May 12th, 2011
by Tom Cleveland
It is Sunday on the PGA Tour. A solitary golfer is studying his fifteen-foot putt on the eighteenth green. If he makes it, he wins the tournament, making this putt worth thousands of dollars and prestige for a lifetime, more pressure than most anyone should endure. He proceeds to follow a routine that he has repeated on every hole before this final one. Checks his line, looks down at his putter, at the line once more, then down again, and then he putts the ball in the hole for a well-deserved win.
We admire professional athletes in any sport for their prowess under pressure and their ability to block out all around them in order to perform. Anyone that has a stressful job that requires performance can learn from this simple example. Active traders, whether in the field of securities, commodities, or currencies, can easily identify with our professional golfer, and the successful ones actually follow a similar process to record consistent gains, take decisive action, and act with confidence in a profession where there is a fine line between success and failure.
Knowledge and experience, or technique and talent, will get you just so far in a pressure-packed arena. Emotional control is the proverbial “third-leg-of-the-stool”, which, if ignored, will undermine all attempts to achieve at a higher level. Studies in the psychology of investing have continually confirmed this fact that your subconscious mind will often be your worst enemy, deliberately working against your best interests, but only acting out the hidden reservoirs of fear and self-doubt that lay in the darker corners of our minds.
Psychological factors are more pronounced when the trading action is swift and volatile, the basic framework that faces a day trader in the world of forex trading. Initiating a trade may be a problem for a few, but it is generally an affirmative action, full of hope and the possibility of material gain. If the trader has difficulty closing the position or pulling the trigger, so to speak, then he has subjected himself to mental speculation. He remembers his last loss or the fact that he cut off a winner too soon. He hesitates, or worse yet, he procrastinates, almost freezing before his screen, unable to make a key decision that will either limit a loss or permit a winner to run. Tests show that losses unduly influence our future choices. We loathe judgment and accountability situations.
Professional athletes practice a routine, step-by-step, in order to block their minds and allow their muscles to act as trained. Forex brokers provide free demo accounts for traders to gain experience while practicing with virtual cash and real-time quotes, but a trader must have a stepwise plan that guides his decision-making before, during, and after a position is ever opened and closed.
Practicing a trading plan until it is “rote” is the only time-honored solution for blocking out the negative influences of the mind. Follow this advice if success is your goal!
Risk Disclaimer: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite.
November 5th, 2010
A new interview with John Casti is now available at SellingBooks.com. The author shares how the book was first conceived, and reveals additional experiences from his twenty years as a writer of scientific books.
July 3rd, 2010
Background: Page 176 of MM shows the following table of polarities of social mood:
|Positive Mood (+)||Negative Mood (-)|
The Fundamental Working Hypothesis stated on p. 170 is that there will be an accelerating shift from the positive to the negative polarities in this table. The Blog section adopts this hypothesis, and consists of micro reports from the media illustrating it in various aspects of everyday life.
June 30th, 2010
Since publication of Mood Matters, several Internet sites have run articles on what the book calls The Skirt Length Indicator, which argues that as social mood rises so do the skirt lengths (as measured from the ground!). The told in the book is that it is the social mood that biases whether skirt lengths move up (as optimism about the future increases) or down (as people start fearing the future rather than welcoming it). Unfortunately, in some of the articles posted the author seems not to have assimilated this point, claiming instead that I’m saying exactly the opposite: that skirt lengths serve to “predict how markets will perform”, as a piece in the June 24, 2010 issue of the British tabloid Daily Express phrased it. Similar statements appear in an article on the web site millionlooks.com, where in a June 28 posting the author asks, “Can uplifted hemlines really change someone’s mood?”, going on to answer “Sure they can.”
While it’s gratifying to have Mood Matters cited as an authority in such august circles, I’m compelled to quote the following passage from the book itself:
“. . . one might even encourage fashion designers to contribute to saving the economy by having fashionable ladies wear shorter and shorter skirts. As that well-known fan of short skirts, JFK, put it, “Ask not what your country can do for you, but ask what you can do for your country!” Unfortunately, such a line of argument flies in the face of our Central Hypothesis, since it would suggest that an action (wearing short skirts) can contribute to formation of a view of the future (the social mood).”
Yet one more nail in the coffin of event causation!
May 22nd, 2010
May 22nd, 2010
“Signs Emerge of Recovery for Art Sales” shouted a headline in the April 20, 2010 issue of the International Herald Tribune. By way of contrast, pages 70-72 of Mood Matters argue that art sales will be a big-time loser as the overall global social mood deepens. Since this story seems to undermine that claim, it’s worth digging into it a bit deeper to see what is really going on.
After quoting sources like Philip Hoffman, head of the Fine Art Group Fund, and the head of Castlestone Management, a fund that specializes in art investment for well-heeled clients about the prospects for the art market (which is tantamount to asking the foxes if they thought chickens were a good investment), the article slips-in the very revealing quote from Castlestone that “equities is considered to be a key indicator when analyzing trends in the art market.” A socionomist would read this as: The art market can be expected to rise as the social mood increases, and then decline as people start fearing the future again.
May 22nd, 2010
In mid-April 2010, professional basketball’s most marketable and iconic player, Michael Jordan, purchased majority interest in the Charlotte Bobcats for $275 million. It’s often said that timing is everything in life. So in view of Jordan’s exquisite ability to move in and out of the NBA as both a player and owner at pivotal turning points in the overall social mood (i.e., major turning points in the financial markets) as discussed on p. 85 of MM (and depicted in the graphic below, which was not used in the book), we wait with bated breath to see if Jordan has or has not lost his golden touch (or perhaps we should say “fool’s golden” touch). If the Jordan’s past is prologue to the future of the social mood, a prudent investor might start accumulating a fistful of call options on the S&P500 right now.