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James Sogi

Philosopher, Juris Doctor, surfer, trader, investor, musician, black belt, sailor, semi-centenarian. He lives on the mountain in Kona, Hawaii, with his family.

James Sogi Analyzes "Delay":

Swoosh theories: Pondering the room cleaning/paint drying elevator phenomenon here are some possible ideas on comparable mechanisms of push/pull equilibrium then swoosh, or processing then swoosh, critical mass then swoosh/boom. The same effect may be at work over years as hours.

  1. Tug o-war.
  2. Earthquake tectonic shifts.
  3. Spread of disease and epidemics
  4. Football without passing.
  5. War of attrition.
  6. Micro structure. Globex need for food.
  7. Atomic bombs. (Critical mass)
  8. Water boiling.
  9. Sand castles falling, Pick up sticks, House of cards.
  10. Survival of equilibrium states.
  11. Stock breakouts vs. breakout failures.

Analysis of delay:

  1. Attempts to control emotions tire people out emotionally and physically. No wonder a big trade can be tiring.
  2. The deliberative system can often override affective responses (at least partially). The mind, like in meditation clearing thoughts and like clarinet practice, can be trained with practice, Hours, over and over. Few can sit and play a piece of music the first time with ease or stand in public and speak. It takes experience and realistic practice often only comes only with the performance.
  3. The general finding is that exerting willpower in one situation tends to undermine people's propensity to use it in a subsequent situation. Good reason to take a break after a trade.
  4. Assess current willpower strength before entering trade. Increased stress or higher cognitive load both move behavior further from the deliberative optimum. Don't trade during times of personal stress, family illness or problems.

Fat-tail conundrum:

Pondering the conundrum of fat tails, consider that the curve is an artifact of the interpolation of the distribution. Often, and whether significantly so is the issue, the fatness of the tail is not always a result of the occurrences in the shoulder/tail range, but as the as result of an outlier. The outlier is not caused by the same functions as the middles, but rather as a result of some sort of mechanical breakdown in the systems, circuit breakers, limit moves, Soes or Arca, Globex shut down as on August 29, 2005 or an act of war such as 9/11.

Take for example the following distribution after a panic:

-6 | 1
-5 |
-5 |
-4 |
-4 | 4
-3 |
-3 | 21
-2 | 66
-2 | 311
-1 | 998777666555
-1 | 4443333321111111000000
-0 | 99999888888877777777776666666665555555555555555
-0 | 44444444444444443333333333333333333222222222222222222222222211111111+20
 0 | 00000001111111111111111111111111111111112222222222222222222222222222+52
 0 | 55555555555555555555555555556666666666666666666677777777777778888888+5
 1 | 0000000001111111122223334444444
 1 | 5557777799
 2 | 1234
 2 | 56

Note that the big losers causing the fat tail gaps away in an isolated move. It is a different mechanism. Assuming that the same function is related to all occurrences leads to difficulty reconciling the outliers.

To define the issue as fat tails may be misleading when the study should be of that of system breakdown, outliers, 10 sigma, rogue wave theory Rather than assume smoothness, a study of the structural break mechanism might be productive, or time between failures. Perhaps this is the same mechanism that causes the break from a range during everyday action.

c

Jim Sogi, May 2005

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