As 2012 comes to a close I thought I would look back over my reading, and highlight my 3 top trading ‘related’ books that I read this year. Just to elaborate; when I say ‘trading related’ not only does this include books obviously connected to trading, it also includes books that in my mind illuminate some aspect of human psychology, behaviour or the human condition, which can add insight to ourselves as traders, or to the behaviours of others and the market in general. As you will from my ‘top 3’ list, two of those included are in no way directly and perhaps in one case, even loosely, connected to trading.
During the past year I would say I have probably read around 10-12 books which I would say are in some way connected to trading in terms of markets, trading, risk or some aspect of human behaviour. In addition I have read many more books that I have never completed, but will endeavour to do so still, some of which are overhangs from last year or even a year or two previously. The books I have read are books that have piqued my interest at some point, and led to me picking up and thumbing through, or have come across on the internet, or have been reminded about or recommended to. There are many more books too which I have ordered, and which rather sadly gathering dust on a shelf, or sitting currently unloved on my kindle.
Top 3 (Not in any particular order)
Moneyball: The Art of Winning an Unfair Game by Michael Lewis.
The book tells the story of how the Oakland A’s and general manager Billy Beane used unconventional wisdom to win. Faced with a very low budget, the Beane and the A’s competed with the richest teams in baseball. The innovative approach was so successful that it changed how teams were put together.
I came to this book quite late (It was originally published in 2003). The film about the book really brought this to my attention. Without the movie I doubt I would ever have come to read a book about baseball, which here in the UK garners about as much interest as cricket does in the US.
The fascinating thing about this book, and it was occasionally a struggle due to my unfamiliarity with the language of baseball (thank god for Wikipedia), was that much as it was about baseball, it also about so many other things ‘trading related’ including performance, the human condition, human behaviour, risk and statistics. Written by Michael Lewis, of Liar's Poker fame, it is his excellent writing and ability to tell a story and tie its various themes into coherent and gripping whole, which make the book so accessible to someone who has never watched a baseball game. In fact so excellent and gripping was the story, and the writing, that the book became almost un-put-downable (My own small and rather pathetic contribution to the English language).
There are so many facets of the story and small elements within it that any trader can recognise and relate to from the small private trader to the large bank or hedge-fund trader through to the investment and asset manager. A couple of examples include the quotes by Pete Palmer, ‘The pain of looking bad is worse than the gain of the best move’. Does that not resonate with Daniel Kahneman work on Loss Aversion? The consequence of this for Palmer is that ‘Managers tend to choose a strategy that is least likely to fail. Rather than pick a strategy that is most efficient.’ And how about this line, when talking about Billy Beane, the highly talented rookie who was expected to the next big thing, but was failing with the bat: ‘He (Billy Beane) began in the Private Casino of the Mind, to hedge his bets.’ I am sure many a trader will be able to relate to that sentiment.
Also fascinating to the book was the post-script focusing on the reaction to the book and its theme, particularly within established baseball circles. This further illuminated aspects of the human condition and behaviour, and in particular the ability of entire groups of people to dismiss a view or proposition without so much as listening to or considering its arguments. If you have not read Moneyball yet, then I'd recommend putting it on your reading list for the coming year.
Hedge Fund Market Wizards: How Winning Traders Win by Jack D.Schwager.
The next book is one for the purists. Jack Schwager takes a behind-the-scenes look at the world of hedge funds, from fifteen traders who've consistently beaten the markets. Exploring what makes a great trader a great trader, Hedge Fund Market Wizards breaks new ground, giving readers rare insight into the trading philosophy and successful methods employed by some of the most profitable individuals in the hedge fund business.
Jack Schwager, who I had the pleasure to interview earlier this year, released 'Hedge Fund Market Wizards', the long overdue follow-up to his original Market Wizards books earlier this year. I always recommend any younger trader to read the original two Market Wizards books, and I advise many more established to traders who have read the books to re-read them. In terms of trading books, the Market Wizards books are timeless classics. I therefore was keenly looking forward to this latest version, but also wondering whether he was going to repeat the brilliance of the original books, whilst updating and probably most significantly being able to add something new. - I was delighted to say that I was not disappointed.
