# Market Mind Games ## Metadata * Author: [Denise Shull](https://www.amazon.com/Denise-Shull/e/B005N2YWFY/ref=dp_byline_cont_ebooks_1) * ASIN: B006L6AVLU * ISBN: 978-0071756228 * Reference: https://www.amazon.com/dp/B006L6AVLU * [Kindle link](kindle://book?action=open&asin=B006L6AVLU) ## Highlights Markowitz hit the nail on the head—know your beliefs (which limit your scope) and figure out how to make better judgment calls. We’ve got the neuroscience now to know that beliefs provide an important element of the context, and fully exploiting the context provides the way to make the best judgment call. — location: [603](kindle://book?action=open&asin=B006L6AVLU&location=603) ^ref-52339 --- The problem stems not from hardwired tendencies to make poor judgment calls but instead from learned or mis-learned ideas about all of the dimensions of our psyches and how they fit together to create the contexts in which we think, analyze, and decide. Maybe we just need to learn to operate the machinery of our minds via a whole new user’s manual. — location: [646](kindle://book?action=open&asin=B006L6AVLU&location=646) ^ref-12786 --- We can’t actually apply math or logic, let alone do other analyses, make judgments, or decisions, if we lack feeling and emotion. — location: [663](kindle://book?action=open&asin=B006L6AVLU&location=663) ^ref-39505 --- “It is not enough to ‘know’ what should be done; it is also necessary to ‘feel’ it” and “to influence behavior, the cognitive system must operate via the affective system.” (Affect being the academic word for emotion). — location: [668](kindle://book?action=open&asin=B006L6AVLU&location=668) ^ref-16756 --- Contrary to the popular belief that feelings are generally bad for decision making, we found that individuals who experienced more intense feelings had higher decision-making performance…. Individuals who were better able to identify and distinguish among their current feelings achieved higher decision-making performance…. This study suggests that whether their feelings are actually beneficial or harmful to decisions may largely depend upon how people experience, treat and use their feelings during decision making. — location: [681](kindle://book?action=open&asin=B006L6AVLU&location=681) ^ref-35526 --- We might be able to learn to systematically analyze our internal confidence levels and we can certainly change our processes so that we become systematic about the qualitative; — location: [700](kindle://book?action=open&asin=B006L6AVLU&location=700) ^ref-40705 --- To trade or make any decision under the auspices of uncertainty, one should always explicitly know where they stand on the spectrum of fear to confidence. If they do, they have a shot at knowing their preexisting conditions of beliefs and, in turn, at making their best judgment call. I challenge you, as you leave this lecture, to devise for yourselves the self-awareness and tracking systems that will indeed allow you to do so. — location: [708](kindle://book?action=open&asin=B006L6AVLU&location=708) ^ref-1266 --- The subject of beliefs in particular got her going. She insisted they formed a foundation and, almost no matter what they were, skewed the believer’s perception. — location: [734](kindle://book?action=open&asin=B006L6AVLU&location=734) ^ref-59157 --- It’s not that the facts, or what are likely to be the future facts, have no value at all. But they have to be put in the proper context. When will other people know the same thing? When will they see it? What other factors will obscure the truth from being widely known? Answers to these types of questions can’t be black and white. Regardless, you need to be thinking about how the future will play out in other traders’ minds. Remembering that in the end, this is all that counts. Thinking “socially” also puts your brain in the right frame of mind to make the best judgment calls. It gets you in tune with the real game. — location: [868](kindle://book?action=open&asin=B006L6AVLU&location=868) ^ref-57652 --- When prices are down, you can argue that they are undervalued or you can argue that the trend is down and prices tend to keep going in the direction they are going. Finally, what about the ever-present trading question of “what if I just hold onto it a little bit longer?” The essentially infinite number of choices when it comes to the question of how much longer to hang onto a trade means, by definition, certainty and truth cannot exist. — location: [908](kindle://book?action=open&asin=B006L6AVLU&location=908) ^ref-1391 --- If the real question is, “What will other player’s perceive in the future?”, then quantitative analyses make sense in their right context—as clues but not as answers. — location: [918](kindle://book?action=open&asin=B006L6AVLU&location=918) ^ref-34358 --- Solving the eternal puzzle of markets depends entirely on your ability to fluidly wield the sword of numbers as a language and not as a law. — location: [940](kindle://book?action=open&asin=B006L6AVLU&location=940) ^ref-38838 --- This natural ability that we all have showed up in a groundbreaking study as the key to accurately reading markets. Called “Exploring the Nature of ‘Trader Intuition’,” the work showed (in