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Biggest mistake traders make

Denise Shull is a decision coach and performance architect who consulted on Showtime’s BILLIONS for the Wendy Rhodes character.

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A former trader,

Tina Wadhwa:

Denise Shull: H

There are levels of feeling and emotion that play into perception: Basic body – tiredness will cause you to see less risk. Affect – or the difference before and after coffee, like a mood or outlook. Emotion – an intense form of affect with meaning that is partially about the situation and partially about one’s personality and past.

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Fractal emotions are the expectations and explanations for why things happen to you in the same way. The repetitive emotions we all feel that make one situation look like another. This is where life experience really comes into play.

Examples from my clients include a former rugby player who always wanted to add to a position whenever it wasn’t going well – he was trying to power through it. Conversely, an equity derivatives guy who could never get as big as he wanted into a position. This came from a mother who was so risk-averse she wouldn’t let him play soccer growing up.

Wadhwa:

Schull:

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The mistake is trying to set all emotion aside. It won’t work and you don’t want it to otherwise you would have no confidence or conviction. Worse, by setting it all aside, the fractal or life experience ones will win at the worst possible moment. Their energy builds up to the point that it compels action – if the emotions are shunned.

Emotional sophistication – understanding both how emotions work and how they work for you – allows an investor or trader to glean important information from their unconscious pattern recognition which is delivered as a what we call gut feel or intuition. It may just be telling you to dig deeper. Fear in it’s pure form is trying to help you by pointing out a risk or deficit in information.

Within all of this, one way to help oneself is to understand the true nature of the market: A never-ending global poker game. This matters because in contrast to sports, where the game or race always has a known end-point, your brain plays tricks on you because there is always another quarter to play. This level of possibility plays into fear of future regret for example. The uncertainty, you can always make a case for up and down, also causes your brain to go to context and pattern recognition more than it would if you were engineering a bridge where there are specific quantifiable relationships.

Investors try to deduce those same type of relationships but they don’t exist. All you are ever doing is better that someone else will think it’s a good idea to pay more for something in a year. It’s really social prediction which is uncertain. But it helps to recognize the essential question of why will the guy next door buy this from me for more. Brain science shows that people who are good at that question are better price predictors.

The ability to recognize the sensations of your body is called interception and it’s associated with greater P&L and longer track records in traders. It’s also associated with more loss aversion but not more risk aversion – meaning that the person can get out of positions that aren’t working and get into ones that are.

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Wadhwa:

Wadhwa:

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