The interviews he conducted were a thoroughly illuminating look into the mindset of successful traders. Schwager also varied his subject matters, the list of interviewees included some who were extremely well known, and some lesser known. Interestingly Schwager focused on a wide and diverse spectrum of trading styles, methods and approaches, which highlights many different ways traders are able to achieve success in the markets, and everyone who trades or has traded will probably find someone in there they can relate to. I don't honestly think there is a sentence or word in the book wasted; my own particular favourite interview was the fascinating interview with trader Jimmy Balodimas. Balodimas’ style and approach seemed to baffle Schwager, it is a style and approach which seems to defy convention, though personally I have witnessed a number of traders of that type who probably could not explain what they do right, but have developed an instinct for trading, using innate skills and abilities which enable them to prosper and thrive. The interview itself was ‘Pure Gold’, with Schwager revealing as much about himself in this interview as he does about the interviewee, and in this case rather bizarrely offered advice to Balodimas on how he could improve his trading.
The Balodimas interview is a great example of the human element which Schwager so brilliantly manages to bring out in every interview, and which allows the reader to get inside the mind of the traders interviews and to perhaps gain a greater understanding of themselves. Amongst the many excellent interviews, the ones which stand out to me were the interview with Ray Dalio, a true legend of the markets, and Edward Thorp, the man who beat the casinos, even devising a machine and system to win at roulette.
I, Mammal: Why Your Brain Links Status and Happiness by Dr Loretta Graziano Breuning.
This is the book, which I am almost certain nobody who trades or has traded would have read, and which is absolutely nothing to do with trading and yet in my mind explains so much in the world of trading (and beyond). The central theme of this book is how Mammals seek dominance and status because that stimulates their brain to produce ‘Happy Chemicals’; serotonin, dopamine, oxytocin and endorphins. As humans our brains are based on the same model as our mammal ancestors; the ancient mammal brain does not communicate in words but uses neurochemical. Our neurochemical ups and downs make sense when looked at through the private lives of mammals.
This is a fascinating book that provides a new look at how to understand human behaviour. The book itself is part scientific treatise and part personal happiness manual. The science element is mainly evolutionary biology; the happiness manual adds relevance to the science. Loretta, writing in her own particular and at times quite jaunty and quirky style, explains the biology in simplified terms for the non-experts, and manages to keep the reader interested with stories, examples and real scientific research.
The book is self-written and self published, this means it does lack the benefit of being professionally written, edited and presented. In light of this some patience and understanding may be required occasionally, however the reward for this in my mind well worth it, the reward being the learning and provocation of thought that this book inspires.
The book explores a wide range of interesting questions which focus on human behaviour and can easily be applied to trading and markets. Questions such as; why we behave the way we do? Why are all we prone to patterns of repetitive behaviour? Why do people often act in ways that undermine their own happiness, success and well-being? Why are the emotional rewards of success often short-lived? And, above all, how can people start to come to terms with their emotional selves that are often self-judgmental and self-critical?
More than anything I came to appreciate that we rely on an ancient operating system, which has developed and evolved over millions of years, this operating system acts as our default system; it manifests itself and reveals itself in the form of emotions and feelings, and is driven by automotive responses to stimulus which creates powerful chemical responses in our body and mind. This unstoppable emotional system is far more controlling and influential than our more recent add-on, ‘the logical human brain’, which allows us to think rationally and enables us to abstract and plan the future. I see this book tying in, from a biological perspective, many of the theories we see in ‘Behavioural Economics’. Daniel Kahneman, in ‘Thinking Fast and Slow', talks about humans as almost two separate entities, instinctive and impulsive on the one hand, and deliberate and calculating on the other. The theories put forward in 'I mammal', start to add some biological flesh to these theories.
If I was to recommend one book out of all the books I have read, which deepen my understanding of the human condition, and then this is it.
As I stated at the very beginning, there are many other excellent books I have read that could so easily have made it into this list, however I wanted to keep the list to just three, other notable books I have read this year which I would highly recommend include; ‘The Hour Between Dog and Wolf: Risk-taking, Gut Feelings and the Biology of Boom and Bust’ by John Coates. ‘Risk: The Science and Politics of Fear‘ by Dan Gardner. ‘Market Mind Games: A Radical Psychology of Investing, Trading and Risk' by Denise Shull, and most recently ‘Lords of Finance: The Bankers Who Broke the World' by Liaquat Ahamed. There were also some real duds and disappointing reads too, I’ll do those books the courtesy of not naming them.