the lead author Antoine Bruguier’s words): “We find that skill in predicting price changes in markets with insiders correlates with scores on two ToM tests.” — location: [979](kindle://book?action=open&asin=B006L6AVLU&location=979) ^ref-46280 --- The team found that “increased activation” occurred in areas of the brain known to be key to theory of mind skills when the artificial market data had informed buyers and sellers in it versus when it did not. — location: [993](kindle://book?action=open&asin=B006L6AVLU&location=993) ^ref-58262 --- The article described Stevie Cohen, a nine-time repeat member of Absolute Return magazine’s “The Rich List” (which has been running 10 years), who has been described as having a “Rain Man”–like gift for reading stock tickers. Gary Goldrin, formerly the CEO of his clearing firm, was quoted as saying: “I’ve seen all his records, hundreds of thousands of trades, all of it, and my conclusion is simply that the guy is an artist. He looks at a stock market in chaos and sees order. He was just right over and over and over.” — location: [1004](kindle://book?action=open&asin=B006L6AVLU&location=1004) ^ref-55965 --- you gain psychological leverage when you make a set of contexts explicit with an intentional focus on the “meaning gap” between where numbers leave off and good judgment begins. In practical terms, resolve to know your contexts—all of them. — location: [1212](kindle://book?action=open&asin=B006L6AVLU&location=1212) ^ref-17972 --- Beliefs, which implicitly include a feeling of confidence, influence (restrict) context; therefore, beliefs influence what we think we see or beliefs drive perception. — location: [1254](kindle://book?action=open&asin=B006L6AVLU&location=1254) ^ref-53700 --- Beliefs and the feeling of certainty are inextricably connected. Without that feeling of correctness, the belief would be a non-belief. By definition then, and in concert with the reciprocal system model of the body-brain-mind, a belief contains both thoughts and feelings. — location: [1260](kindle://book?action=open&asin=B006L6AVLU&location=1260) ^ref-59730 --- Beliefs limit our range of view but they do it necessarily. Too many possibilities exist and beliefs curate how we go about looking at things. If we didn’t have them, there would be too many seemingly new but not new decisions to make every single time we tried to think of something. — location: [1272](kindle://book?action=open&asin=B006L6AVLU&location=1272) ^ref-21449 --- the context of feelings that gets created by an experience, even looking at pictures, modifies your perception of the next question you face. — location: [1279](kindle://book?action=open&asin=B006L6AVLU&location=1279) ^ref-36198 --- All one needs to do is look at the context of the feelings, and the behavior will always be explicable. This doesn’t mean you will like the behavior but at least you will understand it. It isn’t that we are wired to be irrational; it is that we misunderstand and therefore misuse our so-called wiring. — location: [1397](kindle://book?action=open&asin=B006L6AVLU&location=1397) ^ref-38383 --- This unconscious acting out of emotional contexts creates risk in the classical sense. — location: [1402](kindle://book?action=open&asin=B006L6AVLU&location=1402) ^ref-29607 --- In fact, one gentleman at CME Group in March 2009, the day of the first big rally off the bottom of the 2008 swoon, came up after a talk called “The Brain on Risk” and said something very much like: “I have heard you before but I have one question. I get anxious and I don’t hold onto my trades as long as I intend to. I try to talk myself out of being nervous but that generally never works. Almost every time, I get afraid of giving my profits back and so I stop myself out only to watch the stock go on a tear. What do you advise?” I told him to “put the feelings into words and write out exactly how the doubt and fear felt.” The conversation lasted a few more moments but nothing else of substance really transpired. Six months later, I got an email from the gentleman, saying that his profits had improved and he’d been handling his trade much better. And, in fact, I have heard variations on this hundreds of times now. — location: [1454](kindle://book?action=open&asin=B006L6AVLU&location=1454) ^ref-18624 --- As you begin to think about how to know, analyze, and capitalize on this fC or feelings context, think first in terms of managing risk by reducing unnecessary trades. As you become more and more comfortable with using an awareness of all that you are feeling—on a physical as well as emotional level—you will find that you make fewer poor decisions. In turn, there will be fewer times you need to recover from a bad day or drawdown. This alone will change your bottom line. — location: [1469](kindle://book?action=open&asin=B006L6AVLU&location=1469) ^ref-44623 --- The more self-aware you become, the more easily you will be able to see waves of acting out occurring in the market. The fundamental job of trading the markets through “theory of mind” or understanding other people will naturally get easier. — location: [1473](kindle://book?action=open&asin=B006L6AVLU&location=1473) ^ref-42533 --- From the trader’s