that lead to longevity in the markets. Ask anyone who trades for a living and they’ll tell you about long hours spent poring over data, charts, earnings reports, etc. Those […]

This past July I was asked to record a few quick videos about the market for the fine folks at the MoneyShow (aka Trader’s Expo). Here is one of those videos where I talk to the many who enter the trading profession as they are lured by a false sense that it’s easy to make […]

The recent market action has no doubt raised concerns for many and perhaps brought about flashbacks of 2008 for some. It’s times like these where seasonality, mean reversion, short-term indicators, etc. all fail as emotions and headlines take center stage. The chances are heightened that one can fall victim to panic, confusion and even helplessness […]

I’ve dealt with my fair share of losers both in the market and in life. At the end of the day I’m the one that made either the initial decision or the decision on how to react to the hand I was dealt. Therefore, I’m responsible for the results. It’s easy though to pass the […]

Fear can strike in the market just like anywhere else in life and when it does, the amygdala is in high gear. Irrational thoughts and negative self-talk begin to kick in and low probable trading can ensue. Fear is a part of the market, there’s no getting around that. What we as traders can do […]

There is a certain amount of failure we need to experience for psychological growth. This level of failure varies from person to person depending on several factors, such as drive, of each individual. Too much failure can overwhelm individuals, too much success, on the other hand, tends to make individuals resistant to change. Why in […]

I’ll be presenting at the Trader’s Expo this November in Las Vegas and hope that you’ll be able to attend the event. I’ll be talking about the importance of matching your trading strategy with your personality. If you’ve ever been curious about the relevance or impact of your personality on your trading then you’ll want […]

From Wikipedia: When ESC (Electronic Stability Control)  detects loss of steering control, it automatically applies the brakes to help “steer” the vehicle where the driver intends to go. Braking is automatically applied to wheels individually, such as the outer front wheel to counter oversteer or the inner rear wheel to counter understeer. Some ESC systems […]

No question that there is volatility in the markets right now. Too much volatility can lead to an increase in stress, especially if your trading involves holding positions longer than 5 minutes. Stress is part of the business so we have to adapt to it, both physically and mentally, or fade away. For some it […]

I’ve posed the question several times before regarding how much of trading success can be attributed to innate ability. The answer is none, as Richard Dennis and Bill Eckhardt so proved with their Turtle Trader experiment back in the early 80’s. What is innate that has an impact on our trading are habits. MIT’s McGovern […]

I have a guy that lives down the street from me that I’ve used to tack down loose floorboards, repair cracks in my driveway, clean the gunk out of my gutters and much more. He makes a decent living doing such odd jobs and has a vast knowledge of many things. However, depth of knowledge […]

I recently had the opportunity to present at the Money Show in Las Vegas. Below is a brief clip of me rambling about whether or not good traders are born. If you found this clip helpful there are others on the site, just search for my name. My presentation at the conference was webcast and […]

I truly believe that in order for both success and longevity in the market one needs to specialize. Having a systematic approach to the markets is a proven winner. I’ve taken the time to round up some of the systems that are out there to help you decide. Enjoy! Hope: There is nothing quite like […]

Poor trading habits are difficult to overcome, especially those that have been a part of a trader’s routine for years. Part of the reason is that habits are perfected through experience. Habits can be formed and reinforced through expectations (from one’s self or others), triggers (smells, visuals, etc.) and even market conditions. Research suggests that […]

There are numerous questions that need to be answered when it comes to trading. How much to buy or sell, where to trim profits, should I use the leverage of options or stick to stock, etc. Creating a set of trading rules can alleviate some of the cognitive load associated with trading related questions. For […]

How would you describe the decision process of your trading? Is it mainly based on technical analysis? Do you incorporate fundamental analysis at all? What about astrology? How much does instinct come into play in your trading decisions? Probably more than you’d like to admit. I’ll post a follow-up to this question later. For now, […]

Cognitive flexibility is being aware that in any given situation there are options and alternatives available. As an example, you don’t have to stay in a losing position, yet so many traders do just that as their conviction in a trade turns to hope. Cognitive flexibility is a critically important executive function  that occurs, almost […]