I hope you find my little recap useful and informing. If anyone has their own personal recommendations or some feedback or comments of their own, I would be happy to hear from you.
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Saturday 22 December 2012
Sunday 16 December 2012
Anxiety and Stress in ‘Trading’: Consequences for one’s self, their trading and even their family. And a new coaching approach for dealing with anxiety that can benefit trading performance.
Anxiety is one of most common emotional issues facing traders. Anxiety, and the stress which results, affects
most traders and individuals engaged in risk seeking activities at some point.
The consequences of anxiety and stress can be extremely serious: With regard to
one’s work, an individual’s trading performance and their longer-term
confidence can suffer. With regard to their health and well-being, anxiety and
stress can have serious consequences and damaging side effects. And the results
of anxiety and stress do not end there: Anxiety is often taken home, and typically
the individual is unaware of this; they themselves are caught in a delusion
whereby they think they are doing everything to avoid bring the anxiety home. The
results can be harmful to one’s relationship with loved ones and family, and
can have a more damaging and long-lasting affect on the children of those
affected by anxiety and stress: Forbes recently carried an excellent article
earlier this year about this phenomenon, the article ‘How Parents' Stress Can Hurt A Child, From The
Inside Out’ can be seen here.
I recently wrote an article about performance anxiety, using
sport as the metaphor, and focusing on the troubles of the Spanish soccer
player Fernando Torres. Performance anxiety affects many accomplished
individuals in the fields of performance, such as sports, the performing arts, fields
of endeavor, and games involving skill and judgment such as poker and chess. More
specifically it occurs when the individual focuses too heavily on the outcome of their performance, which actually
interferes with the act of performing.
Another form of anxiety is ‘Secondary anxiety’ this occurs when someone is actually being anxious about something which makes them anxious. An example is a trader who fears they will be stopped on a trade, so they actually trigger the stop themselves prior to the market hitting the pre-set stop level. This is to try and kill the anxiety they are suffering, however the market then recovers and the original stop would never have been triggered. Their anxiety actually created the very situation they were trying to avoid, thus ironically making it a reality. Other examples of this type of anxiety can be seen when trader’s fear they’ll lose money, lose their job, or fear they cannot beat the market; they create the very situations that lead to the very thing they fear and are trying to avoid. Often this is can be the early stages of a vicious circle which may be very damaging to the individual and beyond.
Another form of anxiety is ‘Secondary anxiety’ this occurs when someone is actually being anxious about something which makes them anxious. An example is a trader who fears they will be stopped on a trade, so they actually trigger the stop themselves prior to the market hitting the pre-set stop level. This is to try and kill the anxiety they are suffering, however the market then recovers and the original stop would never have been triggered. Their anxiety actually created the very situation they were trying to avoid, thus ironically making it a reality. Other examples of this type of anxiety can be seen when trader’s fear they’ll lose money, lose their job, or fear they cannot beat the market; they create the very situations that lead to the very thing they fear and are trying to avoid. Often this is can be the early stages of a vicious circle which may be very damaging to the individual and beyond.
In my coaching work with traders inside
banks and hedge funds, I often come across traders suffering from anxiety. I
try to work with the traders to help them focus on improving their confidence
and self-belief, breaking negative habits, and cementing practices and
behaviours which aim to take their trading forward thus creating a virtuous
circle. I have also recently started collaboration with ‘Julie Courtney’ a
coach who uses a relatively new approach called ‘HeartMath®’ coaching. This is a very specific method of coaching which targets the
root of an individual’s anxieties and works with them to help reduce and negate
the specific anxiety and thus improve their ‘Personal Resilience’, and lead to enhanced
levels of performance. HeartMath®
utilises leading-edge science, practical techniques, biofeedback technology and
the combined intelligence of the human heart and mind to achieve exceptional results.
Julie has been working in Financial Market businesses for many
years, and hence has a good understanding of the environment and requirements
specific to risk takers. I am delighted that Julie has written the following article about
her work.
