In this latest episode of the AlphaMind podcast, we talk with Adam Sorab about how Technical Analysis can provide an entire framework for your trading, helping improve timing of discretionary actions, forming the core underpinnings of systematic or quant-based approaches, enhancing your fundamental trading views, and can be a vital part of your risk management approach.
Adam has a long history in the financial markets industry and is one of the most informed and interesting people you will come across in the trading and investment world.
Adam has held trading, investing and analysts’ roles at some of the world’s leading investment banks, asset management firms, and global hedge funds. Today Adam is a Partner at Aptior Capital, a distressed debt hedge fund based in the UK. Prior to that, and for over a decade, he was head of technical research and product specialist sales at the hedge fund giant CQS where he produced technical analysis-based investment research and strategy for their traders and portfolio managers.
Prior to that he held various roles, including his early years’ experience as an FX trader at the Swiss Investment Bank Credit Suisse, and head of Absolute Return strategies at Deutsche Bank Asset Management.
Adam holds a honours degree in Economics from the London School of Economics and has also been heavily involved with our sponsorship partner the Society of Technical Analysts, the STA, where he was formerly chairman and remains a member of their ‘Investment committee’. Adam was also president of the International Federation of Technical Analysts (IFTA), the global body which the STA is itself a constituent member of.
Adam brings a wealth of experience and insight that we are delighted and honoured to be able to share with our podcast audience, and which we are certain you will find informative, insightful and may challenge some of your long-held perspective and beliefs.
You can find out more about the Society of Technical Analysts (The STA) and how you can become a member on their webpage: https://technicalanalysts.com
You can also gain a discount on their brilliant Home Study course and Home Study Course and Diploma programme exclusively through AlphaMind at this link here.
The AlphaMind Podcast The AlphaMind podcast is co-hosted by Steven Goldstein and Mark Randall, market veterans with over seven decades between them in the financial markets. To find out more visit the AlphaMind podcast website.
Followers of the AlphaMind Podcast can gain an exclusive GBP 100 (or local currency equivalent) on the full cost of the Society of Technical Analysts world beating Home Study Course and Home Study Course and Diploma programme. Go to this link to find out more. Sign-Up for the AlphaMind Newsletter The AlphaMind Newsletter is a free bi-weekly email, that explores how people develop, cultivate and grow optimal mindsets, behaviours and attitude for better and more productive performance when engaged in risk taking activities in Financial Markets. Sign-up here.
We like to think that our senses lead us in the right direction, enabling us to make optimal choices based on our perceptions of reality.
However, often our senses, particularly when faced with complex situations, can distort reality and lead us to make incorrect inferences and false conclusions.
Illusions provide good examples of this. Take a look at this checkerboard illusion below and see if you can tell which square is darker, Square A or Square B?
Spoiler Alert: Square A and Square B are the same colour and shade!
Here is a link to a clever YouTube video which proves the illusion. Whilst here is another a link to an explanation from the clever guys at MIT.
All is Not What It Seems.
My work as a performance coach in financial market involves me undertaking deep conversations with investors and traders about their processes. I am also helped in this by my studies in Gestalt Psychology, which deals with perception and helps explore beneath the surface, and over 20 years’ working as a trader. One thing that continues to surprise me, is the many creative ways different traders and investors use to help navigate a path through the minefield of financial markets. Just when I believe that a particular method or approach doesn’t work, someone will come along and prove me wrong. However, it is when I go deeper into exploring their approach, that I then find all is not what it seems on the surface. Often the method they espouse is not as much the root of their success as they think it is. Some years ago I coached a very successful private trader who had decided he would teach his method to other traders whom he could then fund and take a cut of their profits. A kind of mini turtles programme. He took on several trainees and spent considerable time teaching them his method and approach. However, with one exception, none of these trainees were able to make his method or approach work. Even the one exception did not truly follow his method, instead he applied his own unique style. The trader was puzzled as to why these individuals could not replicate what he was doing. After we investigated his approach and method, he started to realise that the approach he was using, based almost entirely on price action, was not really his edge. At the point of action, he was adding his own twists based on his intuition. The analysis of price action was important, it took him to the point of action. But it was not the deciding factor which made him take or exit a trade. Suddenly it dawned on him that he had been teaching these individuals a technique which had no edge. The edge he did have was unique to him and was intuitive and largely unconscious.
