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People who are calm. People who take a long-term view. And, according to one study, people with brain damage.
In 2005, a team of researchers from Stanford, Carnegie Mellon, and the University of Iowa gave a group of participants $20 each. They were then made an offer: You can flip a coin up to 20 times. If you lose the coin toss, you owe $1. If you win, you get $2.50.
Everyone in this situation should make as many tosses as possible, since there's a 50/50 chance of accurately guessing a coin toss, and the reward for winning is far larger than the penalty of losing.
But the researchers found only one group of participants willing to make large numbers of tosses: Those with a lesion in the area of their brains that controls emotion.
Participants with normal brains threw in the towel after flipping a few losses in a row. People don't like losing money, and even if you know the odds are in your favor, a couple losses will turn you off.
But those whose brains suppressed emotions kept on betting, regardless of past losses. Not surprising, given the odds and payoffs of the coin-toss game, they ended up with more money.
One of the co-authors of the study called these coin-flippers "functional psychopaths," since their damaged brains prevented them from being affected by emotions. The non-psychopaths with normal brains remembered how losing felt and became twice bitten, once shy. Their memories blocked rational behavior.
I remember that study. I found out about when I first dabbled in Poker. There players that had no fears or later I found lack of it because of the brain damage. They would call anything because you couldn't bluff them. LOL, psycho path investing. Love it.
I found in my trading that my biggest problem is getting addicted to tossing the coin (aka compulsive gambling), so I am surprised by this study. In fact, when you go to the "psychology" section of trading forums, you find plenty of posts on the same problem I had.
If you had a true edge and can manage risk, then you should toss the coin every chance you get. However, that's only when your setups are in your favor according to your edge. Flipping a coin at every 5min bar is no edge, unless you have a way to forecast the direction of every 5min bar.
being a psychopath would definitely help in trading.
the emotional losses/ gains register differently . a psychopath would be much more objective while trading
Interesting article, I have done some coin flips experiments myself... But what is really interesting to me is the fact that now I do not need to worry about my brain damage anymore.