TRANSFORMING
TRADING STRESS by JULIE COURTNEY
Stress and anxiety don’t have to be the affliction of high-flyers
Stress is nothing new. Everyone feels stressed from time to time,
whether through pressures either at work or at home, and many people feel
stressed a lot of the time, especially when their life is going through a
period of change or when the going is particularly tough. So if you feel stressed
you’re not alone, especially among the high-flyers of this world. It’s a sure
fact that many top businesspeople feel stress or even anxiety at some point
during their careers – and fear of failure is a big contributor to that. A
recent study by Towers Watson found one in three workers in the UK are at
danger of burnout!
The main problem is, in our fast-paced world, we have an awful lot
of commitments, from the trading floor, to the boardroom, to the home
environment. In some cases, too much pressure and stress can overwhelm and become
a problem. If that happens, mental health suffers and so does physical health,
with symptoms such as fatigue and irritability being common.
Any emergency, high-pressure, risk-taking scenario that takes you
outside the comfort zone has an impact on what is going on inside you and, by
its very nature, can damage your health. In trading environments, you often see
people having a strong physical response – who has not seen a colleague or
friend lose control on occasion?
Many stress management solutions can be merely coping strategies
and they don’t necessarily help build long-term resilience to pressure. To overcome
difficulties as they happen and to
react to challenges with composure is the key to stopping the negative effect stress
can have on physical and mental health. And mental health is just as important
as physical health. Steve Redgrave, winner of four consecutive Olympic rowing
gold medals, and an epitome of testosterone-driven success says, “Athletes
train their body to incredible levels, everything is put into the physical
training, yet very little is done mentally. Most of the time the limiting
factor is the mind and not the body.”
Dealing
with stress ‘in the moment’
Finding a way of dealing with stress as it’s actually happening can have many positive effects. It can
improve your performance at work and in the other multifaceted areas of your
life where you are expected to achieve. But how can this be done?
One solution is personal resilience coaching, which shows you how
to reduce stress ‘in the moment’ simply and quickly and, in so doing, enhances your
performance, productivity and quality of life and work. Coaching techniques
vary but in one method, called HeartMath®, practitioners use innovative
approaches based on learning how to use your emotions to change the variability
in your heart rate in order to create ‘coherence’ – a scientifically measurable
state. This is a technique relatively new to the UK, but which has already been
proved in the US and is now achieving exciting results on this side of the
pond. The results are that you feel more balanced, are able to judge situations
clearly and react accordingly, and you don’t suffer from the negative effects
of stress on the body.
Specifically, HeartMath® can enable more balanced risk-taking as
well as improving the long-term health and vitality of those in the trading profession.
Risk-taking by its very nature, whether the trader is the highest earner on the
desk or not, triggers human software on a daily basis that has not had an upgrade
since prehistoric times. So whether it’s the best or worst trade in the trader’s
life, the pressure is still wearing down the body, because the body doesn’t
distinguish between life & death situations and the risks involved in
trading.
What shall I do today? Kill a mammoth or get a deal done? |
So what
are the benefits?
Heartmath® and personal resilience coaching genuinely raises
people’s performance and health, equipping them with skills they can very
easily apply to every aspect of their life, quickly, simply and continuously,
without becoming reliant on external coping strategies. And it’s quick to learn
– the techniques can be mastered typically in a few one-hour coaching sessions
– and the skills last a lifetime and be applied at work, at home or in sport
Above all, stress responses are like habits. Learning how to practice
the techniques allows you to retrain your body into establishing healthy habits
and over-riding those that cause you problems.
In a recent survey 88% of people put off making a change to their
lifestyle, despite believing that it would improve their lives. To sum that up,
consider these words by Austrian neurologist Viktor E Frankl: “Between stimulus and response there is a
space. In that space is our power to choose our response. In our response lies
our growth and our freedom."
It’s a tough question, but what are you
putting off that you know needs to change in 2013?