The Best Guess and Mental Models. The trader mentioned above's model was effectively a ‘mental model’. At the point of action it relied on an educated guess. He was not takening every single signal, sometimes he was taking it when it happened, other times, dependent on his reading of the situation and ocntext, he would hold off for a bit. Human judgement was involved, and this made it incredibly difficult to replicate, let alone explain. It is an uncomfortable reality for many, but trading, and even investment, rely to a high degree on ‘guessing’. Even systematic processes require human judgement somewhere in the construction process, and again in the management and maintanance process. For those uncomfortable with the idea of being engaged in guessing activities, the term ‘Bayesian Inference’ may prove more comforting. Bayesian Inference is a term which encompasses the ‘educated guess’, rather than random guessing process. All models help improve the guessing process by reducing noise and providing a way to navigate complexity. n the above example the traders method and approach added up to his model. Other models may be more open to description, such as quantitative models and systematic approaches. I wrote an article some years ago on Keynes the investor. In it I described how it was not Keynes’s vast knowledge of economics which ultimately proved to be the deciding factor in his success as an investor, but a model he applied which he described as akin to a 'Beauty Contest' approach to stock picking. This approach (model), which an early forerunner of ‘value investing’. It embraced, as does Warren Buffeet and Charlie Munger, to a high degree the idea of ‘educated guessing’. Analysis informs, but it is rarely enough on its own. Success in the financial markets relies on models in some form.
Steven Goldstein is a leading Performance and Executive coach who helps people, teams, leaders and businesses in the financial markets to cultivate better, stronger and more effective performance. Steven has worked as a coach since 2009 with many significant trading and investment businesses. Prior to that Steven worked for more than 20 years on the Rates and FX desks at some of the world’s leading investment banks. See Steven's Full Profile.
Alpha R Cubed work with people and businesses in the financial markets to help them explore how they could help improve and develop behaviour to catalyse stronger and more effective performance. We run coaching and development programmes for individual and teams engaged in Financial Market activities. In addition we help Financial Market businesses develop 'Organisational Effectivessness. If you are curious about how we could help you or your business, please email us at info@alpharcubed.com. or call +44 (0)7753 446097.
Financial Markets are an uncertain place. - We often hear criticism of experts pundits, forecasters, analysts, and investment professionals, the critics assume that simply because someone is a market expert, they should automatically be right. - This point fails to grasp the fact that markets are complex environments, continually evolving, with countless variables, many of which are unknown, and even when they are known are not constant. In markets, one can only truly know the reason for a move with the benefit of hindsight, sometimes even hindsight doesn't shed a light on why a move occurred, in many cases it comes down to supposition. Compare this to say engineering, IT, law, accounting, finance, journalism, etc, where the problems, and challenges, though complicated, occur within relatively static environments. In these more static environments, analysis, testing, precedent, rules, laws, and science, can help provide answers and solutions. This is not how life is in financial markets.
I have been at a talk this afternoon in which the subject of ambituity and uncertainty was a major theme. Living with ambiguity and uncertainty, ia one of the biggest challenges for traders. Many people would rather actually book losses on potentally winning trades, than sit with the uncertainty of possibly winning, but also potentially losing. Call it 'Loss Aversion', 'Ambuiguity Aversion', or any number of biases, this is a human behaviour displayed by many people in the markets. - Paradoxically, I am not going to condemn that as wrong, some people can not help their behaviours. I know people who are highly risk, loss and ambiguity averse, who still make a fortune trading. They have learned to adapt their strategy and tactics to find work arounds for these issues. It is a little like someone who has a fear of flying, this does not mean they cannot travel, its just they find other ways of traveling.
I have attached 3 articles below which build upon this theme.
The third article, Don Miller on Trading and Improvisation is by top futures trader Don Miller, and focuses on an aspect of trading rarely talked about, Improvisation. Improvisation is absolutely vital for success when faced with the very extreme forms of uncertainty people face in trading. All great traders are great improvisors, and though the very best trading advice is about planning, in reality one can only make loose plans, the rest is improvisation.
