thetradingdoctor

This was just posted and I thought the forum might be interested: http://financialsense.com/fsu/editorials/dorn/2007/0709.html Thanks! Janice

Thank you all for the wonderful and extremely insightful and thought-provoking reponses to my article. I am moved deeply. It makes all of this worthwhile for me to know that I have helped one person in this way. I am seriously grateful. If you would be kind enough to send me an e-mail, I will send you the manuscript. I released it to my subscribers and coaching students on Friday and sent a copy to another person on this board who was kind enough to write to me. I prefer to do this on a one on one basis right now rather than a general post, as it will allow my coaching students and subscribers to receive it and study it before I do general posting. Thanks for asking and for understanding! I love the way you set up the messsages on your trading screen, Darth. Walter, Pyenner, rolange, darthtrader and everyone on this board who is here to raise him/herself to trading excellence, I am in awe of your courage. It is a privilege for me to be here with you and I thank James for this opportunity. Janice

HI Walter, My immediate answer to your question is to try trading one setup and see how you do for one month, compared with trading three setups. Because I don't know what you trade or your success rate, I am likely speaking too generally to you and I don't mean in any way to give an off the cuff answer that would diminish your profits. However, I have coached over 600 traders and many of them do well year after year trading the same setup and doing it so well that it really is entrained. Stuff can happen, however- the market changes, program trading comes in, etc, that may force you to change this. However, if you are stressed to the extent that you appear to be during trading I do suggest you simplify and make it easier on yourself. If you don't feel good immediately about going to one system, try reducing to two and see over the month what your equity curve looks like. If you woud like a copy of the full paper, please send your e-mail address to: janice@thetradingdoctor.com. Thanks! Janice

Thank you all so much for your comments on my article. I am thrilled that you like it and find it helpful! In reponse to the questions posed, if you learn one trading system and trade it repeatedly ( and assumedly with success) your synaptic connections will become what is called "entrained." This is a fancy way for saying that your brain learns that a certain system works and makes money. If you change systems, you must relearn and re-entrain those new pathways. In terms of making money, this is a bit more complicated because of the "old brain" pathways ( amygdala and other areas) which produce dopamine and are activated by the thought of monetary reward. If possible ( and this is not always easy) one is advised to develop a system which is backtested and shown to be profitable more than it loses. For the best traders, money is really a byproduct of trading properly. This is a concept which is not highly appreciated but is critical to understand. It is difficult to divorce the dopamine high of making money from the actual trading of the system, but it can be done and I think it is done, by and large, by experienced traders. By the way, the article printed in SFO was only part of the original manuscript, so if anyone is interested in the full manuscript, please let me know? Thanks Again! Janice

Hi to All! I just noticed that my article "This Is Your Brain On Trading" has been published in July SFO magazine. I wrote it as a scientific discourse to get people to begin to think about their brains and the way that the brain messes with trading. People are writing to me that they have never seen or read anything like it. That's good ( I think but I am not sure!) They are also telling me it is too dry, too scientific and lacks passion. I really meant it to be scientific and something totally different from what I usually write. Apparently, people want less science and more passion. Here's the link: http://www.sfomag.com/homefeaturedetail.asp?ID=1182172548&MonthNameID=July&YearID=2007 Thanks! Janice

Exactly correct, Walter. I have put myself on a huge number of mailing lists this past month so that I can see the deception and fraud that is being perpetrated on the public. Then, of course, we have the issue of personal responsibility. It is the public and the masses who fall for and make the decision to participate ( by buying books, software, get rich quick schemes, software, etc). There are so many who believe that money is just out there waiting to be grabbed and that they don't have to do anything but walk over and pick it up. Trading is work. It takes time, effort, diligence and discipline to do it and do it correctly and consistently. Yet, there are thousands ( millions maybe--ugh just thinking about it) who are so needy and desperate that they fall for every get rich quick nonsense which comes into their inbox. Who is to blame here? The scammers or those who allow themselves to be scammed? The predators or the victims? Or--are they victims? Thanks! Janice