point of view, the body and the mind always draw on internal and external context, so it follows that improving the physical dimension improves the mental, which improves one’s market read, which improves results. — location: [1656](kindle://book?action=open&asin=B006L6AVLU&location=1656) ^ref-50515 --- Now what happens to you while the market does its dance? First, you get a little frustrated with yourself for jumping the gun. This equals psych cap debit 1—the distraction and creation of a new emotional context of frustration. Typically, not knowing what to do with that frustration, you get annoyed and in order to have a feeling of control you either exit or add to the position. Most of the time this is psych cap debit 2, because in both cases you recognize the impulsivity of the decision and feel guilty about being impatient. Guilt creates an even more debilitating emotional context, or as we have just said, a reduction in your psych cap or emotional energy. — location: [1691](kindle://book?action=open&asin=B006L6AVLU&location=1691) ^ref-63020 --- Now if you looked at the anger and said, “I see why I am irritated. I got in too early and I added or exited. Of course I feel this way,” you would have a fighting chance at deciding the best thing to do next—wait, exit, or take a break. — location: [1700](kindle://book?action=open&asin=B006L6AVLU&location=1700) ^ref-30490 --- With a trade you can’t understand, ask what was the emotional context? Stop thinking about your thinking and behavior; instead, understand the psychological environment. — location: [1756](kindle://book?action=open&asin=B006L6AVLU&location=1756) ^ref-3650 --- Begin to capture a record of what you are feeling. The simple act of acknowledging it, which by definition occurs when you are writing it down, will actually provide some protection from the destructive and unconscious acting out of feelings that you thought you were supposed to control. — location: [1784](kindle://book?action=open&asin=B006L6AVLU&location=1784) ^ref-35409 --- We can also make it one step easier through understanding that while this “five basic” idea runs far and wide, Professors Tor Wager and Lisa Feldman did a summary analysis of all the fMRI scanning studies that involved emotion research and found an alternative view. They concluded that the “Big Five” may actually be higher-level constructions of what our bodies and minds are really experiencing. — location: [1797](kindle://book?action=open&asin=B006L6AVLU&location=1797) ^ref-39907 What is the purpose of the different emotions? what aims are they tying to achieve? Understanding this will help realise what we want . --- Wager and Barrett concluded with the suggestion for an idea of two basic dimensions of emotion—what I call “want more” and “want less.” They would call it approach and avoidance, or if you think about it, academic terms that map nicely to greed and fear or the two ostensible emotions of the market and money managers. — location: [1801](kindle://book?action=open&asin=B006L6AVLU&location=1801) ^ref-8561 --- I took a closer look at what happened that day and noticed two things. First, the BIKB trade didn’t just come out of nowhere; it was preceded by a series of trades that I planned but didn’t take (that would have won), and one winning trade that I exited early. I thought I was being cautious, but in fact my second-guessing of my planned trades was building up frustration and impatience. Without that, I don’t think the BIKB trade would have had such a powerful impact on my psych cap. So the cost of those untaken or poorly executed trades was not just a reduced upside; they were “setting the stage” for a losing spiral. — location: [1827](kindle://book?action=open&asin=B006L6AVLU&location=1827) ^ref-55051 --- We think “I don’t want to give my gains back” or “I just take the money and run” but really we are working out of the emotional context of wanting desperately to avoid feeling regretful in the future. — location: [1851](kindle://book?action=open&asin=B006L6AVLU&location=1851) ^ref-63625 --- As many of our clients have demonstrated, feeling angry makes potential trades look like a better bet than they usually are. And taking them doesn’t give you the control you are looking for. — location: [1870](kindle://book?action=open&asin=B006L6AVLU&location=1870) ^ref-51370 --- Jennifer Lerner also found that happiness decreases our recognition of risk. We all know this feeling. Things have gone well and it gives us a lot of confidence. It feels good and in the midst of that feeling, new choices or challenges look easier than they turn out to be. — location: [1877](kindle://book?action=open&asin=B006L6AVLU&location=1877) ^ref-51254 --- In retrospect, we always know we got “overconfident,” but we never seem to know it in time to prevent it. We give back lots of our hard earned “alpha” and sooner or later, land squarely back on the spectrum usually at the fear of losing or being wrong end. — location: [1883](kindle://book?action=open&asin=B006L6AVLU&location=1883) ^ref-16737 --- Don’t be afraid to put it into words. In fact, reams of research out of the psychoanalytic traditions and now even decision science indicate that putting