Recent 'Behavioural Trading' Articles you may be interested in:
Click on the above advert to find out more about the exceptional Alpha R Cubed 'Behavioural Performance Coaching Programme'. This powerful programme is used by many leading Hedge Funds and Investment Banks to help develop and improve their peoples risk taking capabilities. Alternatively email info@alpharcubed.com.
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Steven Goldstein is a leading Performance and Executive Coach working with Traders, Banks, Energy Firms and Hedge funds: He is Managing Director of at Alpha R Cubed, which works with banks and investment firms to improve their human capital within financial risk businesses. To know more about Alpha R Cubed, visit their website www.alpharcubed.com or email Steven at steven.goldstein@alpharcubed.com.
I have been running this blog for some years now in various disguises. In the early days I shared my views on markets, whilst also adding occasional thoughts about Trading Psychology and Behaviour. I then started to focus more on my thoughts about trader performance and trader behaviour. I felt that there was more than enough talk and discussion about the market, about price action, about central banks; 'will they, won't they, should they, shouldn't they'. I admittedly also lapsed on my blogging, posting occasionally, about once every 2 to 4 months. I stayed active managing the Linked-in group 'Trader, Trading and Risk Psychology', which continues to grow and thrive, and at the same time, I have continued building up my business as a 'Performance Coach' working with traders. This continues to proceed, and I am delighted with the outcomes that my clients are now seeing from my work, I have shared a few examples on a recent post (Which I shamelessly plug here).
The post, which I shamelessly plugged, highlights just some of many examples where traders, who have passed through my coaching programmes, are now making significantly more money than they ever were, whilst at the same time being far happier and more content. I have now worked with many hundreds of traders over many years, first as a trader than a coach, I feel I have continued to grow and learn from them all. During this time, my views on trading psychology, trading performance and trading behaviour have transformed and taken on a very different shape. My earlier contentions about trader performance were largely shaped and coloured (or for you on the other side of the great pond 'colored') by my own experiences as a trader working inside investment banks. However my views have come along way since then, twisted and contorted by others sharing their experiences and travails with me, shaped by my own journey into Gestalt Psychology, which has opened up a whole new world, and continually polished by additional reading and learning. It is this journey which has led me to this place, and to the renaming of my blog, 'The Being of Trading'. For it is not enough to just do the right actions that lead to success in trading, rather it is to know and understand 'how you are', the 'being' of trading, both as a person and as a trader, which is where true success come from. I often use a quote made famous by Sir Edmund Hilary 'Its not the mountain we conquer, its ourselves'. That as true in his world, as it is in the world of trading, where the mountain is replaced by the 'market'.
That is what I aim to focus on with this blog from now: How one 'is' a trader, and how one applies their own personality, beliefs and attitudes to their trading. I will discuss and explore what I have learned and what I have discovered along my journey. About how engaging with risk and uncertainty requires special skills and capabilities, which everyone has within them, but which are so rarely understood and often so poorly practiced. I can not promise that I will be update this as regularly as I currently hope to, so please bear with me and be patient. - I do hope to bring some valuable insights over the months and even years ahead, which I believe will prove valuable to many people, themselves battling to succeed in the world of risk. In the meantime please feel free to follow me on Twitter @chrysalisperfco, where I will post and re-tweet interesting articles on related themes. i also hope to turn this blog into an email newsletter. If anyone woul like to subscribe to the email newsletter, then please email me your name and email address. My contact details are at the bottom of this post.
My first article , will ask 'Whether one can actually make money from trading on a consistent basis'. I ask this question, because this is a theme which has come up on more than one occasion with clients. Until then thank you and kind regards.
The Chimp Paradox, written by Steve Peters a leading UK sports
psychologist, is based on simple metaphor which describes the
interplay between the emotional and rational functions of our brains.
