i recommend Brett Steenbarger's book The Psychology of Trading. it contains all sorts of fixes for emotional trading and reads like a mystery novel.

Brett's book is like a Paul Harvey story. it starts with a life or death situation from his counseling. then it shows how he solved the problem by applying trading wisdom.

i like his technique of talking out all your trades — and moving away from the market when it's going in your favor. also, all the wise words about the function of markets

Dr. Steenbarger's other works



 An observation: Whether it be chess, table tennis, markets or whatever, people love to be on the attack and score quick victories that draw attention. I think it's an ego driven thing, the spectacular win helps people with their self image. Markets tend to go down faster than the go up, which makes the short the weapon of choice in this field. Chess players are forever wanting to emulate Mikhail Tal or Garry Kasparov and score quick victories, and table tennis players will play for winners regardless of the percentage they get in.

This would represent a systematic bias from humans in all fields plus a way of gaining an edge just about everywhere and anywhere. Find an egomaniac and do what they hate; defend instead of attack and play for the long game instead of a quick and spectacular win. Perhaps this equates to the chair's depiction of 'the house', but maybe it goes further?


Jeff Watson writes: 

The ego thing is real, and I suspect but cannot prove that the quick victory would pay short money. Back in the pit days, the frenzied scalpers would be in the market a few seconds and a good scalp might be 3-4 ticks on a 10 lot. Meanwhile, the spreader would be watching their position, adding to and subtracting from, and in a few weeks might make 100 ticks on a 1500 lot. Nobody watched the spreader because the scalper was making all the noise and grabbing the attention. Sometimes in life and the markets, the tortoise beats the hare. Fading a big ego is a tried and true strategy as long as one picks their entry and exit points.

Brett Steenbarger writes: 

What a great point!

The desire for the short (and quick market move) also comes from inability to delay gratification (lack of patience and the need to be gratified right away).

It also comes from a compensatory mechanism, where people who missed a large up move now look for vindication with a large down move. It never fails that, after a large market rally (such as we've had the last couple of years), traders trot out "the 1987 analogue" and the specter of a grand correction. I've yet to see a 1987 analogue proponent who made large money in the preceding rally. I've also yet to see a true replay of 1987.

Finally, it is surprising how many money managers let their political predilections shape their investment views. Many viscerally dislike the current U.S. President and have been steadfastly bearish through his tenure. The worst outcome for them would not be an economic or geopolitical cataclysm, but events that truly would bring growth and prosperity. Ayn Rand has written insightfully about "sense of life", and you have long noted the destructive sense of life of the permabear.



 I have been thinking about the imminent times when SPU closes above 2000 and then to 2018 unchanged on year. Many sold out bulls will come in. There's no emotion more urgent and forceful than sold out bull. You just have to get in and not let the big rally you missed go up there without you. So the public buys when it goes to highs above key levels and sell when it goes below key levels. Thus they sell low, and buy low. With intraday swings often hitting 3% on a day, this is very damaging.

But what is the reason that sold out bulls are so anxious to get back in and resent so much the marker rising without them. We'll have to ask Brett about it. But I have a theory. It's a sperm wars theory. The bulls are like the man who's going out with a hot girl and wants to have kids. The worst thing for him is to have another man get her pregnant. So his ejaculations have killer sperms in them that prevent other men's sperm from fertilizing the egg. The same emotion. It's bad enough to miss it yourself but to see someone else get the goods is worst of all.

Steve Ellison writes: 

The market played me like a fiddle in January, and I lost more money than I had a right to. I had a terrible fear of missing the rebound, but at the wrong time in retrospect. I had this fear as the market's (and my) losses mounted on the way down to the initial low of 1804 on January 20. At some point, my position size (which I have now concluded was too large) forced me to exit in order to ensure survival. After the S&P 500 touched 1804 on January 20, it closed 50 points higher the same day. From that point, I felt like I was missing the rebound, but I was more afraid of the downside risk of revisiting that 1804 point. And even on the way up, the S&P 500 would abruptly drop by 20 or 30 points with some regularity, just to reinforce the fear of the downside.

Brett Steenbarger comments: 

 Hi Vic,

I like the sperm war theory. One thing I've consistently noticed on trading floors is that the mood is downbeat but not despondent when the great majority of portfolio managers are losing. When many are losing, however, and a few are making significant money, there is absolute despair. Similarly, when losing money, traders are downbeat. If missing a move that keeps going without them, they are tearing their hair out. Many have said to me that they'd rather lose money on a trade than not participate in a market move. And when a trader gets stopped out of a long position after a pullback, he inevitably roots for the market to go much lower (and vindicate his decision).

The best traders distinguish between market movement and market opportunity. The worst traders treat all (random) movement as opportunity and excoriate themselves for missing "opportunity".

Victor Niederhoffer replies: 

Thanks for you sagacious observation. And of course there must be some regularities that issue from this phenomenon. 

Brett Steenbarger responds:

Indeed! I recently encouraged a PM to calculate his P&L if he had bought the markets at the points at which he had stopped out. Sure enough, the stops brought negative alpha; his profitability would have been meaningfully increased had he not sold at the lows. Similarly, I encouraged a PM to calculate the P&L only for the portions of his positions he had added once his initial position had become profitable. Those added positions also brought negative alpha. The market can be a cruel mistress indeed!



 I noticed at the drug store today a modern devices like a wrist watch that reads your blood pressure, heart rate, and oxygen use. Some years ago Dr. Brett Steenbarger, a trading psychologist, talked about monitoring your vitals as you trade for beginner traders trying to get a hold of the excitement which might detract from decision making. Seems like these might be helpful for a beginner trader getting used to the stress of trading and practicing relaxing a bit under uncertainty.

Brett Steenbarger comments: 

Yes, and the Fitbit devices can also be effective in helping people become much more data driven in their workouts.



What kind of moving average of the last x days is the best predictor of current and future happiness, and how does this relate to markets?

Anatoly Veltman writes: 

The widespread misuse of MAs concept is what gives it bad name. 90% of testers and users look at crossovers, and the remaining 10% look at break of MA from above or below. All wrong

The only proven way to apply MAs from trend-follower stand point is to look at nothing else but SLOPE. (Trading Days) Is 14-day MA sloping upward? If so, then is 30-day sloping upward? If so, then is 50-day sloping upward? If so: then Shorting is forbidden! Mirror test may save you from disastrous bottom-picking.

Bill Rafter writes: 

I beg to differ. There is no way the "average of the last x days is best predictor…" It by definition is at least a coincident indicator and more likely a lagging indicator. BTW the same can be said of the SLOPE of the last x days.

However, you can construct a leading indicator by comparison (difference or ratio) of the coincident to lagging indicators. For this newly created leading indicator, there tends to be a lot of false signals, due to random market action. To guard against that you need to have very smooth coincident and lagging inputs. Making them smooth also makes them more lagged, but that will not hurt you as you are not going to look at them outside of a difference or ratio, which will be quite forward-looking.

The real problem is that investors want to identify a static x. In doing so they are insisting that the market be modeled by x periods. Well, the market doesn't always feel like cooperating. At times the market may be properly modeled by x periods, and at other times by x+N, in which N can assume a wide range of positive and negative values. The solution is to first identify the exact period over which the market should be modeled for the coincident valuation. And then go on from there. Rinse, repeat.

Russ Sears writes: 

This would be a good question to ask the trading expert psychologist Dr. Brett.

It seems that with the same brain imagery he uses is being used in the study of the science of happiness.

While I am no expert I have read Rick Hanson, PhD book "Hardwiring Happiness"/ It has been awhile since I enjoyed this book, my summary of it is "focus on the life/good in the present. Placing things in context to how it has brought you to this moment, then enjoy the moment is enjoying life."

Presence seems to be the buzz-word in studies of contentment and psychology of success. Being aware of all your inputs, your feelings and recognizing them as part of life, then celebrate living. Presence gives you the fulfillment in your life needed to be loyal and disciplined enough for what is working well in your life. Thanksgiving is a day built on this idea, But presence also gives you the courage to turn things around, admit things are not as you want, and gives you Hope for the future. Happiness is more about living your life, being in control, then it is circumstances. Some of my happiest times have been after running hard for over 2 hours exhausted after 26.2 miles, cold and totally and dangerously spent but knowing I gave it my all.

So I would suggest that MA, trend following, momentum, acceleration, nor death spirals nor reversion to the mean, value investing should not ever be the "key to Rebecca", rather judge them in the context of everything else. Some days "the trend your friend" other days "the sun will come out tomorrow". 

Brett Steenbarger writes: 

It's a really interesting area of recent research. It turns out that happiness is only one component of overall well-being. What brings us positive feelings is not necessarily what leads to the greatest life satisfaction, fulfillment, and meaning. I suspect the market strategies that maximize short-term positive emotion have negative expected return, as in the case of those who jump aboard trends to reduce the fear of missing a market move.

Ralph Vince writes: 

Too many times in life I've found myself in darkened parking lots with a small gang of characters who intend me harm, and saw how the pieces would play out enough in advance enough to get out of it, or at least to realize there was only one, very unpalatable way out of it.

Shields up.

Too many times in life, I've had an angel whisper in my ear with only a few hours or seconds to spare to keep from being robbed blind by people I made the mistake of trusting.

Too many times in life I've paced in some anonymous hotel room, wondering "How the hell am I going to do this once the day comes?"

Too many margin calls have had to be met.

Far more times than I would care to, I've found myself confronted with the proposition of having to throw boxcars to survive, and I find myself, yet again, with that very proposition in a life and death context.

Only someone who really loves the rush of the markets, could enjoy wanting a given market to move in a specific direction. I've come to the conclusion it's far better for me to set up to profit from whatever direction things move in on a given day. Those that dont move in a manner so as to profit from this day, will tomorrow, or the next day, or the day after that… I need to just show up on time with my shoes on, collect on that which comes in today, sow the seeds today for taking profits on something at some future date. It's not difficult, and a lot more satisfying.