I think this falls under the realm of something other than flat out deception--let us say- pure luck and also someone who writes books telling everyone that they don't know anything because nothing can really be known! Nonetheless it is of interest to note this: It would appear that Nassim Taleb ( http://en.wikipedia.org/wiki/Nassim_Taleb ) who is approx 47 years old has had one black swan day in his entire life. Geez! He made 97% of all of his llifetime trading profits on one day in 1987! http://worldbeta.blogspot.com/2007/06/100th-post-tally-ho.htm This is not exactly the most inspiring or encouraging piece of information I have ever read about trading. But it does show you that a guy can get famous making all of this lifetime trading profits in one day and then spending the rest of his life writing books and getting very famous! More deception? Thanks! Janice

A cardinal principle of behavioral trading is to observe everything and believe nothing. If that sounds a bit cynical ( which it actually is!) I call your attention to these most interesting links. I particularly like the one about how the CNBC million dollar stock trading contest was "gamed." I cannot tell you how much fraud and hype there are out there, people. It just seems to grow and grow. I wonder if the "million dollar waitress" just got lucky or if her dart board was magical or if this is a true story or what? All I have to say to each of you today is please, please, please be very careful out there? I will check back every couple of days even though I am taking a rest. Thanks! Janice Here are the links: Full story of the contest: http://www.businessweek.com/print/bwdaily/dnflash/content/jun2007/db20070607_007145.htm Here is the one on how the contest was "gamed": http://images.businessweek.com/ss/07/06/0607_cnbc/index_01.htm I wonder if this waitress knew how to “game†the contest: A woman who has never bought a stock in her life appears to have bested the financial pros in CNBC's stock-picking contest : http://www.businessweek.com/bwdaily/dnflash/content/jun2007/db20070619_372116.htm

Hi All, I will be away for the next month or so. For that reason, I won't be posting as much. I will check in as often as I can. Summertime. Time to relax decompress. Thank you all for your wonderful comments and participation on this Forum! Thanks! Janice

People program the programs. It becomes less and less emotional when the machines are programmed to trade on "their own." From what I understand there are still human beings who trade the programs, so there might be less emotion involved. Eventually, I think machines will be trading machines and machines will be programming themselves. We're not there yet, but look at what Kurzweil is going with FatKat. Janice

Hi Pyenner, There appears to be enhancement of both alpha and gamma brain waves during meditation. The gamma waves are more difficult to see, but experients on experienced meditators ( primarily Buddhist monks- many of whom do little else but meditate) have shown a clear preponderance of gamma brain wave activity. Re: antidepressant medication: The three main brain chemicals which are affected by antidepressant medications ( such as Prozac) are serotonin, epinehprine and monoamine oxidase. There is no antidepressant to my knowledge that affects dopamine selectively. Prozac and most of the newer antidepressant drugs are called selective serotonin uptake inhibitors. This means that they provide excess serotonin by blocking the normal serotonin reuptake at the connection between two nerve cells ( this connection is called a synapse and there are something like 10 quadrillion synapses in the human brain--lots of synapses!). Serotonin is known to be depleted in suicidal and depressive states, thus the use of Prozac-like drugs to treat depression. There are likely thousands of brain chemicals and our knowledge ( despite the decade of the brain and the logarithmic acceleration of technology) is still primitive in this area. Hope this helps! Thanks! Janice

More Bye Bye! Seems like lots of saying goodbye these past few days. Anyway---- Bye Bye ER2 ( Russell 2000 minis)! Looks like they will stop trading sometime in mid-September and then who knows what will happen? Reminds me of that beautiful song by Sara Brightman and Andreas Boccelli: YouTube - TIME TO SAY GOODBYE Bye Bye For Now ;-) Janice

Yes, Walter. Dopamine is one of the major chemicals that is responsibile for the feeling of being what is called "high." In fact, the street people know about dopamine which is one of the reasons they call some drugs "dope." Cocaine, which produces this sense of power, strength, stay up for hours, etc acts through release of dopamine in the brain. Hope this helps, Walter! Janice

Yes, Walter. Dopamine is one of the major chemicals that is responsibile for the feeling of being what is called "high." In fact, the street people know about dopamine which is one of the reasons they call some drugs "dope." Cocaine, which produces this sense of power, strength, stay up for hours, etc acts through release of dopamine in the brain. Hope this helps, Walter! Janice

