Video 2 Link

 BarroMetrics Views: Video 2 Link

Here is link to second video:

BTW I am not sure what I do that encourages emails rather than comments. Please do post your comments to the video site or this blog rather than send emails. Thank you.

In yesterday’s video, I made a comment that  emotions are a necessary part of the decision-making process. We had a few emails about this – essentially asking for research. 

If you Google “emotions necessary for decision-making process”, you find the research by Damasio, Bechara and others.

Also…..below is a comment by Denise Shull (therethinkgroup). She not only supports the idea we need our emotions to make decisions; she also suggests a device to bring our intuition into play: we imagine how the counter-part to our trade would react.

Unfortunately, that does not work for me – the device seems to cloud my intuition. But that’s me; I pass it on in case it may work for you.

“A variety of research studies conducted in the past decade reveal that great trading stems from qualitative, not quantitative, thinking. Whether watching the brain of someone who is correctly reading price or talking to someone who successfully manages billions of dollars, the researchers find the same things. Market Intuition – a form of people prediction and Risk Differentiation – a form of self-knowledge, distinguish the great traders. 

It’s not that quantitative data is irrelevant. It just doesn’t hold the whole answer. Probabilities are one clue and in fact, even looking at a distribution of possible outcomes produces a qualitative response in the human brain. A normal bell-curve induces a feeling of confidence whereas a skewed curve produces greater anxiety. It’s called anticipated affect and if you think about it, it makes perfect sense.

According to the latest neuroscience, emotion is not only NOT to be avoided, it “organizes our memory and determines our perception” (Brosch, 2012). This means it is a data point worth investigating.

So — how do you develop these qualitative thinking styles to superimpose on your objective, quantitative inputs?

You first accept the idea that you need to. Once you embrace these realities of risk decision making, you work on imaging who exactly is on the other side of your trade or will be on the other side of your future exit? Ask yourself if everyone is seeing what you are seeing, will they see it later or will they not see it at all?

In Risk Differentiation or self-knowledge, get to know your emotional cycles as well as you know your market cycles. This way you can separate your impulsive feelings from your intuitive pattern recognition – and have more of the first thinking style, Market Intuition”.