There's enough episodes in life we need boxcars to show up, and yeah, "Baby needs a new pair o'shoes."

Victor Niederhoffer writes: 

I like all these untested ideas about moving averages but my query was of a more general nature. What kind of moving average, perhaps its top onion skin an exponential average, is the best predictor of human happiness. I.e. if you are happy yesterday and unhappy the day before, are you happier or sadder. I mean vis a vis the pursuit of happiness, not markets, although the two are related I think.

Alexander Good writes: 

My answer would be a medium term moving average works best - about 6 months. We're naturally geared to notice acceleration not speed. After accelerating happiness, it's virtually certain to decelerate which we would have a heightened awareness of. Thus a 5 day moving average would have too much embedded acceleration and deceleration to yield a good outcome.

I would also say 6 months is a good number because there's a fear of 'topping out'. I.e. if you're at the peak happiness of the past 5 years you might get afraid of a larger mean reverting move. 6 months is short term enough not to be victim to noticeable accel/decel, but not too long to be subject to such existential thoughts that lead to unhappiness. 2 quarters is also a good timeframe for evaluation of back to back 3 month periods which seems like a relevant timeframe to most people professionally.

My meta question would be: does measuring one's happiness with a moving average make one more or less happy? 

Theo Brossard writes: 

I would pose that happiness would exhibit similar behavior with market volatility. Short-term clustering (which makes exponential average a good choice, if you are happy today chances are you will be happy tomorrow) and longer-term mean reversion (there must be some thresholds defined by values and time–you can't be very happy or unhappy for prolonged periods of time).

Jim Sogi writes: 

A good way to study this is to rate and record your happiness each day. Also record your acts: exercise, diet, work, family, vacation, tv, meditation, etc. Over time you can correlate the things you do that make you happy. You could correlate day to day swings as Chair queries in a univariate time series.



 As I continue on my arduous journey for selecting and also constantly keeping traders at their A-game, I was wondering if Vic, Brett or others on the list have any experience with how Sports Psychology could be used with Traders.

A competing athlete goes through pretty much the same psychological challenges that a trader goes through…and I was wondering if any research had been done on this subject.

Mental training helps athletes perform more consistently, find the zone more often, keep a winning streak alive, and learn how to think well under pressure. Or, as one sports psychologist put it, mental toughness is "the ability to consistently perform toward the upper range of your talent and skill regardless of competitive circumstances." As psychologists debate the roles of genetics, environment, and learned skills in determining mental toughness, they do agree (along with athletes and coaches) that high levels of mental toughness are associated with athletic prowess and success. In fact, mental toughness (or "grit") may be the defining factor between finishing at the front of the pack and not finishing at all.

Any thoughts from Specs would be welcome.

Victor Niederhoffer writes:

One would turn to Galton as one should on most areas involving human faculty. The key to athletics success is the sports gene. A key to trading success is intelligence. I would also look to the circle of friends, colleagues and influencers that a prospective employee has. Is he benevolent or a hoodoo. Beware of the hoodoo, and stay with the ones that create benefits for those associated with them.

John Netto writes: 

Sushant. I would read Market Mind Games by Denise Shull. It's excellent and will be a nice resource on your journey. Good luck.

anonymous writes: 

Ability to learn from and then put losses behind them. The inevitable mistakes being made are then analyzed, learned from, improvement sought, and then move on without negative baggage and lament about what could have happened.

Longevity. Injury, early retirement, or large losses do not afford one the ability to succeed.

Independent thought. A Zen like ability to follow one's own methodology and ideas in a non-conformist fashion, yet to balance with the ability to absorb appropriate outside information

Simple hard work. The will to stay out on the field longer than anybody else. Think Jerry Rice, Marcus O'Sullivan, Patrick Kane, Michael Jordan. 

Brett Steenbarger writes: 

Frankly I think the best writing on the topic is your account of your racquetball career. I agree that mental toughness is important, but all the toughness and repetition in the world won't be helpful if a person is working on the wrong things. I continue to find that good trading makes for good psychology just as often as the reverse.

Larry Williams writes: 

The mark of all greats is the ability to come back from behind.

Hernan Avella writes: 

From Handbook of Sport Psychology. Gershon et al.

"Personality traits like dispositional self consciousness, reinvestment and trait anxiety have been associated with predictors of performance failure. Research has also demonstrated that giving athletes practice at dealing with the types of attention demands that performance pressure induces can reduce sill failure when the stakes are high. Also, that preventing athletes from acquiring the type of explicit knowledge that pressure may exploit to begin with may also help to quell the negative effects of stress at high levels of performance."

Paul Marino adds: 

I had a long discussion today with my father regarding choosing the humble person over the boisterous kind of person in any of of life's dealings, from the dry cleaner or barber to your doctor or broker. I tend to get less agitated around the humble and have an easier time speaking my mind. If my physician was loud I might not tell him as much about my life and habits as I should. It's what works best for you that counts, like in any system, trading or otherwise. "Know thyself" may be the best known and least used maxim of all time. 



 My current challenge is onboarding approximately 200 new traders in the next three months. While we have built sophisticated tools, systems, risk models etc., I have been becoming a bigger believer of the concept that "Who we are as individuals is how we trade in the markets'. I have compiled some of my own weaknesses and strengths and am trying to build a matrix of self-cognition for other traders to follow. It would be great to get the groups feedback on the thoughts below.


Makes and follows long term business plan


Will ignore long term business plan


Will handle times of market volatility and make smart decisions


Will panic when markets are volatile and make stupid decisions


Strictly follows Stop-Loss rules and Protects Trading Capital


Will not be diligent with Stop losses and will risk trading capital


Handles losses and down times in markets


Gets depressed when facing losses and makes poor decisions


Daily updating charts, indicators, business plans, Economic calendars

•Disorganized Too many charts, irregular updations, too many instruments


Willing to change view on market based on where the market is going


Sticks to own views and will fight the market even if he is wrong


Puts in the hours required for daily research, trading and journaling


Trades based on mood, not bothered with daily research and journaling


Accepts his mistakes made while trading and tries to improve


Does not accept his trading mistakes and blames the market


Understands and acknowledges that every day is different in the markets.


Tries to treat every trading day as same and forces his trading style


Follows a strict daily trading routine based on market hours and economic releases


Irregular with trading hours, does not strictly follow economic calendars


Understands why markets are trading up, down or sideways and trades accordingly


Will focus on personal profit or loss to determine trading strategy


Grounded and humble after making good profits - knows that he can lose it all


Thinks he has 'figured out the market' and feels he can always beat the market

•Not Envious

Focuses on personal trading results and how to improve his own trading

•Envious, Jealous

Is troubled by the results of other traders and loses focus on improving his own trading


Has the ability to maintain an inner peace and composure during extensive market moves


Is constantly agitated at every up or down move of the market and keeps fighting the market


Keeps trying no matter what happens and does not give up till he starts becoming profitable

•Quitting, Fickle

Gives up too soon if faced with trading losses and blames the market for his failure


Because he is polite, he can learn from other traders and benefit from expert knowledge


Because he is rude, he is unable to build a network of successful traders and misses out on the learning community


Realizes that he needs to do whatever it takes to support himself and his family and trades systematically


Thinks only of himself and takes rash trading decisions - often willing to gamble it all.


Understands that trading takes time to become profitable and plans his personal expenses accordingly


Is looking to reap profits in trading from day-one and cover living expenses - makes rash decisions


Will only trade based on defined entry and exit rules


Will trade based on mood, greed and fear


Will ensure that he trades less to keep the commissions low


Will overtrade and land up giving up all the profits in commissions


Builds a consistent track record of trading profits and can raise outside funds to manage


Inconsistent track record means no one will give him additional capital to manage


Realizes that all the trading results are of his own making and does not blame markets


Will revenge trade the markets in order to recover losses


Follows all the rules of trading and DOES NOT find excuses for breaking the rules


Willed Breaks trading rules often based on feeling fearful or greedy


Always analyses profits and losses and accepts where he got lucky and where he made a profit based on his strategy


Does not differentiate between getting lucky and making a profit based on trading strategy


Sushant Buttan
Founder and CEO

Brett Steenberger writes:

Interesting! The internal research we did suggests that cognitive variables are more important to profitability than personality variables. Personality variables had a strong relationship to trading style, not necessarily to trading outcomes.

Pitt T. Maner III writes: 

You are looking for professionals who respond to what seem to be the characteristics shared by most successful traders. But you can not standardize a trader, it's not a HFT robot.

For example, this morning I found this:

Bridgewater's Ray Dalio Simple Advice For Success: "Think Independently, Stay Humble"


"machine learning is the new wave of investing for the next 20 years and the smart players are focusing on it.

"Bridgewater Is Said to Start Artificial-Intelligence Team

Sushant Buttan responds: 

Thanks for the feedback. Much appreciated.

The responses are interesting and in some cases the qualities of a good trader seem to be diametrically opposite to the qualities in the list I posted…definitely food for thought. Vic, please feel free to post on the Daily Spec…would love to get as much feedback as possible. Thanks.

Victor Niederhoffer writes: 

Mr. Buttan's List is a good list for a spouse I think. As to whether they are good for traders' success, one would not know. Some of the best salesman and traders are totally disreputable. I would think that one key thing for Mr. Buttan to do is to do as much of the trading in house as he can, thereby eliminated slippage and bid asked spreads and capturing profits for the house. Indeed if Mr. Buttan were to make his trading floor a central exchange for all Mideast trades, so that he can capture the spread, I think his idea might work. MFM Osborne always wanted to create an automated market making system, and it would be great to see that developed to ones' profit. I have a query for Mr. Buttan. Does he want me to put his list up on daily spec. It's a seemingly useful list, and it might get him some helpful feedback. Galton always said the most important qualities for success were health, persistence, organization and a modicum of ability. One would recommend reading his work on eminence, which Jeff seems to have readily available. A good library would be great as a foundation for his traders.

