Market Mind Games Flashcards
What is the foundation of success?
Feeling and emotion; they contribute to the meanings of everything.
Does emotion cause you to make or lose money?
No, your actions based off these emotions do.
Who is the fictional character of Michael Kelley?
An academic about to get a real shot at running money.
Who is the fictional character of Richard Kelley?
Michael’s austere and judgmental father, who, like all parents, looms large in his conscious and unconscious mind.
Define austere:
Severe in manner or appearance; uncompromising; strict; forbidding
Who is the fictional character of Renee Smith?
The daughter of a former floor trader.
Who is Christopher Smith?
Renee’s father; a former floor trader.
Does assessing the odds of something eliminate the risk?
Not even close; if you see a percentage sign - all bets are off.
Do numbers / charts mean everything in stocks?
No, they’re just one part of the BIG picture. There is a huge gap between where the numbers leave off and peak performance begins.
Can numbers predict anomalies?
No! And you can not enumerate anomalies. Countless stock market anomalies occurred within the last two decades which should not have ever happened in a thousand years according to probability.
If you have a less than 100% probability that is only good for a limited time, what use is it?
Nearly none unless placed in the correct context.
Why does almost anyone who claims to be an expert on markets preach probability?
Because it is one key factor to peak performance and is easy for laymen to understand.
What is one key problem people have with numbers?
People find comfort in them so they dramatically overestimate their value.
In what ways are stocks like poker?
If you ask novices they will tell you its all about the numbers. However, the professionals put the numbers in the right context; they aren’t numbers games, they’re people games.
Is it possible to know the future?
No!
Can numbers lie?
Yes, telling only a partial truth is lying.
What roles do probabilities / numbers play in decision making?
They tell a partial truth, but are only one part of a big picture. You need to visualize them in their proper context to properly use them. Deeply understand the concepts and fundamentals that drive them.
How can market “machines” work?
They can’t - if you can’t understand how human decision making in trading works then how can you possibly duplicate it?
How did Watson win at Jeopardy and what does it mean?
It accessed online databases to find answers. Then it it weighted how certain it “felt” about the answers to decide if it would ring in. This means to accomplish peak performance, you must utilize your feelings as data inputs.
What is the first rule of trading?
Live to trade another day.
What is the difference between risk and uncertainty?
Uncertainty can be measured. Risk is uncertainty that can’t be measured.
Does advanced technology eliminate risk?
No, you can never fully eliminate risk.
How does poker compare to the stock market?
There are known odds, statistics, and probabilities with both. However, the “game” isn’t the numbers, it’s reading the other participants.
What are Markowitz’s two stages of portfolio management?
Stage 1: Observations + experiences –> beliefs about future markets.
Stage 2: Analyzing the numbers/charts.
What is the best way to manage your risk?
Focus on your beliefs / assumptions. If you don’t continually analyze and revise them the numbers will “lie” to you.
Are numbers the primary focus of your market strategy?
No! Other player’s perception of future player’s perception are.
What is the most common delusion in the market?
That you have controlled risk by using probability; you can never fully control risk.
What does market performance emerge from?
The need to be constantly improving your judgement.
How do you best make judgement calls?
Know your beliefs; they limit your view, and fully exploit the context.
Are the assumptions about the superiority of cognitive ability grounded?
No, they are merely assumptions.
Are we more than our thoughts and behaviors?
Yes, we are mostly “feeling” beings.
How did Watson (the robot) win at Jeopardy?
He was able to know his confidence level faster than his human opponents.
What happened to the people mentioned in Descartes’ Error after they sustained an injury in the brain that is important in emotion?
They were unable to make even basic decisions. They could see the pros and cons of each but couldn’t decide between them.
Can we apply math / logic without feeling / emotion?
No, it is impossible to make decisions without emotion.
Is it enough to ‘know’ what should be done?
No, you need to ‘feel’ it for it to influence your behavior / actions.
Are feelings beneficial or harmful to decisions?
Neither, they are just data; how you use those feelings determines what effect they will have.
Can we ever know for certain what will happen tomorrow?
No, no matter how much we desire to.
Do probabilities tell you everything?
No, they only tell us where one piece of the puzzle goes.
When should you invest your portfolio?
Only after you know precisely what your beliefs are and why you believe them.
Does judgement require emotion?
Yes.
Should you devise self-awareness tracking systems?
Yes.
What is the “leap” to peak performance?
The numbers only take you so far, after that, it’s about reading the other players and how confident / fearful you are about those reads.
Is it harder to read people from the screen?
Very much, you can’t look into other trader’s eyes.
What is the only thing you’re doing when analyzing a stock?
Deducing if other players will value it more/less in the future.
Which degree should you be using in the market?
The third degree; the object of the “game” is to determine the average opinion expects the average opinion to be.
How do you “win” the market “game”?
Deducing what the average opinion of the average future perception will be.
How do you devise a strategy to make money in the market?
Devise a strategy that predicts people.