The ‘Chimp Paradox’ metaphor describes the brain as working in two modes, the chimp and the human mode. The chimp is the area of the brain driven by feeling, impressions, emotional thinking and gut instincts. The chimp makes snap judgments, thinks in black and white, and is capable of being paranoid, irrational and emotive. Its primary motivator is survival. On the other hand, the human part of the brain is rational, evidence-based, thinks in shades of grey, and operates on balanced judgement. It is driven by having a greater purpose in life rather than the pure survival instincts of the chimp. There is a third aspect to the metaphor, the computer within our brain. This computer, which had an empty hard drive at birth, is only as good as the information it contains and is limited by its operating system and hardware. The computer contains stored beliefs, some of which are positive, some negative, some deeply hard-wired and tough to change, and others easier to re-programme. Our personalities are formed by a combination of the chimp, the human and the computer: Together they dictate how we act and behave.
The assumption at first glance might be that we want to be in human mode at all times. However life is not that simple, we cannot simply ignore or turn off our 'inner chimp'. This inner chimp is part of our nature, and as in real life, the chimp is far stronger than the human and has far more stamina. A chimp has 5 times the strength of the average human, so don’t even think of challenging him to strength contest. Furthermore, the human requires a lot more energy to function than the chimp. Thus when tired, fatigued, and depleted, the human brain is more likely to turn off and we automatically switch to chimp mode. In reality we function by being in a constant interplay between the two, rather like a hybrid car switching between battery and oil/gasoline. However, as mentioned, there will be times when our inner chimp, far stronger than our inner human, will be in control. When this happens, the chimp can run riot, and the consequnces can be hugely destructive. I am sure everyone can think of times when they have functioned in this way, letting their inner chimp run wild. However understanding your inner chimp, and keeping him calm, can help bring the chimp, to a degree, under control. And in some cases you can make the chimp your ally. When you are under attack you want your chimp to be fighting your corner. And therein lies the paradox, there is a time and a place for everyone’s inner chimp to prove both useful and necessary.
It is on the back of this metaphor that one can draw upon the success of outstanding performers in many fields, including trading. Master performers learn to tame their inner chimp and work with it in practical ways to harness its enormous power’s of impulsivity and emotional strength. When combining the power of the chimp, and the logic and resourcefullness of the human, and using the computer as a more productive and reliable reference source, great things can be achieved.
How does this play out in the financial markets, where belief in the superiority of rationality and logic reign supreme?
We have been carrying out some fascinating research into the proclivities and behaviours of successful risk-takers. Our work is based around a number of banks and hedge funds where we coach traders and portfolio managers. The research is on-going and still its in early days, however we are seeing some clear trends emerging which may surprise some people’s expectations of traits and characteristics needed for success in financial markets. (We recently presented our initial work on trader personality as part of a webinar which can be seen here).
One of the aspects of our personality research we are seeing is a close correlation between success in volatile markets, and a tendency to favour emotional cues over rationality and logic, particularly when one is trading shorter-term time-frames. Perhaps this is not overly surprising when one links this to the ‘Chimp Paradox’. In fast volatile markets, the ability to make money relies as much on an on ability to react fast to new news and seemingly irrational price action, as it does on an ability to read markets and having a strategy for trading the markets. Allying the human rational perspectives; a definitive trading plan with strict money management, with the chimps extraordinary sensing and intuitives abilities, enables individuals with these skills to thrive in short-term fast markets. However, allow that chimp to run wild, and all the good work will be undone. Our recent interview with Brady Dahl, author of Momo Traders, revealed how these masters of fast markets are able to survive and thrive. The traders featured in Momo Traders mastered the art of allying their inner chimp with their inner human.
There will however be days where where extreme volatility reigns and fear stalks the markets. On these days the markets are full of agitated chimps, each reacting to threats, and making seemingly irrational decisions. January 2016 saw virtually a whole month of these days. So well done to all those who came through January on top.
To know more about the chimp paradox, Steve Peters provides an excellent Ted talk on his 'Chimp Paradox' which can be seen below.
The 'Behavioural Trading' blog is presented and managed by leading Trading Performance and Behavioural Trading Coach Steven Goldstein. Steven is Managing
Director at Alpha R Cubed, which works with banks, hedge funds and investment firms
to help them improve their people's capabilities within their frontline financial risk businesses. To know
more about Alpha R Cubed, visit their website www.alpharcubed.com or email Steven at steven.goldstein@alpharcubed.com.
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