Brett Steenbarger comments:

Yes, persistence in particular is important. The research on "grit" is relevant in that context. It is not necessarily the case that positive personality traits are associated with successful trading. Some of the highest Sharpe ratio PMs I tested score surprisingly high in negative emotionality. It is their fear/concern with the downside and overall vigilance that helps them achieve good risk-adjusted returns and avoid overconfidence biases. I would think putting the list on the Spec List would indeed generate useful input.



 "The people who are coming into the game, the creativity, the intelligence—it's unparalleled right now. In ten years if I applied for a job, I wouldn't even get an interview" -Billy Beane quoted in The Signal and the Noise by Nate Silver. Silver knows baseball very well, and there are many insights and carry overs in his chapter on W's and L's in his book. Here are some of them.

1. Silver developed a system called Pecota to predict when a hitter was going to be good. He picked Petroia who became a Most Valuable Player whereas all the other systems missed him. He started out badly and then improved greatly. The principle of ever changing cycles applies to baseball as well as our field. While silver doesn't know anything about markets and his chapter on it is one of the worst I've read, he seems like an amiable personage. I like his humility. He goes up to Petroia to get an interview: "'No. I won't give you a minute. I'm trying to get ready for a Major League baseball game,' he said in as condescending manner as possible every syllable spaced out for emphasis."

2. In developing his system, he tries to weasel out skill from luck the same way Galton did. He doesn't like batting average but likes things like home runs and strikeouts versus walks. Would we be better by looking at how far down or up, the market was rather than the win or loss.

3. There is an aging curve. A player is good after a few years but bad near the end. It's sort of like the s curve for growth. Silver tries to capture which part of the aging curve a player is on and uses that to pick how much to pay a player. He doesn't seem to realize all the difficulties in differentiating between the 20 kinds of curves that are possible, and the predictivity of making assessments even if you knew the curve a player was on. It's very similar to the problem we have in looking at similarities. Which are the variables to measure, and even if you could find the most similar would that be predictive. Neural networks is based on the similarity algorithms.

4. Bill James comes up with a similarity rating starting with 100 to see how a player compares to other greats. Seems to use linear distance. Much of James work should be applied to markets. The trend follower who lost so much who's now the baseball owner should have used James as his chief speculator rather than following blindly the moving averages.

5. Silver concludes that scouting + computers is better than just computers. I believe that no system is good without judgment and the question of clinical versus objective rating is a ongoing debate in psychology.

6. Silver actually evaluates his predictions versus the scouts and concludes the scouts did better. One has to compliment him for his objectivity in making such an evaluation. It is amazing how few of the forecasters in our field actually provide an evaluation.

7. Silver points out that everything about baseball is encapped in the score cards and the videos. He believes that baseball is the best slate, the most detailed and accurate base of operations for forecasting. I wold say that our own field where tick data for all trades is available is just as good.

8. He comes up with 4 factors that go beyond the statistics that are good for evaluating a player. Preparedness, concentration, competitiveness, and stress management. It would be good to have Brett's take on these factors. They all seem reasonable and might be applicable to our field in choosing employees and partners but they are untested. I would think humility would be one of them for our field as well as hard work. I like that Petroia never wasted a second but tries to play his hardest even in the warmup. That's what I like in a trader and how I tried to be in racket sports also.

Brett Steenbarger writes: 

"4 factors that go beyond the statistics that are good for
evaluating a player. Preparedness, concentration, competitiveness, and
stress management. It would be good to have Brett's take on these
factors. They all seem reasonable and might be applicable to our field
in choosing employees".

There are several meals for a lifetime in
that post; thanks for sharing. I strongly suspect that there is at
least one single factor that runs through preparedness, concentration,
competitiveness, and stress management and that's the ability to sustain
an intense level of goal-directed activity over time. Dean Keith
Simonton's work on greatness finds that successful people are productive
people: they are highly purposeful. Traditional interview methods rely
on self-report and end up being biased by the interviewer's perceptions
of an interviewee's likeability. A more objective measure would gauge
how productive a candidate is across domains.For example, one of my
favorite interview questions asks applicants to walk me through their
process for generating an idea for a trade. The successful ones offer
rich detail about a unique process that entails significant analysis
(digging into an area) and synthesis (assembling observations into
conclusions). The unsuccessful ones offer superficial explanations of a
generic nature. You learn a lot by delving into the details of how a
market participant prepares for the trade. Much of what predicts success
are cognitive strengths, not just personality.

Paolo Pezzutti writes: 

I think the ability to sustain an
intense goal-directed activity as suggested is an important factor for
anyone who runs an organization. The main thing however is to couple it
with a vision of what the organization has to be in the future. This
translates into a number of goals that lead the organization to that
point. These goals have to be analyzed in order of impact and effort it will take to achieve. Finally they have to be
prioritized and executed. Competence, determination, leadership, the ability
to sustain long working hours, the will to succeed are all important in
the execution phase.



 Thank you very much for the great Spec gathering. It was very good seeing old and new faces, and always good to see you.

Below is a submission for the DailySpec if you deem it worthy. It's a very good example of the benevolent influence you talked about to the group:

The highlight of touring the orchid exhibit at the New York Botanical Garden was the commentary of friend and mentor Victor Niederhoffer. At one point he made a wry comment about one of the exhibits, which described how plants were used in folk medicine. He opined that Ayn Rand wouldn't have liked the exhibit, as it glorified practices that were filled with mysticism, subjectivity, and overall mumbo-jumbo.

My reflection, however, was that Ms. Rand–in epistemological benevolence–would have distinguished between pre-science and anti-science. The ancient astronomers lacked the tools of their modern counterparts and yet attempted to ground their work in the observable and measurable. Anti-scientific mystics, on the other hand, posit realities that by their very nature are non-measurable and unverifiable.

Earlier in our tour, Vic had mentioned the early technical analysts, who hand-posted charts and used compasses and protractors to measure angles and trends. Much of this was pre-scientific work, not necessarily anti-science. Lacking computers and algorithms, the early pioneers of market analysis resorted to the tools and techniques available during their era. That many of their conclusions did not stand the test of time does not alter the fact that they were engaged in efforts at objective observation and measurement.

This is quite different from astrological and numerological theories of market behavior that were so imprecise–and so able to cover all possible circumstances–that they could not possibly add to scientific understanding.

There are "moneyball" opportunities in the pre-scientific observations and measurements of dedicated traders who make sincere efforts to "count". One can find their work in the better blogs and tweets across the web. Such work is fertile ground for promising hypotheses, even as it must face the rigors of scientific scrutiny to be accepted as conclusions.

Technical analysis is the folk medicine of financial markets. The rational folk doctors of past eras found plants that truly had healing power. Indeed, 30% of all current prescription drugs come from such plants, according to the NYBG exhibit. Some of today's market folk doctors–those truly devoted to observation and measurement–may find equivalent remedies for ailing speculators seeking market truths.

P.S. I have spent the better part of this morning quantifying a blog's informal observations about support and resistance and have found interesting patterns worthy of further study. Such is the benevolent influence of a garden walk with the Chair.



 Here are the three most important things I've learned from you and the DailySpec.

1. Count. Then count some more. If you see something you think is promising, capture it in a statistical test and see–first hand–how correlated it is with what you already know and how much variance in prospective price change it truly accounts for. There is no better antidote for overconfidence bias (and no better stimulus for humility, objectivity, and perspective) than to rigorously test one's ideas.

2. Explore. What you observe in nature, human events, music, and so many other facets of life can teach you a great deal about people and markets. Some of the best market inspirations come from being away from markets and absorbing wisdom from insightful people, good books, and the arts and sciences.

3. Achieve. Half of life's battle is staying young-hearted and benevolent in spirit. There is no better barometer of a person's sense of life than seeing his or her emotional response to great achievement. Being young hearted means staying inspired and always pursuing new vistas. It means reveling in the best of others and thereby fueling the best within us.

Victor Niederhoffer writes: 

I believe that most of us including me, consider Brett one of the most sagacious personages we've ever had contact with. He says explore exploring "what you observe in nature, human events, music, and so many other facets of life can teach you a great deal about people and markets. Some of the best market inspirations come from being away from markets and absorbing wisdom from insightful people, good books, and the arts and sciences."

I thought it might be useful to explore if there are some things we learn from sports that might be useful in markets. I have some ideas along these lines like offense wins the game more than defense. The home team always wins. The first blow is half the battle. Wins by a few points are not indicative of future success. The lucky shots and lucky wins tend to reverse. The end of the game tells the form. Slow and steady wins the game. The horses change at the beginning of new season. Start young if you wish to achieve mastery. Don't play your opponent's best game. You can't run with the hounds and play with the foxes. I haven't quantified many of these ideas, but some I have. But Brett seems to imply that big ideas even when not quantified (perhaps the counting can come later ) can be useful. I'd like to hear if any of you have ideas from sports helpful for markets, (other than that Smith and Antoni are the curses from the Bad One).

John Floyd writes: 

Focus on developing a good base of fundamentals(trading principles/methodology) and follow them, gimmicks and tricks will only go so far at higher levels.

Play to your strengths, don't trade others ideas or positions.

Longevity and being able to stay in the game is key, you can't win if you are ejected from the game.

Maintain balance, overreaching and thinking you can master many markets often spreads one too thin.

Cross market feedback mechanisms(how does a slowdown in China impact Brazil, etc.), skills in one sport are often complementary to others.

Discipline and routine, when this change it is all too easy get off track.

