We Are Who We Are and We Start From Where We Start

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  • 7/31/2019 We Are Who We Are and We Start From Where We Start


    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


    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

  • 7/31/2019 We Are Who We Are and We Start From Where We Start


    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


    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


    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:

  • 7/31/2019 We Are Who We Are and We Start From Where We Start


    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.

  • 7/31/2019 We Are Who We Are and We Start From Where We Start


    Behavioral finance



    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.


    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.



  • 7/31/2019 We Are Who We Are and We Start From Where We Start


    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

  • 7/31/2019 We Are Who We Are and We Start From Where We Start







    Gestalt laws of organization: creation of stock portfolio from individual


    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


    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

  • 7/31/2019 We Are Who We Are and We Start From Where We Start


    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.


    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


    Categorizing stressors: daily hassles most of the time but cataclysmic

    events for some

    Problem and Emotion focused coping:

    Type A personality: risk taking



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