Trader Mind Analogy
- Look, Mom! That man’s hand! He’s missing a finger!
- Pssssssss! Shut Up, Boy! Everybody is going to hear you in the whole subway!
- But, can you see that… He’s missing a finger!
- Shut up, Sweetie! Speak quietly, please, he’ll hear you.
- Don’t worry, lady, hahaha I’m used to it! Look, Kid! I got a finger cut! See?
- Does that hurt? What happened to you?
- lol! Yes it hurts… and a lot, but that’s what it is. I’m a carpenter and this thing of cutting a finger with the saw is normal to happen to us. My father lost the middle and the pinky.
- And my grandfather John … three fingers missing! …
Just a tale!
May this tale works as an analogy for a trader mind. With this new article with which to show what the risk is and how we perceive it in a different way among each other.
Our main character, the carpenter in the Subway, lacked a finger, but he assumed it as the result of a risk he accepted when devoted himself to that job, as his father and his grandfather had done in the past. You can even infer a certain degree of pride feeling for it.
A very different perception, for sure, should have had the lady. He thought, quite likely, would be in the line of “what a dangerous profession, I will never will try to cut a tree with a saw ever in my life!”.
In the regular trader mind the same risk is accepted or rejected according to the perception of each trader.
But we can agree that both visions seem somewhat extreme: if we want to cut a tree, we can do it safely, take the right safety measures to protect us from a possible injure, without having to risk the physical integrity of our limbs in each attempt.
Let’s go to trading!
Have you a trader mind?
Do you find any parallels between the carpenter in our little story and some trader you know now day?
And, what about you…
Now, tell me how many fingers did you lost as a trader? In what degree do you consider “normal” to lose any finger when trading? about your “normal” accepted risk in your trader mind, is the big question?
Imagine our carpenter cutting Logs with a saw from his mental map of “It is normal for a carpenter to lose some fingers when working” now, Imagine a trader trading from a similar mental map, which could be inside his trader mind something like:
“In a trader mind is normal to be ruined by his trades.”
Many times we take the responsibility and control of risks we assume in an external situation from us, for example, luck, forgetting that we can always do something more to avoid or diminish the risks that are always lurking in each position.
This way, may be we use apply a statement in our trader mind like “our worst enemy, will always be ourselves.”
Inside The Trader Mind
Several studies indicate that the most successful stock brokers add a certain amount of intuition to the rational analysis of their funds.
But an excess of lack of control can create price bubbles.
Since Alan Greenspan, former president of the Federal Reserve, warned of “the irrational exuberance” that the markets lived in the late nineties without being paid attention, everyone assumes that intuition and impulses have a great weight in trading.
That bubble of technology that Greenspan spoke of was punctured. But then, another was formed in the real estate sector that burst last year and has raised again the debate on how the brain of traders works.
Many labs now are back to the study of the trader mind (stock brokers) to find what lies behind their decisions. The matter is going to come even out of the medical sphere, thanks to a project prepared by the BBC to study the operation of trading rooms. Concrete cases such as that of Jerome Kerviel, the trader who lost 4,900 million euros to Société Générale for his risky trades, or more general trends such as the vendor panic in a few days during the recent financial crisis, have fueled interest in finding out what It hides in the minds of these employees.