Jim Sogi writes: 

1. Big waves come in sets, and rarely is the first the biggest. Never take the first wave.

2. Trust your board. Stay on it as long as you can. Riding until the end of the wave is the safest exit.



 A lesson I learned from Einstein is the benefit of being able and willing to changes one's mind. At times a pacifist, he changed after witnessing the rearmament in Europe. In physics and science in general when presented with new evidence it is quite normal to revise theories and mathematical proofs, or even to reverse a position entirely. Putting ego aside, he did this many times, most famously dropping his famous Constant variable regarding a static universe when through experiment it was proved no longer necessary. This is skill which comes more naturally at a younger age, but is quite possible for the post 40 crowd as he demonstrated in his long career.

Russ Sears writes: 

It seems to be increasingly clear that part of Einstein's long term productivity was due to his long walks often with Godel. It makes me think of this article: "Exercise Grows Brain Cells".

Dr. Brett S. maybe able to clarify, but it is my understanding that some of the latest ground breaking research shows that "changing your mind" is more than just a figure of speech. It appears that meditation can reroute the neuron wiring especially between the regions of the brain. This may also produce new brain cells. Or perhaps it uses the new cells produced to strengthen the bridges between regions.

Brett Steenbarger adds: 

There's also interesting research on brain changes following successful behavior therapies, such as treatments for phobias. And, yes, a good amount of research on brain changes related to meditation practice. What's most interesting is that the brain changes following effective medication are nearly identical to those following effective talk therapy:




The capacity for rigorous thought; the flexibility and resilience to adapt to changing circumstances; the love of disciplined risk-taking; the hungry intellect: perhaps successful speculators already display those qualities in other life domains and then learn to apply them to markets.



Theories propounded by market experts are sound but very few people profit by them because when once caught in the maelstrom of stock speculation, the average man becomes more or less mesmerized and at critical moments his conservatism, his resolutions, and his theories all take flight.

One doesn't agree that the theories of market experts are sound. Most of them relate to meals for a day, and selective memories of things that seem reasonable. They don't take account of ever changing cycles, and the fact that whatever worked 3 years ago, which is the average minimal time for a theory to hit a book and become popular, and reported by the services, is very likely to have an opposite effect at the current time.

People become mesmerized by overtrading against their ability to lose. When they lose too much, they get stopped out by their brokers or their partners. Holidays are particular times that people get stopped out of or mesmerized because they don't wish to ruin their holiday, wait for the extra day of risk, or their partners tell them such things as "are you going to ruin another July 4th by watching the market every second of the day, and worrying about paying the bills?". It's happened to me.

The real secrets of stock market success remain locked up in the bosoms of a few who are too busy to write, and too rich to feel the need of writing.

The secrets of stock market success are to have a good foundation, strong at the base with heavy capital supporting it. The banks can have stock market success because they are able to leverage themselves 100 to 1 and borrow at the funds rate, and be bailed out by their current, former, or future colleagues but most don't have that ability. Thus, the market is a series of highs and lows with the weak getting extricated by lack of a proper foundation at each gyration.

One of the worst things is to read about the best great things I did in trading as if the trades were recurring, they wouldn't be written about or if they aren't recurring then probably you should do the opposite the next time. Even if I had a method that worked, I couldn't reveal it because my partners and family would be upset with me. I don't have a method that works, although if so many of my former colleagues didn't borrow my methods of using statistical interrelations of multiple time series varying ever hour of the separate days, I believe that such a method might have had legs. There are doubtless other methods of making money in markets, but one finds that the edge that HFT boys with their better equipment and capital have on individual stocks precludes such methods for short term in individual stocks, and the long term purchase of stocks requires deep insights above and beyond the average that it is unrealistic to expect one person or group to sustain over different market times.

Many of the rich people I know are happy to be interviewed on television as they can talk their book and get people to follow them so they can increase the wave they started by talking to their colleagues and brokers after they put their position on. Also, to show that they are common people, supporters of the masses, in favor of redistribution, so that their natural adversaries at the legislatures and the service will realize he's a fellow traveler. The others who know how to make money are careful never to reveal a thing as information flows so quickly and it just takes a few big funds or traders to turn something profitable into oblivion.

The gyroscopic action of the prices recorded on the ticker tape produces a sort of mental intoxication which foreshortens the vision by involuntary submissiveness to momentary influences. It also produces in some minds an effect similar to that which one feels after standing for a considerable time intently watching water as it flows over Niagara Falls. Dozens of people have committed suicide and been dashed on the rocks below after so watching.

I am not familiar with the research that supports this tendency to suicide but I have experienced similar sensations. And there does appear to be some contagion in suicides. As prices go against one, I believe that the latent self hate of many people for their sins is manifested and they achieved their desire to go broke to atone for their sins. The tendency to suicide when watching a trend is something that would seem to have market implications as new contrarians are drawn in to be thrown into the abyss by going against the flood time after a certain mesmerizing flow. To be continued. Only on p.13 of my notes on book so far. 

Sam Marx writes: 

I agree with these observations and analysis.

There's one way that still works in getting rich and that is to buy cheap. W.E. Buffett still does it, and so does Trump.

Making a fortune by the statistical approach is much more difficult, however, if you're lucky enough to get in a new game, such as options in the '70's and '80's ,or 21 in the '60's math works fine.

Having been there, done that, I'm not as math oriented in my trading as I was before and I try to buy cheap.

I found Hagstrom's book on Buffett helpful when trying to buy cheap.

However, I have my eye on a relatively new game that I'm studying to see what can be done there statistically.

From a great psychologist Laurel and I serendipitously learned from:

Hi Vic,

Traders in Eurupe are much more focused on the European woes than the US traders. As a result, they've been much more bearish, would it not be for their conviction that a massive monetization of debt will ultimately save the day for bulls.

I absolutely love the notes you've taken. The idea of themes setting themselves over a period of time to be followed by their opposites is such an important one…HFT has seemingly speeded that process.

The Niagara suicide phenomenon is a tricky one. Is it a leap out of mesmerization or a leap out of guilt and atonement? My own observation, fwiw, is that something additional can be at work. Many traders tell me that they would rather lose on a move that they incorrectly anticipate than fail to participate in a move that goes their anticipated way. In other words, the pain of opportunity cost is greater than the pain of actual loss.

From this perspective, the most painful scenario is one in which a river becomes Niagara and one is not riding the current. I've seen traders sell stretched markets to the downside, buy upside breakout after breakout, and refuse to exit trades moving violently against them simply because they could not bear to miss the move they think may happen.

At some point, it does have a quality of Japanese seppuku: out of honor they will stay with their failing positions and fall upon their financial swords. From that perspective, perhaps it is better to die with one's convictions than to have abandoned them and face the shame of missing their fruition.

Your idea of "foreshortened vision" as a result of mesmerization of watching the screen is absolutely true. I tell traders that we inevitably trade the time frame that we watch: it's a natural function of (often flawed) human pattern recognition. Trance states are poorly understood and appreciated, and I suspect much paradoxical trader behavior might be explained by the lapsing of critical, rational consciousness and the hypersuggestibility of the trance state–especially among daytraders. Hence the worthlessness of most psychological intervention with traders: one cannot solve problems while in a different state of consciousness from the ones in which the problems occur.

- A psychologist

Victor Niederhoffer writes:

- P.60, The Psychology of Spec:

It may here be explained that the mental attitude of a "sold out bull" toward a rising market is much the same as that of a bulldog chained in his kennel while a dog fight is going on outside. A speculator may stand by and view with unruffled complacency the most enormous profits of others in securities that he never owned, but if one of his own pet stocks continues to advance after he has sold out. It not only reflects the error of his judgment, but the remorse he suffers, in contemplating the additional sum he might have made dampens all the pleasure of reflecting upon the profit he actually did make. Reluctant to admit such a costly blunder in judgment, determined not to be surpassed by his fellow-traders, and fused with the victor of his recent exploit, when Union Pacific was selling about 215 the "sold out bull" put in an unlimited order to buy five thousand shares. When his broker on the floor of the exchanges began bidding for this amount of stock, the crowd instantly surmised that some big operator was being "squeezed on the short side, and before the purchase was completed the price had jumped to 229.

The sold out bull eventually died on the Bowery without benefit of friends or money to pay for the funeral.  "The lodge had to pay for the funeral" and my father might have had to carry him down from his Bowery walk-up to the morgue.

The whole subject of regret theory and contrafactual reasoning is so diffuse that it can explain any phenomenon and predict nothing. On one hand, it explains the tendency to take profits too fast as being a feature of regretting to lose what one has. On the other hand, it explains why people buy too high or sell too low from the standpoint of missing the big move. If such a phenomenon as "sold out bull" exists in real life, then it should lead to excessive moves when markets set a new high after many have sold out at lower prices. It would explain why support and resistance is always broker. Why when an area of great volume of trading at a price occurs, and then the price is exceeded, the bulls become more agitated and buy. I've seen papers that say that regret theory supports the notion that "support and resistance barriers should not be broken. A good study of the psychological literature is contained in this paper.



 Thoughts on the Psychology of Speculation by Henry Howard Hopper published in 1926 and then reprinted by Fraser Publishing Company.

The book is excellent on many different levels. I like most that it talks about encompassing principles of human nature. Not the trivial made up ones of behavioral economics but broad human tendencies that are crucial to how we make our decisions and go about living our life.

Included among these broad human tendencies is the tendency to go crazy when you see a massive flow in front of you like the many who commit suicide in Niagara falls after seeing the water flow and the many who lose their minds as the market goes up. Also paramount is the incredible ennui that a human feels when something that he formerly owned goes thru the roof in other hands. I also like the many market periods of boom and bust he covers including the fantastic bull market of 1915 in the middle of the war where stocks of many a sage speculator was short skyrocketed by 15 fold or more. "He did not live to see General Motors at 850 on October 25, 1916," as his broker was forced to sell him out well before hand and "he had crossed the bar into the great beyond".

Like my father's experience in the Bowerey where he had to cart the bodies away when they couldn't pay the rent after dying from gambling, "the widow was left almost penniless and he was buried at the expense of the lodge". I like also the colorful vivid language so characteristic of the roaring 20s that makes on wish one was there and feel for the every emotion that he elicits.