I typed my response very quickly and made a number of typos! So- I am posting it again. Apologies. Janice Great question! In trading and life, there is what is called the herding instinct or herding bias. You see it when momentum traders jump all over something because it is moving ( usually up, but also down if they are nimble with shorting). For fundamental people, it is this herding which contributes to what might best be described as irrational valuations ( which one way or the other get back to mean reversion once the people wake up and realize what has been going on). One way to look for herding is to watch stocks with high volume premarket and see how they behave on any pullbacks. What momentum traders look for is a gap up on volume and then a pullback on lower volume ( to get long). With futures trading, you can sometimes tell with market depth and time and sales. It is not easy, and the programs are getting more and more sophisticated and tricky so this is an ongoing issue. One thing that is happening to bond traders is not so much fun. Many of them have left the floor now ( there are very few bond traders in open outcry) and gone to electronic trading. They are getting slammed by the programs which come in and "trap" them so they are stuck in a position with no way out, sometimes for an entire day ( when previously they were able to scalp in and out very quickly). There is much frustration in bond land because of this, and many bond traders have found their incomes cut in half or by a third. Some of them are using their core competencies to move into oil or ags. The majority of them are still trying to figure out how to beat the algorithmic programs. As program trading increases, it is going to be more difficult for the little guy to scalp and there is going to be a lot more "deception." For example, there is a program operating on the CAC 40 called Predator which fires thousands of orders into the CAC every day, most of which are not executed. The same thing is happening on ES, I believe. This is the tip of a very deep iceberg. I would love to hear from others on this board about your experience with either herding or ( ugh!) being herded! Thanks Janice

Great question! In trading and life, there is what is called the herding instinct or herding bias. You see if when momentum traders jump all over something because it is moving ( usually up, but also down if they are nible with shorting). For fundamental people, it is this herding which contributes to what might best be described as irrational valuations ( which one way or the other get back to mean reversion once the people wake up and realize what has been going on). One way to look for herding is to watch stocks with high volume premarket and see how they behave on any pullbacks. What momentum traders look for is a gap up on volume and then a pullback on lower volume ( to get long). With futures trading, you can sometimes tell with market depth and time and sales. It is not easy, and the programs are getting more and more sophisticated and tricky so this is an ongoing issue. One thing that is happening to bond traders is not so much fun. Many of them have left the floor now ( there are very few bond traders in open outcry) and gone to electronic trading. They are getting slammed by the programs which come in and "trap" them so they are stuck in a position with no way out, sometimes for an entire day ( when previously they were able to scalp in and out very quickly). There is much frustration in bond land because of this, and many bond traders have found their incomes cut in half or by a third. Some of them are using their core competencies to move into oil or ags. The majority of them are still trying to figure out how to beat the algorithmic programs. As program trading increases, it is going to be more difficult for the little guy to scalp and there is going to be a lot more "deception." For example, there is a program operating on the CAC 40 called Predator which fires thousands of orders into the CAC every day, most of which are not executed. The same thing is happening on ES, I believe. This is the tip of a very deep iceberg. I would love to hear from others on this board about your experience with either herding or ( ugh!) being herded! Thanks Janice

Money is rewarding because thoughts of receiving money release dopamine ( and likely other chemicals). We have no evidence that thoughts of receiving dopamine release dopamine.

What great posts! Thank you for sharing! I believe that traders are "called" to trading. There is something about it that is haunting and daunting. Yes- there is certainly the element of Type A, as well as obsessive compulsive ( addictive) involved. The flashing lights and blinking signals, etc can be mesmerizing and hit right at the so-called "reward" areas of the brain which produce dopamine. THere is no legal substance as rewarding as money, so that plays into it as well. Hitting the wall- Every great trader hits the wall. If you haven't hit the wall, you are not really in the game. It is what you do with what happens when you hit it that matters. Some don't even though that they have hit it and continue in denial. Others are so beaten down and defeated that they either turn to more self-destructive behaviors ( as if the markets are not punishing enough!) or crawl away in defeat and self- loathing and despair. Others manage to reconstitute themselves, step away, get it together and come back fighting. Life and trading are never about what happens. They are always about how we handle what happens. Thanks! Janice

