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The fatter, the better. @Fat Tails does not sound nearly corpulent enough.... However, his picture in the Big Trader thread might suggest that I am wrong....
Can you help answer these questions from other members on NexusFi?
Thanks Harry. If you have contact info (email) for any of these authors let me know. I would like to reach out and try and get some webinars scheduled.
I will research the authors and try to reach out through websites that they sometimes keep. But I know that sometimes authors list email addresses in books.
Of course, some of these authors might be dead. I do not know how old these books are
"Understanding the psychology of the market" means being able to quick adapt to the conditions that increase/deacrease volatility, shift markets from trending to rangebound and back. You don't have to fully understand the what/why...just that your charts or DOM or whatever allows you to know better than the next guy what the likely market condition is...and the sense to stay out of the market if you don't....that last part is where market psychology meets your own psychology.
I see this as a key point that many people lack an understanding of, and because of that it helps drive some of the psychological aspects. I have probably taken this too far with my swingbot that has no price stops, just time stops, but I am comfortable knowing my risk in the market versus the profit potential that is available. It may be automated, but I still have to stomach the trades. At the same time it forces good risk management, because to be comfortable with a wide-stop / no-stop trade one should be taking on less risk.
Regardless, if you have to put a stop too close then you are not confident in your trade. Also for those that buy into a "trend" without a plan or knowing why they got in, are saving themselves from failure by saying they bought the "trend" which was created by someone else and failed because of others. Somehow it is less their fault.
"THEY" is a powerful psychological word used often in trading, denoting the other guys, the masked men that are mean to you, that you must fight against. I believe that this forces risk taking to "beat the odds". Taking trades against what is apparent, always expecting a breakout/breakdown when a market is rangebound or meandering, or vice versa.
The above end up being the basis of many a bad trade, repeated endless by many and on occasion even by the best.
In the end, the successful prey on the unsuccessful at least in the sum-minus-game of futures trading. One guy trading on the other guys fear and greed, and that other guy driven by those emotions. Still there are no absolutes.
Actually I figured out my issue in a prior reply to @Big Mike, what I was searching for isnt in my trading but in me. So Now the exorcism begins, You interested in helping (my issue is related to crowd Psychology). Im in the crowd I see the target but the first noise I scatter with the crowd then turn around saying did I really do that...
That's an excellent question Mike. I'd be tempted to say there is no difference from a psychological perspective apart from the volatility but the ES gives you a compensation as you can trade larger size. All in all you can probably make as much money on the ES as you can on the CL.
Those books are not hands-on books for the practical trader. They are books on behavioural economics, which studies irrational behaviour as opposed to the efficient market hypothesis or game theory, which is mostly based on the assumption that the behaviour of the market participants is rational. Some of the authors are dead, authors have been awarded prizes for writing science books, and some of them have been awarded Nobel Prizes. Not exactly the crowd you would invite for a webinar @Big Mike's.
As a trader you want to master your own demons and chase the demons of other traders. Trading is about mastering one-self (this subject is better covered by Brett Steenbarger and Mark Douglas) and about exploiting crowd behaviour.
Exploiting crowd behaviour would involve feedback analysis, focus on volume and open interest, for example
- COT reports showing net positions of market participants
- market breadth indicators
- volume and range analysis
- following sentiment indicators showing flight to safety (Vix, ISEE index, stocks versus treasury, USD index)
There are also specific trading setups - all setups that trap traders - which rely on crowd psychology.
Actually I do not think that there is such a thing as crowd psychology. It is all about mechanisms that rule behaviour through feedback loops. The correct image is probaly a bird swarm or a school of fish, and not a collective psychological state of investors that drives markets.
The problem of the trader is to develop tools to detect and describe such mechanisms. At some stage collective behaviour overrides the individual decisions, but the reason is not necessarily fear, it is rather the interrelationships between different agents on the Financial Markets. Lehmann was not dangerous because the bankers had a collective fear attack, but because other banks had lent to them and were also affected. A bird in a middle of a swarm cannot fly where it wants to, but is forced to follow some simple rules to avoid desaster.
That said, irrational behaviour does not need to be irrational in itself, it only looks irrational as judged with hindsight from the perspective of the historian. But even rational decision makers cannot guarantee a rational outcome, as the prisoner's dilemma shows. A Nash equilibrium is not necessarily Pareto optimal.
A thread on "Behavioural Finance Theory and Crowd Psychology" is probably a bit too much for this forum.
Of course there's a ton of information out there regarding this topic but my thoughts are to fade the herd as much as possible. Look to create or be a part of a new trend vs. following one. For example, if everyone is buying into a certain market, you should be selling to them as you scale out of your position. When the frenzy stops and they're running for the exits, that's when it's time to start buying again.
But what's interesting about behavioral finance is all the underlying categories in which, we as traders, deal with on a daily basis. To own control of this is key to trading/investing success in my opinion. I've studied great lengths of this topic in the past and it has helped me tremendously in managing money for clients (in the past) and for myself.