I like best the last words he repeats of a short seller who made a fortune in leather goods and then lost it in the market through shorting. "In the past year I've suffered every torment known to the demons of hell. My only grain of comfort is that it's all over now and I have nothing more to lose." From this tragic experience, the author concludes "there is but little comfort or profit to be gained on the short side of a protracted bull market".

I will give many more incisive but pathetic recollections of the failures of speculators in the favorite stocks of the 1920s: General Motors, Studabaker, Union Pacific, Anaconda, Calumete and Hecla, Bethlehem Steel, et al.

A Psychologist writes:

Let's say for argument sake that, a la Atlas, an inventor develops a motor that eliminates the need for gasoline. In a single stroke, energy costs are reduced by 90%, creating massive savings for consumers and industrial producers. There are some who would eagerly buy on the news, anticipating an economic renaissance. There are others who would angrily pronounce this a temporary respite from the world's parlous condition and short the first market bounce. Bullishness and bearishness so often are a function of character, reflecting how people wish to see the world. The disappointment of some bears that the recent earthquake was not more catastrophic is more than a bit eye-opening.



I just finished browsing the 2012 Federal Budget Proposal. If you believe the Economic Assumptions, Dow 36,000 is a no-brainer. But see my comments at the bottom.

Here's the link. see Table 2-1

Here's the meat:
2012 Real GDP = 4.0%
2013 Real GDP = 4.5%
2014 Real GDP = 4.2
2015 Real GDP = 3.6%

2012 CPI = 1.8%
2013 CPI = 1.9%
2014 CPI = 2.0%

Wages & Salaries:
2012 Growth rate YOY= 5.8%
2013 Growth rate YOY= 6.5%
2014 Growth rate YOY = 6.5%
2015 Growth rate YOY= 6.2%

Average Tbill rate:
2012= 1.0%
2013= 2.6%
2014= 3.7%
2015 = 4.0%

Average 10 year rate:
2012 = 3.6%
2013 = 4.2%
2014 = 4.6%
2015 = 5.0%

I don't have a crystal ball. And it's certainly possible to have nominal GDP growth of 6-ish percent. However, the historical anamoly would then be in the interest rate forecasts. Since the 1950's, and except for two very brief recessionary periods, the 10 year Treasury yield has ALWAYS exceeded the year-over-year change in real GDP — with the average (eliminating the 1975-85 inflation) — being about 200 basis points. So, if you accept their real GDP forecast, the interest rate forecast is implausible. And if you accept their interest rate forecast, their GDP forecast is implausible.


Ralph Vince writes:

Out of curiosity, maybe George Z can chime in, are these GDP assumptions typically unrealistically rosy?

George Zachar obliges: 

Well, since you asked…

2013 Real GDP = 4.5%
2013 CPI = 1.9%

That gives us NOMINAL GDP of 6.4%, which happens to be the high end of the range going back two full decades.

Not bloody likely given the current configuration of economic, demographic and political forces.

Wages & Salaries:

2013 Growth rate YOY= 6.5%

With existing slack/low participation rates? No way.

I think these figures were calculated by guesstimating what they could publish without folks bursting out laughing…and then multiplying by 1.2.

Rocky Humbert comments:

 Might I suggest that the interesting reactions to my post regarding the 2012 Budget/Economic Projections should cause some introspection.

As I noted, the projections seem historically improbable and incredibly optimistic — but just like that Goldman Sachs economist who projected the outlier of 6% or 7% growth this year — they are NOT impossible. And if they turn out to be even close to correct, the upside in the stock market could be mind-boggling. That was my point. And for the umpteenth day in a row, Mr. Market is again voting for the improbably bullish outcome even though GZ's helpful comments have much better odds!!. See this old post.

I cannot overlook that Mr. Rogan in his replies, yet again, mistakes ZeroTruth (excuse me, Zero Hedge) to be a source of wisdom. It's particularly ironic when Mr. Rogan writes "to be an intelligent liberal today is to actively promote lies" when in fact, actively promoting lies is the essence of Zero Truth's business model. A question for Mr. Rogan: Why is the propaganda on the White House Website more troubling to you than the propaganda on Zero Truth website? Perhaps you only object to "lies" when they are from someone who doesn't share your idealogy?

One of these days the stock market will decline. And cotton will go down. And we'll have another recession. I only wish that I was smarter so I could know when that will happen. I don't know. And that's why I always hedge my bets. And that's not just bearish hedging. It's bullish hedging too. And I'm glad I'm hedged bullishly right now!!



 That was some game.

Afterwards I looked up the following and was not entirely surprised, as years ago it had been pointed out to me that in basketball, defense in terms of points allowed is largely an illusion. The reason being is that it is less an indicator of dogged fundamentals on the part of the defenders as it is a function of how capable those same are of scoring when they have the ball.

For the overwhelming part of any basketball game if a team can score with alacrity, they generally do. And, unless it's in the waning seconds of a quarter other than the fourth, the game clock is an afterthought.

But if a team is saddled with poor shooters and otherwise less creative opportunity makers on offense, they tend to use most of the 24-second clock looking for somebody to get a lesser contested look at the basket.

That shortens the game.

The Knicks in their present form can score.

But by being nimble with the ball, they lengthen the game in that they give the opposition more possession and, thus, chances to score. Presently, out of the 30 NBA teams they rank a sterling first in points scored, but a lowly 28th in points allowed.

And notwithstanding their overperforming record so far this year, 16-10, it's illuminating to note they're doing all of this with a scoring differential of less than 2 points per game.

In the long run it might seem that they would be hoping that the vagaries of a coin flip suggested by that thin a margin would continue to smile on them.

Over the course of a long season, that's asking for a lot.

In the media accounts of this game it will be noted that the reason that Boston won was solely because Paul Pierce hit a money shot with but 4/10ths of a seconds left and A'mare Stoudemire's heroic answer to such came just an even smaller fraction of a second too late.

But I would maintain that's not why they won the game. They won the game because their earlier tenacious adherence to a fundamental put them in a position to win the game.

They were a perfect 21 of 21 in free throws.

That's why they won the game.

There are parallels to this in most every human endeavor. That is, putting oneself in a position to have the optimal chances of success.

A task much easier written than consistently done.

Victor Niederhoffer adds:

Shades of my friend Dr. Brett adds to the analysis of this game. The Knicks lost because of a personality disorder in that they gave up two technical fouls and lost possession and the 2 points. They keep high fiving themselves and showing off for their fans, and he coach allows them to explode their emotions on court. It is loathsome to see the coaches terrible strategy of helter skelter shooting holding back such a good team with the best player on the league on the team able to shoot from inside.

T.K Marks replies:

About the coach allowing them to explode their emotions on the court, check out the Jets in that regard. The coach there has allowed them to become the pariahs of pro football while the players on the other teams openly question what in the world are these guys basing their considerable conceit on. How can they theoretically be cocky when they haven't won a Super Bowl in over four decades. Haven't even come close. Now that is a textbook example of a collective personality disorder, a DSM code waiting to happen.

Presently the Knicks are an outside shooting team, attempting and making more 3s than anybody else in the league. As such, they will live and die by the hot hand.

That's unduly risky. A structurally flawed strategy, begs fate for an edge. Can only last for as long as fortune's fickle window remains open.

And by way of a market heuristic that might buttress the above point, over the educational years I've had mountains of my out-of-the-money calls expire worthless.

I love education.

Though I wish a little less of it would not be initially lost on me.

Brett Steenbarger writes in: 

The one thing I've learned being part of hiring processes at trading firms:

In life's racetrack, bet on the workhorses, not the show horses.

Distributions of returns, conditional probabilities of having a winning period after a losing one (and vice versa), performance under differing/changing market conditions: much of a speculator's psychology is revealed in their stats. Same for basketball players: assists to turnovers, number of times making it to the free throw line, offensive vs. defensive rebounds, etc help define the workhorses.



Hi Vic,

I thought I'd pass along some lessons I've learned of late working with a variety of portfolio managers. Please feel free to share with Specs, should there be more than a daytime meal in the observations:

Maslow one commented that, when all you have is a hammer, you tend to treat everything as a nail. So it is with psychologists that involve themselves in markets. Lacking an understanding of actual speculative strategies and tactics–not to mention portfolio construction–they reduce performance problems to the lowest, psychological denominator. In so doing, they confuse cause and effect: they observe frustrated traders and assume that relieving frustration is the key to making money.

The professional speculator, unlike the retail daytrader, rarely falls into performance problems because of derelict discipline or runaway emotions. Rather, it is the very competence of the professional that leads to performance challenges. *It is when pros are most in sync with markets, identifying and profiting from themes and patterns, that they are most vulnerable to ever-changing patterns of direction, volatility, and correlation*. The confidence that permits healthy risk-taking under the best of speculative conditions inevitably gives way to confusion and frustration when skilled participants are no longer in sync with their markets.

The wise speculator utilizes this confusion and frustration as information: they often are early signs that something meaningful has shifted in the marketplace. The proper intervention in such circumstances is not to quell the frustration with psychological exercises. Rather, it is to extract the information from the situation and feed that forward into strategy and tactics. Very often, today's bad trade was a good trade in yesterday's regime: there is information in that.

It is when the confusion and frustration are taken personally, as threats, that setbacks are most likely to turn into slumps. If one stops looking for ever-changing market patterns, then the only other source of changed performance is oneself. The internal focus leads to altered trading behavior, much as a pitcher experiencing a control problem might start aiming the ball and altering his delivery. Such alterations begin vicious cycles of diminished performance and unhelpful adaptations.

Ironically, in embracing ever-changing patterns–and the inevitable responses to those as regimes shift–traders are most able to make helpful adaptations. It is when good trades turn out to be losing trades that speculators gain some of their most important information about markets.