Do you make money by knowing the “facts”?
No, you make money by correctly predicting the opponent’s future perception.
Do the “facts” have value?
Not in and of themselves, their context gives them value; what will other players think of this? When will other players know them? What other factors may obscure the truth?
Does it matter that much of today’s volume stems from computer algorithms?
No, they were designed by people with emotions and are based off of their beliefs about the market.
Do market numbers differ from other numbers?
Yes, they don’t convey anything precise in and of themselves; they only show what other people believe the future value will be.
What is a market price?
Merely a perception; nothing more and nothing less.
What is the proper role for numbers in the market?
To determine what others see and believe when they look at the numbers.
What is your edge?
View the market as a never-ending game of poker, in which the cards have no clear values, and the entire game is understanding how your opponents value their hand currently, and what influences their value of their hand in the future.
What does solving the eternal puzzle of markets require?
Viewing numbers as a language that is talking to each participant.
Are other market participants “strangers”?
No, they are far more like you than you tend to think, remember this when anticipating their perspectives.
Is “the game” about finding that one piece of information that nobody knows?
No, it’s about understanding other player’s perspectives. Information is only valuable when other participants know it or are about to know it.
Does the human brain use the same system when looking for people in symbols as it does when it can see the actual person?
No, but everyone has both systems and some people use them better than others, that’s why some people are naturally better at trading than others; but everyone can improve their ability.
What is ToM?
Theory of Mind: Consciously/ unconsciously working with a theory of what’s going on in someone else’s mind; recognizing patterns of likely human behavior.
Are ToM ability scores directly related to market performance?
Yes, the market is all about reading other people.
Should you intentionally evaluate the context (feelings, emotion, perspective, degree, etc) through which you analyze data, projections, and probabilities?
Yes, first use it as a risk management tool (realizing your emotion’s impact on your perspective) and secondly as a strategy for understanding market action.
What is perception?
Reality; average perception will morph the price into reality.
Do facts have any meaning without context?
No, you need to put the in perspective.
Are plans infallible?
No; everyone has a plan until they get punched in the face. Sometimes your instincts will react to the current situation faster than your plan can apply.
Does our brain deal with uncertainty faster than arithmetic?
Yes, this is likely because we are constantly dealing with uncertainty so it is conditioned for it.
Is uncertainty the exception or the rule?
The rule; we deal with it constantly in our lives and in the market.
Should you be determined to know all of your personal contexts?
Yes; you gain a psychological edge when you focus on the “gap” between where the numbers leave off and exceptional performance begins.
Do our contexts come from the external environment or from our internal memories, beliefs, and expectations?
Both; constantly work at knowing all of your contexts; they influence every decision you make.
Should both internal and external contexts be explored to their full extent?
Yes.
What is the most difficult part of trading?
Timing; the market could do exactly what you expect but if your entry/exits aren’t timed right you can still lose money. The “final whistle” never blows.
Do current experiences affect the subsequent experience?
Yes; it influences your mood and beliefs that you bring with you.
Why should you start your day right?
It sets your mood and beliefs that you bring with you; if you start off in a good mood you will likely have a good day.
What must you do to “stay in the game”?
Continually clarify your perceptions so they match up with the realities and eventualities of other players.
Why is the concept of ignoring your emotions preposterous?
You couldn’t even see without them! You must account for them and their effects on you to manage your risk.
Do you need to control your emotions?
Absolutely not; you need to lean into them. The only thing you need to control is your actions.
Is every decision you make driven by an emotion?
Yes, you need to examine the emotions driving all of your decisions, especially in the market.
Do unconscious forces influence your current behavior and decisions?
Yes; past experiences effect you via your unconscious; its up to you to re-evaluate your unconscious.
Why don’t you feel much emotion?
You act on the information as soon as you get it; there is no static emotional energy lingering. Take time to feel each time before you act on it or make a decision.
Should you take time the “feel” each emotion every time before you make a decision or act from it?
Yes, this will give you much more information about what you truly want, it will also enhance the strength of your emotions.
Should you identify and analyze all of your emotions each time before you make any decision?
Yes! Especially in markets.
What are fear and panic?
Early warning tools; a sign that something is aloof.
What are feeling contexts (fC)?
Feelings such as hunger, fatigue, hot, cold, boredom, etc.
What are emotional contexts (eC)?
Emotions such as happiness, anger, sadness, excitement, FOMO, etc.
What is knowing but not controlling your emotions (fC + eC)?
Your secret weapon.
What is the key to analyzing uncertainty in markets and in life?
Knowing your fC.
Does understanding your own fC enhance your ability to understand other participant’s fC?
Absolutely! The better you understand yourself the better you will understand others.
What is the gradual way of incorporating fC and eC into your market strategy?
First use it as a way to avoid taking bad trades; to avoid FOMO and revenge trades. As you develop this skill you will be able to see other’s acting on these emotions in the market and be able to capitalize on it.