feelings into words, does indeed provide a great benefit. Putting feelings into words not only reduces anxiety but verbalization can actually allow us to work more effectively on a thinking level. — location: [1906](kindle://book?action=open&asin=B006L6AVLU&location=1906) ^ref-43963 --- Once we learn to understand the relatively conscious fear of losing money, we can move to the more insidious levels where the fear of being wrong or even stupid resides. Those levels, which I call fractal-emotional contexts or F-eC, offer exorbitant amounts of psychological leverage in that acquiring an awareness of them can interrupt what seem like intractable acting-out scenarios that traders and risk-takers everywhere find so baffling. — location: [1934](kindle://book?action=open&asin=B006L6AVLU&location=1934) ^ref-40059 --- In order not to waste valuable mental and physical energy on averting the uncertainty of dealing with something that can’t be certain, it pays to go through an exercise where you consciously embrace uncertainty, or really where you consciously embrace what you feel about it. — location: [1941](kindle://book?action=open&asin=B006L6AVLU&location=1941) ^ref-21578 --- Most were surprised to find out how they really did detest dealing with constantly conflicting information. They intellectually thought that because they were market professionals, that they were “over it” or even in fact loved it. — location: [1955](kindle://book?action=open&asin=B006L6AVLU&location=1955) ^ref-29742 --- Just like anger typically overlays a hurt, greed overlays what in the majority of time is the fear of missing out. Successfully navigating markets presents such a challenge that the idea of not grabbing every emerging opportunity just becomes too hard to resist. — location: [1976](kindle://book?action=open&asin=B006L6AVLU&location=1976) ^ref-16880 --- Whatever the source of this feeling—chromosomes or hormones or training—I hear it all the time. Guys don’t like other guys to get a trade they know about and didn’t fully exploit. This is exactly what Chuck Prince meant when he said the music was still playing. — location: [2003](kindle://book?action=open&asin=B006L6AVLU&location=2003) ^ref-4050 --- The fear turns to the frustration because with the rare exception of nailing the trade the outcomes fall into the following categories: • Long (or short) and wrong • Got out too early; left a lot on the table • Got out too late; gave a lot back In the end, see how traders are almost always choosing between the lesser of the evils, and then by definition feeling at least somewhat regretful becomes practically inescapable! — location: [2012](kindle://book?action=open&asin=B006L6AVLU&location=2012) ^ref-17300 --- In verbal form, applied regret theory would sound something like this. Choice A—get out now = take profits good; it might go further = regret Choice B—wait for trade to move further = “let profits run”; it might reverse and I will give all my money back = regret Choice C—put a trailing stop in = I get a chance to make more but I might regret giving it back when it reverts to my trailing stop (to the exact tick and then continues!) In graphic form, it looks like this: Figure 13.2 Traders get lost going round and round in this series of choices, without even knowing it. — location: [2025](kindle://book?action=open&asin=B006L6AVLU&location=2025) ^ref-10057 Decision on when to take profit. Chart. --- Day-to-day trading exits may not invoke this kind of intensity but entries, or rather missing them, scare the crackers out of us. The market represents such an on-going mental challenge for us that watching our bus come and go without getting on blasts the fear of regret-o-meter. — location: [2037](kindle://book?action=open&asin=B006L6AVLU&location=2037) ^ref-45010 --- Understanding the inherent conflict in relentless uncertainty changes everything. Or rather, maybe I should say accepting it. Stop trying to make it certain. Stop trying to get rid of the conflict. In fact, lean into it. Try to feel it. If you do, you won’t act on it. Believe me I know, know, know that you want to know what to do—and the answer is simply feel. And watch what happens. I think you will be amazed. — location: [2040](kindle://book?action=open&asin=B006L6AVLU&location=2040) ^ref-9373 --- if you happen to be one of those people, you feel the opposite of FOMO. And while that fC will almost certainly always remain the most pervasive one, you yourself live on the other end of the spectrum. In your case, the fear of future regret revolves around how it will feel to have lost money or to be wrong. That is a stronger feeling for you than missing out. — location: [2049](kindle://book?action=open&asin=B006L6AVLU&location=2049) ^ref-31688 --- We typically think that somewhere along the way, we discarded all of that and replaced it with a new set of “adult” lessons. In actuality, without working to become conscious of what simple fractal elements were built within our minds, we experience the present through the lens or prism of the past experience. — location: [2115](kindle://book?action=open&asin=B006L6AVLU&location=2115) ^ref-9538 --- Since I have been consulting on Wall Street, I have yet