B.S. Humbert



 One of the most common and one of the most intense irrational fears is the fear of public speaking. Even the best speaker can lose his cool giving a spontaneous speech in a high stress situation, say at job interview or meeting the in-laws for the first time (I believe they make movies about this one). On the other side however, one of the most common forms of self-destructive behavior is saying too much. I believe everybody has had an experience where they have said something in anger, spite, arrogance or some other irrational momentary emotion, destroying or badly damaging a valued relationship. Many of the most miserable people I have known are constantly spitting out acidic words, chipping away at others, often at those beaten down souls closest to them.

I've have been going to a Toastmasters club most weeks now for over a year to help me overcome my fear of public speaking. And while I believe that the Toastmasters meetings were helping me, perhaps I made my biggest breakthrough once I realized that for me, and perhaps for most people, the problem boiled down to one word. This word, which Aretha Franklin spells for us, is r-e-s-p-e-c-t. We all crave this in our relationships.

The reason that respect or acceptance and esteem can cause such irrationality is that we develop many of our conditioned responses when we are toddlers and kids. Our ideas of respect get greatly distorted as a kid. It is almost impossible for a kid to understand that their parents reactions may have nothing to do with them. Further given that parental/adult acceptance is seen by a kid as such a necessity for their survival, many distorted and warped views can develop.

Finally, much of what makes a child be held in high esteem is not the same things that make people admire an adult. Sometime they are even the opposite. Take for example our grading system and testing. We hold the kid that makes the fewest errors as the best and brightest. This training can cause several distortions in a kids view of acceptance. For example, kids may come to believe:

1. Mistakes are always bad. Overcoming errors is not possible. But as adults we find the most successful are those that failed and got back up. We admire those that overcame though odds and many failure

2. that they should only worry about what is tested. Curiosity beyond the known is not encouraged. But as adults we admire the discoverer, the explorer, those that do not accept the standard answer and therefore come up with a better one.

3. Excelling at the subjective is a waste of time. But as adults we admire the artist, the actors, the great orators.

4. Kids are to be seen but not heard or not to speak unless spoken to. But many of the highest paid jobs are for the salesman.

5. Respect adults and discount a child's understanding.

Many people are like me, they are fine talking if they are sitting down. But make them stand up and suddenly the primitive brain kicks in… and many of these distorted views from childhood on acceptance impulsively take over. 

It seems to me that much of the Toastmaster's system is designed to get you to rethink and recondition much of that training you received as a child. Everything is critiqued, however, all suggestions for improvement are supposed to be sandwiched between praise. At each meeting everybody's grammar, filler words (such as "um", "ah" "and" or "so") are counted and everybody is timed. Roles are assigned to each element of the evaluation (timer, grammarian, wordsmith, etc.), and before each evaluation, they are to explain the goal in their critique.

 The speeches for the day each have a specific purpose to help the speaker improve. Usually this purpose is rather subjective, such as "vocal variety and quality" or "getting to the point". Every meeting has chances for impromptu speaking, standing up and giving a 1-2 minutes speech on the spur of the moment. Even the meetings themselves are critiqued.

The overwhelming implication to all this is that improvement is the most important thing, that any problems can be overcome, and to build on what you did well. I was seeing some improvement in my fear factor as I went to these meetings. However, I think for me the big breakthrough was realizing not just that these fears were irrational, but that they came from my distorted views of respect, acceptance and esteem developed as a child. Not that my parents meant to teach me this, but this is what often develops, within the simple mind of a child, trying to interpret the motivation and meaning of an adult's training.

Only once I started going through my fears one by one and seeing them as an adult did these fears dissipate. I think I stopped believing in these fears. Instead I saw them as "a" childhood interpretation of what I was taught, when there were really many, often much more valid possibilities than just that simple one sided interpretation. Often what I considered my parents "response", was simply AN interpretation, one of many, that I developed as a child.

Another interesting thing I learned at toastmasters concerns body language. For instance, for the impromptu speech, I have learned to listen closely and intently to those asking the question. I consciously direct my body language to suggest that I am hanging on their words. Then when I respond, I relax. I listened closely to them so I have "earned" their attention. I repeat their question, often putting it into my own words to show that I got the emotional part of the question they were conveying, not simply verbatim rote repetition. It shows I cared. Hence as equals they should listen to me. Why should I fear them being bored or inattentive?

It would appear that ramblings and shouting are also an effort to gain respect. General McChrystal spouted off to the journalist apparently because he felt slighted by Obama's "indifference". Understanding these triggers and detonating them before they explode can help control the tongue. For example, if you are in a heated argument standing up, try sitting down. Bring them in closer. If they are a loved one try holding their hand. In contrast, if you are confiding too much, stand up. Distance yourself from them. Of course seeing these situations for what they are in the moment rather than after the fact can be difficult. Yet, if these kinds of situations seem to occur too often, perhaps reconsider whether your motivation and view of respect and acceptance might be a simple child's interpretation and consider how it might affect the situation.

Likewise one speculates that such recurring problems in trading and investing could also be improved by reviewing your childhood understanding of how to gain respect and acceptance. One also speculates if standing to make a trade encourages one to be more aggressive, while sitting more passive, and whether other body postures could help. Say when you are closing a trade, try standing to be more aggressive.

George Parkanyi writes:

An aha moment for me about being self-conscious came in my early twenties at some point, when I realized that people are far more worried about what others think of them than what they happen to be thinking about you. Their pre-occupation with themselves is deep and permanent. Their pre-occupation with you highly transitory– especially in an arms-length engagement such as a public speech. Also, people will tend to be empathetic. If you slip up, most will not be thinking "what an idiot!" but rather "I'm glad it's not me up there".

Once in a while I'll see a guest on a business show that looks really nervous and is clearly struggling. I start to feel uncomfortable for that person, mentally cheering them on, thinking to myself "come on, get it out, get it out…"After that, for me public speaking was more about being prepared, and finding ways to keep the audience interested and engaged. If you do have to wing it, stories and anecdotes are a good way to come up with something on the spot. Usually you can relate something from your past to the current situation. People generally love to hear stories. 

Craig Mee adds:

Also someone mentioned to me years ago, "just think you're talking to your best mate" But preparedness seems to help…Tim Ferriss is never far off the mark. His article Public Speaking: How I prepare Every Time is great. 

Russ Sears responds:

 Yes, understanding the truth that people are not that focused on you because they are thinking about themselves helps. However, often when the fear is impulsive, simply knowing what is right is not enough. Think of some common phobias: fear of heights, germs, etc… most often the phobic knows the fear is irrational. People are great at holding two incompatible ideas in place and impulsively choosing the irrational one to act on.

What I am suggesting is that you kill the root of the impulse– your distorted belief that is causing the fear. I am suggesting you do this by re-interpreting your childish beliefs caused by a childish interpretation of the threat. To do this you have to dig deep and figure out what your fear is. Is it making a mistake, looking stupid, indifference or several other common fears?

Then you re-interpret that childish belief, for example, that adult esteem = survival, from the adults perspective. Once this is thoroughly done, what I found was what was once held as a "truth" is shown as an immature interpretation of the situation. Hence using both, killing the old belief and giving a new one in its place can end the impulsive fear.

Further, I am suggesting that using this dual method, can improve many areas of our life. Perhaps most if not all of the hubris in trading may stem from similar simplistic childhood misinterpretations of the situation.

Ken Drees writes:

Ellen Degeneres doing standupTaking a theater course or a stand-up comedy training seminar may help by pushing one's self into deeper water and then one could recede back and take a public speaking course to put structure around the process of public speaking. I am lucky to be gifted in public speaking, but scared of stand up comedy–which I think I could do but I am frightened of people not laughing, and thereby having no defenses against ridicule, or of an unloving crowd staring back at me and not laughing.

If I was to pursue it, I would do a lot of structure: rehearse, tape myself, fine tune, do small test groups, ask for feedback–seems like a job now.

I have a tendency to become red-faced when embarrassed or in some terrible stressful moment. If this happened during a routine –oh no. I would have to come up with some sort of routine if it happened–draw the audiences attention to the red face and use it somehow as a joke routine–turn the disaster into something funny. 

I remember playing in a poker game for the first time in multi years (3-4 years ago). There was retired cop at the table (9 or 10 people) and I was bluffing in a showdown hand–I could feel the heat coming into my face and knew that I may get called because of it. The guy folded to me and the cop from the other side of the table said "you gotta do something about that red face of yours" then everybody stared at me and then everyone busted up laughing.

The cop said that in interrogation rooms he learned a lot about lying. Needless to say as time went on and practice makes one better, the red face doesn't appear at the table anymore. 

Russ Sears replies:

Surprisingly, people say I am funny. I seem to have little problem coming up with a spontaneous humor during a speech. I have found that if the audience understands that you yourself are the biggest target for your jokes, that you do not take yourself too seriously, they are much more willing to give you liberties on almost anything and find it funny. As Ken implies making fun of yourself, almost always gets some attention, if not laughs.

As far as bombing goes, the best comics sometime threw in bad jokes on purpose, just so they could make fun of the hole they had dug themselves into. However, Toastmaster's club is doing a humorous speech contest and we will find out how funny I really am.

Brett Steebarger comments:

It's a very interesting topic. Where I might differ from Russ is that many of those irrational impulses are less the result of distorted beliefs and more related to emotional imprinting that bypasses critical, rational awareness. Edna Foa from U. Penn has done very interesting work in this area that is relevant for those engaging financial markets. 

Russ Sears responds:


One is impressed after reading about Edna Foa's work, in which significant change can be measured in Vets suffering from PTSD, in only 12 sessions, by getting them to focus on the emotional events and the trauma. How does this relate to much smaller "trauma" but perhaps, much more frequent conditioning. Say taking tests weekly at school, and the learned emotional implusive response about exactly how to please the teacher and parents.

