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7/31/2019 We Are Who We Are and We Start From Where We Start
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We are who we are and we start from where we start
Each of us brings unique strengths to the markets
Every morning we agree to play as delighted beginners
Reality Pays. The more our minds model the market, the more in synch we get
We build on our strengths and manage everything else.
The outcome we have is the outcome we want
If what you are doing isnt working over and over again, re-examine your internal
models
Our internal process is more important than anything else because it drives
everything else
You have the resources to improve your mental trading game. Coaching just helpsfind them
We begin our trading practice slowly and build it with flow and grace
Lean into fear. Fear is a primary cause of failure
If you are frustrated with the markets, that means they arent following the internal
model you have projected on them
We increase the level of our awareness rather than the intensity of trading
As we expand our awareness, our interventions will happen sooner and be morecreative and effective
We respect ourselves and celebrate our profits no matter how large
If we can experience a new behavior for a moment, we can experience it for a minute,
an hour, a week, a year.
Change happens when we experience a new behavior that is aligned with who we are,
feels emotionally satisfying in the moment and takes us to where we want to go
Avoidance is buying pain on credit with interest
If self-criticism made us trade better we would all be rich
We allow the markets to breathe through us
The markets are messy, our information is imperfect, our systems will fail and we can
still make money
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All trading systems are successful in some markets, all trading systems will
eventually fail in all markets
The markets dont care about you or your position
We seek the practice rather than the result
Learn about yourself with the delight of an anthropologist finding a lost tribe
We make internal maps of the market, but our maps are always distorted
Our negative responses are created by our maps, not the market
By changing our map, we change how we respond to the markets
All our trading errors have an ultimate positive purpose or intention
There is no failure just feedback
You have all the resources you need, although some may be out of your
awarenessHuman Psychology is to follow the crowd, and do as others do. However, in
stock trading, if you listen to and follow the crowd, you will always lose in the long
wrong.
In the end, the difference between between the consistent winners and everyone else
is simply this: The best stock market traders are not afraid.
The aren't afraid because they have developed attitudes that give that give them the
greatest degree of mental flexibility to flow in and out of trades based on what the
stock market is telling them about the possibilities from its perspective. They
understand human psychology. And they understand that learning psychology is very
important.
At the same time, the best stock traders have developed attitudes that prevent them
from getting reckless. They understand human psychology and they have developed
the proper stock trading psychology mindset.
95% of the trading errors you are likely to make - causing your money to just
disappear before your eyes - will stem from your attitudes from the four primary
trading fears:
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1. Fear of being wrong
2. Fear of losing money
3. Fear of missing out
4. Fear of leaving money on the table
When you are fearful, no other possibilities exist. You can't perceive other possibilities
or act on them properly. Fear is immobilizing. Physically, it causes us to freeze or run.
Mentally, it causes us to narrow our focus of attention to the object of our fear.
This means that thoughts about other possibilities get blocked. You won't think aboutall the rational things you've learned about the stock market until you are no longer
afraid and the event is over.
Then you will think to yourself; "I knew that. Why didn't I think of it then? or, "Why
didn't I act on it then?"
We've all seen people who have gotten everything they've ever wanted... whether it's
driving expensive cars, traveling the world or having fantastic relationships with theirfamily and friends... the question is... how did they get this lifestyle?
It's simple... these people have discovered the techniques that allow them to achieve
ALL their goals, and they challenged their fears.
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Behavioral finance
[edit]
Topics
The central issue in behavioral finance is explaining why market
participants make systematic errors. Such errors affect prices and returns,
creating market inefficiencies. It also investigates how other participants
arbitrage such market inefficiencies.
Behavioral finance highlights inefficiencies such as under- or over-reactions
to information as causes of market trends and in extreme cases of bubbles
and crashes). Such reactions have been attributed to limited investorattention, overconfidence, overoptimism, mimicry (herding instinct) and
noise trading. Technical analysts consider behavioral economics' academic
cousin, behavioral finance, to be the theoretical basis for technical analysis.
[18]
Other key observations include the asymmetry between decisions to
acquire or keep resources, known as the "bird in the bush" paradox, and
loss aversion, the unwillingness to let go of a valued possession. Loss
aversion appears to manifest itself in investor behavior as a reluctance tosell shares or other equity, if doing so would result in a nominal loss.[19] It
may also help explain why housing prices rarely/slowly decline to market
clearing levels during periods of low demand.
Benartzi and Thaler (1995), applying a version of prospect theory, claim to
have solved the equity premium puzzle, something conventional finance
models have been unable to do so far.[20] Experimental finance applies the
experimental method, e.g. creating an artificial market by some kind of
simulation software to study people's decision-making process and behavior
in financial markets.
[edit]
Models
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Some financial models used in money management and asset valuation
incorporate behavioral finance parameters, for example:
Thaler's model of price reactions to information, with two phases,
underreaction-adjustment-overreaction, creating a price trend
One characteristic of overreaction is that average returns following
announcements of good news is lower than following bad news. In other
words, overreaction occurs if the market reacts too strongly or for too long
to news, thus requiring adjustment in the opposite direction. As a result,
outperforming assets in one period are likely to underperform in the
following period.
The stock image coefficient
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1.0 RATIONALE OF THE TOPIC
2.0 DEFINITIONS OF THE CONCEPTS
3.0 APPLICATIONS OF THE TOPIC IN BANGLADESH
4.0 APPLICATIONS OF THE TOPIC IN BUSINESS
5.0 PERCEPTION:
Gestalt laws of organization: creation of stock portfolio from individual
stocks
Bottom up and top-down: do you invest according to the index rate or do
you look at individual stock prices.
6.0 LEARNING:
Operant Conditioning: response is strengthened or weakened by a favorable
or unfavorable response. Soif a stock performs consistently well do you
put more money into it? Positive reinforcement and punishment.
Schedules of reinforcement: regular dividends and irregular dividends.
Observational Learning: Learning through imitation
7.0 INTELLIGENCE:
Reference to following article: (Grinblatt, Keloharju and Linnainmaa n.d.)
IQ and Stock Market Participation:
Mark Grinblatt UCLA Anderson School of Management
Matti Keloharju Helsinki School of Economics and CEPR
Juhani Linnainmaa University of Chicago Booth School of Business
An individuals IQ stanine, measured early in adult life, is monotonically related to his
stock market participation decision later in life. The high correlation between IQ and
participation, which exists even among the 10% most affluent individuals, controls for
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wealth, income, and other demographic and occupational information. Supplemental
data from siblings are used with both an instrumental variables approach and paired
difference regressions to show that our results apply to both females and males, and
that omitted familial and non-familial variables cannot account for our findings. IQ
also is related to diversification. High IQ investors are more likely to hold mutual
funds and larger numbers of stocks, other things equal.
8.0 MOTIVATION:
Arousal approaches: to maintain certain levels of stimulus and activity
Incentive approaches:
Maslows Hierarchy: what need is involvement in the stock market?
Need for power, achievement and affiliation?
9.0 PERSONALITY:Defense mechanisms: what mechanism do people use when their stocks are
performing gladly?
Self-esteem: low and high and the preference of share buying
10.0STRESS AND COPING:
Categorizing stressors: daily hassles most of the time but cataclysmic
events for some
Problem and Emotion focused coping:
Type A personality: risk taking
11.0RECOMMENDATION