to find someone who habitually fights trends that doesn’t ultimately reveal a very clear and specific reason that arises out of their personal and family history. The easiest ones are traders who can notice that they want to prove they are smart. When we dig deeper, however, they always want to prove to someone (in my experience, usually their fathers) that they are indeed smarter than they were ever given credit for. — location: [2245](kindle://book?action=open&asin=B006L6AVLU&location=2245) ^ref-33047 --- Trading as a profession probably offers about the fastest way to reveal one’s fractal emotional context. — location: [2303](kindle://book?action=open&asin=B006L6AVLU&location=2303) ^ref-31199 --- part of the irresistible seduction of markets is not the money but the tapping into an innate human urge, desire, or force to grow. It strikes at the core of competitive and adaptive instincts and serves up for the taking any unconscious psychological set-ups one has. — location: [2315](kindle://book?action=open&asin=B006L6AVLU&location=2315) ^ref-4892 --- you can get lots of risk and market edge mileage out of knowing the knowable feeling contexts. For example, where are you on the spectrum between fear of losing money and fear of missing out? If you want psychological leverage, you need to elevate this introspective analysis to a priority even higher than knowing what the market is doing at any given moment. — location: [2470](kindle://book?action=open&asin=B006L6AVLU&location=2470) ^ref-43217 --- For a moment, or much longer, we have no idea what to do. We do everything we can to avoid this feeling of falling into an abyss. We add charts and news analysis and now machines whose operators purport to have taught them to learn through ostensibly life-like neural networks. We might, however, want to consider simply feeling this feeling consciously and intentionally. Think of it as battle training—if we are familiar with the feeling context, then we will have a better idea what to do when it strikes. If we are not, and you can say this about every feeling, we will just act it out. We will buy or sell at the worst moment. Normally, we think we act out when the pain is too great, and that may be true to an extent. I submit to you it is actually when the uncertainty is too great and we imagine the pain. — location: [2656](kindle://book?action=open&asin=B006L6AVLU&location=2656) ^ref-48257 --- Like the client I mentioned who knew a certain feeling had a 92% chance of being right—that is where you are ultimately trying to get, to know the difference between a fractal-fueled fear of missing out and tacit, implicit, or experiential knowledge. — location: [2750](kindle://book?action=open&asin=B006L6AVLU&location=2750) ^ref-9315 --- Believe me, the quickest way out of this is going to be to feel as bad as you feel, whatever that is, and let that be that. And yes, I know the objection. It seems that if you let yourself feel something bad, that you will end up in the abyss of that feeling. Most of us don’t. We allow the feeling and it passes. While it is passing, it points our minds and yes, even our intellects to areas where we can improve or learn. We also disrupt the acting out of the feeling. — location: [2999](kindle://book?action=open&asin=B006L6AVLU&location=2999) ^ref-16678 --- the debilitating part just won’t last that long if you just let yourself feel and articulate it, even if only to a journal. Some people will tell you to put a time limit on it. That is only because they fear what will happen if you don’t. Trust your psyche, it will take care of you. Feeling bad has informational value. It leads you to be introspective, — location: [3016](kindle://book?action=open&asin=B006L6AVLU&location=3016) ^ref-42768 --- more often than not, the mistake you make will be on the right-hand side, at the fear of future regret. — location: [3021](kindle://book?action=open&asin=B006L6AVLU&location=3021) ^ref-32724 --- realizing that the intensity of wanting to be right, frustration over being wrong, or fear of missing something emanates from your past dilutes enough of the physical energy embedded in the emotion and gives you a window through which to unravel it, — location: [3033](kindle://book?action=open&asin=B006L6AVLU&location=3033) ^ref-56249 --- Feeling the feeling, knowing what it is and why, and putting it into words short circuits that process. If you manage to your level of mental capital and psychological leverage first, you know when you feel “over the moon.” You should also know, though, that this feeling carries the same risk signal as being tired or angry. It creates a context that skews your perception. It changes your beliefs, at least for the time being. If you revel instead, you can feel the feeling—really enjoy it—but keep it out of your account. — location: [3064](kindle://book?action=open&asin=B006L6AVLU&location=3064) ^ref-65066 --- Everything will fall prey to your ego and your unconscious, unless you make both conscious. You can leave the unconscious where it is, but that will be your biggest risk factor. Sooner or later it will burn you. — location: [3141](kindle://book?action=open&asin=B006L6AVLU&location=3141) ^ref-27124 ---