Does focusing on the emotional take less time to "correct" the irrational impluse, because the "trauma" is not intense at all? Or does it take more effort because the conditioning was wide spread and reinforced often?

Further, what does such ingraining in children teach a parent to do? Make sure that the child knows that your esteem for them is based on a well rounded education with plenty of real life experiences?

What would you recommend for my girl who upon entering high school last year is showing clear signs of test anxiety, especially in Math?



 It is interesting that in the recesses of academe there are a few Galtonian souls studying the psychology of music empirically. One thrust pertains to analyzing both speech and music according to pitch perception; how we view music and speech may be quite similar.

One finding, for instance, is that pitch is related to perception of social dominance and submission in both speech and music:

A commentator on the latter article notes that you can accurately predict an animal's size from its pitch.

Do markets have pitch and do they invite psychological responses with messages of submission (come hither) and dominance (threat)? Could we explain behavioral finance phenomena in the same terms as behaviors in the wild, communicated by the pitch of animal sounds?

It's a fascinating literature. Rhythm (shifts in frequency of ticks) might just be a consequence of pitch, as speculators respond to market communications. Perhaps it's no coincidence that rising markets are so inviting; falling markets so threatening. 

Todd Tracy writes: 

 Emotional stability in musical rhythm goes a long way on the road to complex weaving of interactions. It is best not to get too carried away with the music as it is occurring and to keep an observant eye on possible upcoming change ups in the rhythm, however, not to be so observant as to get cold.

In my capacity as a producer of commercial types of music one of my most important tools is the use of tension and its undoing. I would tend to think that as human beings we would react emotionally to the tension in a universal way, the shiver that runs down your spine when you hear a section of a particular song. Breaking away from the expected syncopation in such a way as to capture the attention of the listener, not as a total distraction but as a way to lead the listener into the enfolding polyrhythm. One cool way to capture attention is to have the band just stop in the middle of the verse, for one beat and then continue on as if you never skipped a beat. You can usually only get away with that one once per song.

A technique I have been using for awhile to further the management of syncopated air-pressure is the use of a "ghost track". Rather like an "invisible hand" simulation in that music is played on top of a prearranged rhythm and then that rhythm is removed from the mix as it were. The ghost track can be a drumbeat, a whole other song or just about any kind of rhythmic audio. Tempo and rhythm modeling can help the music to feel more spontaneous as even the best musicians will tend to play up to and around the beat. After the original beat is removed the music is left precariously dangling on its own. So thereby combining multiple musical performances that dance around a beat that is not there provides a sophisticated allure.

Adding random elements in a sprinkled fashion music production could be like BBQ. Much testing is required. After I finish many performances I will always look around for other drum tracks of the exact same speed (tempo) and slip in and review many beats just to see what I might be missing. The question can become which track is the ghost track and which is actually the track. Many of these questions are left for the final mix in which a systematic top to bottom approach is always the way to go. For instance the kick drum is the first level set so that every vibration is set in relation to that level, the snare might be second followed by the bass and a rhythm guitar or keyboard. Next the lead vocal followed by high hats and solos. Special effects are always last.

There is a direct correlation between understanding rhythmic vibrations in music to market tension. It is the ability to absorb the tension in a cool manner. When a random gyration begins to make sense my emotional response is to trade because I feel that I am in sync with the mind of the mistress. By stepping outside of the song in my mind I can see the vibrational landscape in a more objective fashion.

It is a duality of experience to be able to hear the music in my imagination and then to create those exact imagined vibrations in the same split second. The markets are like songs just begging for solos. The unrealized vibration that we can imagine in the price changes are calling us to jump right in and start soloing, however if the ghost track is removed after you have jumped in you will find yourself quickly hoping for the song to end.

Jimi Hendrix was great in his ability to start playing a different rhythm in the middle of a song and to stick to it even if the drums and bass were doing something different. So too, reading all the market tensions but to not be drawn in by the emotions, so as to coolly carry out the plan. The tricks that a composer will use to get the listeners attention are similar to that of the mistress. How far can Robert Plant stretch that note? How far up can the price go?

Jim Sogi comments:

One thing I've noticed about rhythm is that you've got to feel it in your body. If you are busy counting 1,2,3,4 in your head, you've already missed the beat or it starts to get mechanical sounding and stiff.

Sure it can be quantified, sliced and diced, and put into numbers, but it is only the hours and hours of practice, of feeling and living the music that mean a musician can feel the beat. The rhythm is more than a count, there is an unquantifiable element that allows it to swing, to move in and out of the beat, a fraction before, a fraction after, and pulsing and changing in unpredictable cycles. It is what gives live music its life. It is why a canned computer drummer sounds so dry, so dead and uninspiring.

Hours, days, years watching the markets gives the same feel for the rhythm. This is not to say that quantification and study will not give understanding about the structures, the chords, the main time signatures, but the discretionary element to me is an integral part of the process that numbers alone can not totally replace.

Kim Zussman adds:

It isn't too difficult to follow established rhythms and melodious sequences. What is hard is to recognize changes the first notes of which sound familiar and sweet, but devolve rapidly into deadly arrhythmia.

Normal sinus rhythm > Ischemia > Inverted T-wave > Ventricular tachycardia > Ventricular fibrillation > asystole

 Will Kenney offers:

I agree that you don't have to count simple forms, like blues or AABA stuff, that is so internalized that not much thought is required. However, it's often enough that someone puts some complicated music in front of you and then you'd better be counting. the challenge then is making the music really breathe while having to pay close attention to the page. at the end of the day the slice and dice of it all is very important. it's the command of the tools that allows the most freedom and puts you in the place of getting a groove together.

"Technique is the means by which the heart is allowed to fly freely." - Olivier Messiaen



 I wanted to comment on how some old men grow old gracefully whilst others grow old grotesquely, and to look at how this effects their take on the markets. I believe that those who age worse often exhibit worse trading symptoms! 

Ayn Rand used to talk of second-handers: those who derive their self esteem from the perceptions of others, not from objective achievements.One virulent form of second-handedness masquerades as virtue: the need to be needed. I suspect it's behind the overly chivalrous and boastful demeanor, but also behind the pessimism.

The doomsayer needs followers who feel endangered and vulnerable. The forecasts of doom make the prophet needed to get through the pending calamity. No one needs a savior if the forecast is for sunny times ahead. By undercutting the sense of security of others, the doomsayer carves out a niche for himself: I will get you through the market panic, the economic collapse, etc. The same dynamic is at work with the seemingly solicitous and chivalrous man who wants his woman dependent upon him.

I'm thinking of a couple I once saw in counseling. He refused to let her work outside the home, insisting that he must be the breadwinner. She was bright and talented and, now that the children were older, wanted to work. She took up a hobby (quilting) and became quite expert at it. Eventually her quilts became collector items and she was a hot item on the art festival circuit. He was increasingly threatened by her success and tried to derail it by belittling its importance — all the while maintaining his love for her and his willingness to provide for her.

He needed to be needed: his greatest threat was an independent woman. The doomsayer similarly needs to be needed. The confident, optimistic investor is his greatest threat. To become needed, they must make others needy. Such is their benevolence.

She divorced him, by the way, and went on to become a successful instructor of quilting and crafts, owning her own business.

And 20 years after 1987, we stand at new highs and the doomsayers continue to beat their drum. Odd how we excoriate those who encouraged people to buy stock in 2000, but say nothing about those who counseled against equity ownership for the last 10,000 Dow points. If a physician sickened his patients in order to have a steady stream of revenues, no one would hesitate to call it malpractice. But what of investment advisors who fill their clients with fear in order to sell them services and seminars?

"You need not examine a folly", Rand once wrote; "you merely need to identify what it accomplishes". Pessimism and negativity create dependency and a psychological crippling. The need to be needed is a need to undercut the certainty and security of others. That's why it's a "symptom of something worse".



 I have heard that the cause of Cyril Burt's death was gallantry to women. He insisted on walking a lady back to the subway in the rain, and died of flu a few days later.

We often see this trait in old men; an unholy courtliness to women, especially attractive ones, that borders on fixation and would be inappropriate for anyone under 70.

Certainly the Greenspan transcript on 9/11, with him showing off that he does not like the cutoff in a certain chart and that he has been fooling with his short wave radio, even as the tragedy unfolds, is a sign of sickness.

What is the general tendency of men to be overly chivalrous and boastful? This is something that is a certain mark of decay in people like the Sage, the weekly financial columnists, and the fake doctor.

I wonder if this tendency is more prevalent among chronic pessimists, and is it a symptom of something much worse?

Vincent Andres adds: 

It makes me think strongly about so many mothers who infantalize their children consciously or unconsciously? This point is not clear to me. Some women may have a real pathological and uncontrollable drive to remain mothers. Their goal seems very clear. Remain a mother. Remain a needed mother. Remain young.

Such mothers what to show the neighborhood "see how well I educate my child," and doing in fact exactly the opposite. They actually poorly socialize their kids to keep them dependant on their mom, the "only one able to understand them". The number of very precise and efficient tricks and tactics used to accomplish this is amazing.

Of course the concerned child also remain young. At 30 always at mom's home (or in jail), depending on mom's money, etc. Could any child escape this kind of situation? How? It's so cool to stay a child. This seems much more common today than 20 years ago.

Janice Dorn replies:

It is my experience that this situation differs from person to person with aging. Men of an older age tend to view themselves and women in a framework which exaggerates that which they held when younger. In essence, personality tendencies of youth are magnified in adulthood.

A depressive tends to become more depressive, a person with obsession or compulsion tends to become more obsessive and compulsive. There are certainly instances where dementia and other sorts of degenerative brain injury can lead people to behave erratically (go naked in public, go after young boys, other inappropriate behavior).

For the most part, however, "normal" aging appears to reflect exacerbation of qualities present when they were younger. You will always find those who are a sucker for a pretty face and youthful body (think of any number of women and men who use this and exploit it as a lifestyle).