SEC: Short-Selling Tick Test Is History Jun-14-2007 | Source: Hedge Fund Daily The Securities and Exchange Commission has unanimously voted to end the so-called “tick test,†which means short sellers will no longer be restricted from selling shares they don’t own just because the price is falling. The test, introduced in 1938 and applied only to listed securities other than those listed on the Nasdaq, after it was believed that short selling would have a negative impact in a declining market. Three years ago, the SEC embarked on a one-year pilot program to suspend the test, and has concluded that the general consensus was that that SEC “should remove price test restrictions because they modestly reduce liquidity and do not appear necessary to prevent manipulation.†Furthermore, says the commission, “the empirical evidence did not provide strong support for extending a price test to either small or thinly traded securities not currently subject to a price test.†The SEC also voted to adopt final amendments to Rules 200 and 2003 of Regulation SHO, aimed at reducing naked short selling, that would eliminate grandfather provisions regarding fail-to-deliver positions. The commission also has reproposed amendments aimed at further reducing fails to deliver in certain equity securities by eliminating the options market maker exception to the close-out requirement of Regulation SHO. The new rules will go into effect 60 days after publication in the Federal Register. http://institutionalinvestor.com/Article.aspx?ArticleID=1377545 Have a great weekend, all! Janice

Have a wonderful weekend, All! I am going to take some time off this weekend to do an aerobics benefit. It will calm me, clear my mind and hopefully raise money for a good cause. Please take care, and try to do something wonderful for yourself and for someone you love. Time is all we really have. Namaste Janice

Hi PYenner, Trading can become a trap if we do not monitor ourselves. There are some clear analogies between addiction to trading and addiction to other things in life. That said, trading is a very difficult and demaning profession. There are not many traders who are able to step away, look at their lives ( body, mind and spirit) and make a conscious choice to live life to the fullest. When you think about it, how much harm are you doing to yourself and to those you love if you do not take time for rest and relaxation? What is that doing to your body and to your relationships? I hear from burned out traders a lot. Some of them get really sick. A couple of months ago, one of the younger traders had a heart attack sitting at his screen. He is 35 years old. I think that it is always good to strive for balance in life and in trading. It is the most difficult thing you can do, because there is something about trading that "calls" us to it. I don't know if it's the money or the challenge or a combination of both. In any case, it can be "addicting." Any respite from the game ( even something as simple as learning to breathe properly or taking a night off to go out or taking the weekend away from the study) will allow your brain and body to regroup and refresh. I learned the hard way about the absolute disaster of trying to be superwoman and working myself nearly to death. It was not a pretty picture, I assure you. It took several years for me to reconstitute myself and to really understand that when I lose myself, I lose everything. Keep on keeping on and please consider taking some down time? Thanks! Janice

Great searching, Cooter! Thanks! I hope this book helps many to appreciate the microstructure of the markets. Take it slow and in small doses. Use it like a reference book. Thanks! Janice

Anyone who trades the markets is likely well served by understanding their microstructure. While the book can be tedious and not totally transparent at times, I think we can all be served by having a look at Trading Exchanges by Larry Harris. It provides an interesting taxonomy of trading types. It is a large book and expensive ( somewhere aroung $US60), so this type of book purchase is not to be taken lightly and only for serious traders who want this type of in-depth understanding of market microstructure. You don't need it to make money! I can assure you of that. What is does is put the various players in the market into some kind of interesting perspective. Hope this helps a bit! Janice

Yes, Walter. You are getting good negative ion charges from interaction with nature, especially away from pollution in the city. This is one reason why clean air seems to energize body and brain. Exercise is a wonderful way to relive stress and to keep strong in body and mind. Even if you do only 30 minutes a day, it is quite beneficial. Just today, I read a report that regular exercise is very helpful in early -onset ( age 30 or so) Alzheimer's disease. It appears that exercise in this situation improves mood and memory. It makes sense that anything which brings blood flow and oxygenation to the brain will help with mind and mood. Prayer and meditation are wonderful ways to bring us closer to the source of our beliefs and to ground us. A grounded trader is almost always a better trader. Thanks! Janice

It takes time. Lots of time. If you plan ahead by doing homework every night, then review in the morning, it helps. Also, learning to manage your stress is critical. Trading is among the most stressful of any occupation. If you find yourself frustrated and anxious, you are likely not trading from a place of calm and not breathing properly. What is your exercise regimen, including any meditation, yoga or pilates? Thanks! Janice