To find out more about Julie Courtney’s work with traders using HeartMath® coaching please contact her at:
Julie
Courtney
tel: +44 ( 0)1892 544 783
mobile: +44 (0) 7872 517 109
email: info@atriumsynergies.com
For more information visit: www.atriumsynergies.com
Or alternatively to find out more about my own work with traders
and my ‘Trader Performance Coaching’ programme. Please contact me:
Steven
Goldstein
tel: +44 ( 0)207 993 5362
mobile: +44 (0) 7753 446097
email: sgoldstein@bgtedge.com
For more information visit: www.bgtedge.com
"Worried Businessman With Pc" image by 'David Castillo Dominici' courtesy of FreeDigitalPhotos.net
Tuesday 4 December 2012
Fernando Torres: A sad example of 'Performance Anxiety'; a threat to all traders .
A major problem common for many, if not most traders, at
some time or other, is that of ‘Performance Anxiety'. This can afflict traders, from the most experienced
of professionals traders working for large banks or hedge funds, to small private
traders working to make a living trading from home or a local trading office.
Performance anxiety afflicts accomplished individuals across
a whole range of fields of performance and endeavour. It can be seen across sports,
in theatre or music, military personnel, surgeons, and in gaming amongst poker
and chess players. A dramatic example has
been unfolding as a sad spectacle before our very eyes here in the UK over the past
couple of years. One of the world’s leading football (soccer) players, the
Spanish international striker Fernando Torres, was purchased for a UK record of
$80million almost 2 years ago by Chelsea FC from Liverpool FC. During his time at Liverpool, Torres made 102 premier
league appearances scoring 65 goals, a strike rate of almost 64%, at Chelsea he
has made 61 premier league appearances, scoring just 11 goals, a strike rate of
just 18%. To add to his woes, exposure at the very highest levels of the game
has exasperated the situation. Sadly, this highly talented and entertaining footballer,
who was once the terror of many an opposition defence across Europe, is now a
mere shadow of his former self. I have attached a link to an excellent article from last
February’s FT, which talks about the Torres situation and other high profile
examples from the world of sport. As well as some comparison you tube clips of Torres at the foot of this article.
A link to an update of the Torres situation can be seen in
an article from last Friday.
As stated at the very beginning, performance anxiety affects
traders at all levels and can strike at any time. High level performance skills
have usually been honed over many years; the individual’s performance has
largely become automatic and habitual on many levels, relying on sub-conscious
and non-conscious actions, reactions and decision-making. Performance anxiety typically occurs when the
focus starts to shift to the outcome of performance, as opposed to the actual act
of performing or doing. As a result automatic and habitual behaviours are
replaced by efforts to gain conscious control of their activity; conscious actions
are often far clumsier than sub-conscious and non-conscious driven actions, which
result in a major disruption of one’s performance.
Performance anxiety does not always occur in long-term dramatic
examples, but can also be seen in short momentary situations in high pressure circumstances,
commonly known as ‘choking’. Examples can sometimes be seen in the final round of a
major golf tournament, when the leader inexplicably surrenders a large advantage going into the final stages. An memorable example was Jean Van De Velde's
meltdown at the last hole of the 1999 British open: Standing on the 18th
tee, Van De Velde held a 3 stroke lead over Paul Lawrie, surely this was
game-over!. Sadly and rather farcically Van Der Velde managed to achieve a
triple-bogey, putting the ball into the rough, the sand, the water and even the
grandstands. - Tennis is another fertile area where individuals choke, I recall
Jana Novotna freezing in the final set of the 1993 Wimbledon’s Women final: Leading 4 games to 1 in the final set
and serving at 40-30 for a 5 -1 lead, she managed to choke, surrendering that
game and the next four games to lose the set and the match. And as for us
long-suffering England football (Soccer across the pond) fans, we have to put
up with our national team choking whenever it comes to a penalty shoot-out at
just about every major tournament (Not that we ever have a chance of winning anyway).
Traders once again are familiar with this, rather comically
amongst my trading colleagues we use to term it as ‘snatching defeat from the
jaws of victory’, unfortunately it would sometimes be a joke used a little too
often for some. Yet again this was often a
case of watching the outcome, over managing the process, thinking consciously or
‘trying to hard’ and not sticking to plans and discipline. I think most traders
will be able to identify with at least some examples of this, however if you
can identify with too many examples, it may be time to start taking some sort
of affirmative action, since this is often the beginning of what could become a
downward spiral à la Fernando Torres.
Torres - from this:
To this:
" 'Sad' Image courtesy of zirconicusso / FreeDigitalPhotos.net"
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