By the same token, misogynists become more so. I believe that these are normal so-called defense mechanisms which individuals use in an attempt to not lose themselves.

In other words, the magnification of the personality traits with aging represents the strong need to hold on to those aspects of self which the person senses they are losing.

George Vaillant from Harvard has done some very nice lifestyle through the ages work, including study of the ego. I believe his earlier work was a bit more serious than that recently where he appears to be directing more to the masses, happiness and spirituality.

David Hillman mentions:

"Becoming a caricature of oneself," as I'm fond of calling it, was evident in corresponding for some time with a famous author who had written his magnum opus and done other good work in the '60's.

For the next 40 years, he continued to hammer away at the same off-beat theme to anyone who would listen. Increasingly fewer would. His reaction was to pump up the volume. The longer he kept it up, the more tiresome he and his theme became.

Rather than appearing to be the life-sized, thoughtful guy with interesting theoretical ideas he once was, he looked to be a ranting, bloated, washed up, parade-balloon-sized radical who hadn't had an original idea in years and couldn't let go.

At the time of our last correspondence, he was actually still quite a vital and active near-nonagenarian, and a really nice guy, but who would have known? It makes a pretty strong argument for introspection and re-inventing oneself from time to time.

Also, in this respect to 'an unholy courtliness to women,' I highly recommend Memories of My Melancholy Whores by Gabriel Garcia Marquez.

….García Márquez's slim, reflective contribution to the romance of the brothel, his first book-length fiction in a decade, is narrated by perhaps the greatest connoisseur ever of girls for hire. After a lifetime spent in the arms of prostitutes (514 when he loses count at age 50), the unnamed journalist protagonist decides that his gift to himself on his 90th birthday will be a night with an adolescent virgin. But age, followed by the unexpected blossoming of love, disrupts his plans, and he finds himself wooing the allotted 14-year-old in silence for a year, sitting beside her as she sleeps and contemplating a life idly spent….. — Amazon.com

Laurel Kenner quotes:

SENEX AMANS (from Latin "ancient lover"; also spelled senex amanz in Old French):

A stock character in medieval fabliaux, courtly romances, and in classical drama, the senex amans is an old, ugly, jealous man who is married to a younger, attractive but unhappy woman. He is often a poor lover (or even impotent) with bad breath, wrinkled skin, and grey hair.

He is frequently cuckolded by a younger, handsome, virile man who secretly seduces his wife. We find examples of the senex amans in Chaucer's "Miller's Tale" and "The Merchant's Tale," and in various other fabliaux. Likewise, the motif also appears in the medieval French lais such as Marie de France's "Guigemar" and similar works such as Tristan and Iseult.

The motif of the senex amans often becomes useful for fast characterization, since it often can quickly cast a predatory light on an elderly male antagonist. An example of such use would be the old king of Ghana pursuing the young Imoinda in Aphra Behn's Oronooko, or any of the aging aristocrats sadistically pursuing young innocent girls in Gothic novels. [Read More]



I thought this might be of interest. I wrote it after receiving the umpteenth dire warning of things to come in the wake of the housing market situation.

A Mechanical Strategy That Has Produced Consistent Stock Market Profits



 Back in the day (2000-2002), I used to joke that I could time intermediate term market bottoms based on the media requests I received. If the media wanted to hear from the shrink, the odds were good that we weren't far from a bottom. It really worked well as an indicator.

Then came the turn in 2003 and no one showed much interest in the shrink's ministrations.

Until today. One of the major news organizations wanted the psychologist to comment on how investors can survive this plunge.

I actually like my cane very much. It was given to me by a barefoot mentor who taught me to look for market tells. I took it out of the closet after I got the call. Before long, it'll be time for a walk.



A gem, noticed by Brett Steenbarger:

Henry Carstens's latest article, Introduction To Testing Trading Ideas, is a gem. It walks traders through the process of historical testing, significance testing, and portfolio allocation.

From  Yishen Kuik:

I've found this other "how-to" guide to testing informative as well.

The market is jai alai.



I think there is something to be said for the idea fear-based arguments standing out in people’s minds. Highly charged, emotionally relevant information is certainly processed differently from normal information, which is why advertisers will show very happy people drinking Coke, or people having car wrecks relying on their insurers. The correlations of investor margin debt and price movements of the markets might be one way to quantify how fear impacts speculative behavior …

That having been said, I do notice a kind of cultishness to the permabears… it is an ingrained belief that organizes their thinking about markets, the future, etc. The motivation, I suspect, is a desire to belong to a special group that will be spared the oncoming calamity.



A few of the women on the speclist, especially Debra Moon, have suggested that by analyzing the contents of this list, they could understand the market. There are many fruitful extension of this rich idea and they inspire the following.

One must start with the well known negative serial correlation of short term moves in stocks, the canes et al. Also the tendency of most comments to follow the price, with negativity increasing in relation to the past stock move down. Everything has to be adjusted for these, but leaving them aside for the moment …

One hypothesizes that the more negative the content of posts on a list, the greater the positive expectation going forward. This would be measured by the number of synonyms for good and bad in the posts, according to scales and calibrations contained in the work of Osgood. The same could be done for a column almost invariably as negative in tone as the bifurcated — let us say enigma — that came from us. Its base level is perhaps 95% negative as measured on the Osgood scale. But what about when it moves to 99%. or 91%? The former would occur in those one in three months say that the market goes down, and the latter would occur in a time when the market is at say a 9 month high, like above 1340 in the S&P when all shorts are suffering from squeezitis. So one's predictive regression would also have to take account of the past market move relative to its 90 day high or so.

Putting that aside also, one would like to test the negative content of news and reactions adjusted for past price move, the natural tendency to complacency, and the varying degrees of proneness to the overly favorable self reported evaluation of greatness biases, all as a predictor of future market moves. This could be classified by source, i.e. newspaper, email list et al. This is a nice problem in the un-tangling of hypotheses for which the confidence profile method, a method based on the multiplication of likelihoods, would be useful.

Big Al adds:

One thinks that Yahoo Finance headlines might be such an indicator. Anecdotal and imaginary, but it often seems that the day goes something like this:

By 10:30, S&P moves +5 pts
Yahoo Finance headline appears at 10:30: "Stocks gain as oil prices drop"
time to go short

By noon, S&P moves back to par
new Yahoo Finance headline appears: "Markets give up early gains on XYZ earnings"
time to go long again

At 2:00, S&P back to +6
Yahoo Finance headline: "Traders buying on positive inflation data"
time to close out

It just seems that it takes about the length of some moves for the news writers to "see" the move, write it up and get it posted.

Jim Sogi mentions:

Just as the number of trades carries more statistical significance than the sheer volume, the number of posts on various lists might carry more information than analysis of content. The content may be subjective but it has appeared that the main list, considered to be mainly bullish, is quite busy when markets are up, but at dark bottoms become almost silent and has been a good indicator for market operations. Another good experiment would be to find a list with a bearish tilt and count the number of posts at recent multi month highs and consecutive multi day highs. This is a methodology to test a contrarian indicator since the market is most bearish after numerous multi day highs, and new monthly highs, and most bullish at dark monthly lows. Underlying this method is the natural herding instinct and the reason markets tend to trend up, then down in cycles.

The May down cycle was 6 weeks and 8%, and the recent rally was about 8 weeks and 8%, and whether random or not, retrospectively creates the appearance of a cycle. The perfection and beauty of the wave over so many weeks and months as opposed to the apparent cyclic formations of a random walk , by eye at least, indicate to this observer that more is at work than random forces. If there are larger forces at work it would give a great advantage to a speculator to know by simple time measurement the time for a turn. In any case it is better to buy within a week or two of the bottom rather than buying at the top and selling at the bottom. The measurement of time might have information as distinct from the measurement of price. After 8 weeks up and 8% up do the probabilities favor another 8% move up for the next 8 weeks? Sampling methods on weekly returns might provide an antidote to the insufficient data points. Using the Professor's Fourier analysis (like his work on lunar cycles) on the random samplings versus the actual might indicate whether there are larger cyclic forces at work that might be harnessed. Does the actual have a greater degree of cycles than the random? What is the length of such cycles?

A few more ideas: Watching market depth on CME it seems that very high depth, which indicates high liquidity, suppresses price movement and variability, and that a lower amount of depth leads to greater variability. A curious thing happened the other day when Globex went down for a short period, the market had a bit of cheesecake and showed 10 levels of depth rather than the normal 5 for a while, and gave a glimpse into the inner workings normally hidden, like a quick peek behind the scenes.

Debra Belanger Kettle comments:

sheer volume and levels of hostility vs. camaraderie/politeness, even snoozeville (as in boring) seemed noteworthy when I first mentioned my observation … I was new to the list at the time and found the peace vs. conflict fluctuations of the posts quite fascinating.

I am not sure what it means though, or how to test … whether ipso facto or post facto it is something significant.

Dr. Brett Steenbarger offers:

I do think this would be a very interesting undertaking. My leaning would be to first examine grosser relationships, such as the frequency of posting vis a vis recent (and prospective) price change. I would also be tempted to examine the relative frequency of different kinds of posts (analytical ones, personal ones, etc) in that vein. Yet another measure would be the number of different threads and the extent of participation by various list members.

My preliminary hypothesis would be that people are more likely to post to the list and participate in threads during periods of heightened uncertainty. Posting, in that vein, would be seen by a psychoanalyst as a higher order mode of coping: a way of trying to make sense of ambiguity. One of the famous measures of coping styles breaks down the ways people deal with stress into three broad categories: problem-focused coping, emotion-focused coping, and avoidant coping. It would be interesting to categorize posts similarly, viewing the List as a social medium for dealing with uncertainty.

Freud postulated that, under conditions of duress, we regress to lower (developmentally earlier) forms of coping. Normal problem-based coping might regress to emotional or avoidant modes. One might expect market inefficiencies to be greatest during times of such regression.


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