My guest today is Gary Dayton. Dayton stands apart as a trading psychologist in his use of the Mindfulness-Acceptance-Commitment (MAC) approach to peak performance, a model of human behavior based on mindfulness. Dayton is a psychologist and holds a doctorate in clinical psychology and a certificate in human performance/sport psychology from Rutgers University. He is President of Peak Psychology, Inc., a consulting firm that specializes in developing “peak” performance in traders.
The topic is his book Trade Mindfully: Achieve Your Optimum Trading Performance with Mindfulness and Cutting-Edge Psychology.
In this episode of Trend Following Radio we discuss:
Mindfulness, yoga, and a turnaround in a particularly depressed patient
Defining mindfulness
How Dayton went from a clinical psychologist to integrating money, markets, trading, and investing into his work
The importance of a trading process
Looking at the lessons and research of Daniel Kahneman
The endowment effect
Price action as a heuristic
The importance of an exit strategy
Why mindfulness is the most important skill a trader can develop
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Preparing for a podcast interview with Victor Ricciardi.
Some excerpts from his book regarding trader “W” and trader “Q” that caught my eye:
Trader W manages a small hedge fund involving more than $ 10 million of assets under management. Several years ago he received the industry accolade of fund manager of the year. He subsequently closed that event-driven fund and opened a new fund using a “global macro” strategy. W is highly intelligent and analytical: “I was in the 99.9th percentile of SAT scores.” He comes from a family of high achievers and his wife has a doctorate from an Ivy League university. Struggling with performance in his new fund, W sought help. “My analysis is spot on, but I need help following through and executing trades based on it. Even if it’s a high conviction idea and I am confident in it, I end up doing trades that are impulsive.” “How can I control myself?” he asked. W explained the success of his previous fund as follows: “My analysis led me to the right market position. I was a hero to my investors and I need to be a hero again. I want to bask in the glory again.” W’s new fund uses a discretionary approach requiring many more decisions about market entries and exits , whereas his previous event-driven fund required fewer decisions. W routinely held losers well beyond his predetermined stop-loss and averaged down on losing positions. Taking a loss frequently resulted in a sequence of impulsive trades. W stated, “I have a strong need to be right, being wrong is difficult to tolerate.” When asked to explain his need to be right, he replied, “It’s as if loss is unacceptable to me; it’s an existential threat; I’ll do anything to avoid this existential threat.” When asked to describe what the existential threat feels like, he was at a loss for words, saying only, “It’s extreme.” Source: Baker, H. Kent; Ricciardi, Victor (2014-02-06). Investor Behavior: The Psychology of Financial Planning and Investing (Wiley Finance).
And:
“I need the market to talk to me […]. I need to know it, I need to just look at it and know which way it’s going to move, the eyes, the legs, you know, I want to move the way the market goes; I’m trying to get that extrasensory perception.” So began a three-year coaching relationship with Trader Q, who traded at a proprietary trading firm. He sought help for both his quantitative and discretionary trading. Q was a PhD physicist with multiple additional academic credentials including a master’s degree in financial engineering. Q wanted to increase his ability to access his intuition to improve his trading performance. This case highlights using interventions for increased psychophysical awareness designed to help Q to better execute his decisions confidently in the midst of financial market uncertainty. Q was implicitly displaying the realization that the ability to envision the thoughts and feelings of others–a construct called Theory of Mind—could improve his performance. According to Q, the market is “an object with tons of people implementing something in that software; they are debating within themselves; probably their emotions are incorporated in that chart.” Source: Baker, H. Kent; Ricciardi, Victor (2014-02-06). Investor Behavior: The Psychology of Financial Planning and Investing (Wiley Finance).
And:
Q’s personality tended toward anxiety, obsessive thinking, interpersonal insecurity, and a compulsive drive for control. He managed his anxiety through elaborate analysis that ironically tended to obscure the phenomena he was trying to understand. Spontaneity was lacking as deliberate routines were his strong, even debilitating, preference. When gripped with self-doubt, as was frequently his situation, he resorted to acquiring more intellectual knowledge, believing it would settle emotional turmoil. Nevertheless, no matter how many mathematical models he used to make sense of his world, they always seemed to produce a repetitious conclusion and feeling state: I’m not safe.Source: Baker, H. Kent; Ricciardi, Victor (2014-02-06). Investor Behavior: The Psychology of Financial Planning and Investing (Wiley Finance).
Interesting. You can see Trader W and Trader Q get some of it, but are clearly lost on other parts of it.
Surfing, the conceptual kind, is more essential than ever, it’s not optional. And the hardest part of surfing, by far, is paddling out, not surfing in. Carrying the board, getting back into the water, paddling through the waves, waiting for the next set…it’s exhausting, and surfers spend far more time doing this than they do on the other part. Having the guts to surf is what change demands. And finding the stamina to paddle back out is a key part of surfing.
Psychologists and neuroscientists have an unlikely ally in their quest to understand human nature: professional magicians:
“We want to explain at a fundamental level why you are so thoroughly vulnerable to sleights of mind,” Martinez-Conde and Macknik wrote in their book Sleights of Mind. “We want you to see how deception is part and parcel of being human. That we deceive each other all the time.”
My guest today is Robert Seawright, the Chief Investment & Information Officer for Madison Avenue Securities, a boutique broker-dealer and investment advisory firm headquartered in San Diego, California. Seawright is also a columnist for Research magazine, a Contributing Editor at Portfolioist as well as a contributor to the Financial Times, The Big Picture, The Wall Street Journal’s MarketWatch, Pragmatic Capitalism, and ThinkAdvisor.
The topic is his blog A New Kind Of Investment Outlook.
In this episode of Trend Following Radio we discuss:
How Seawright was able to put together this blog piece
Perfection and prediction
Bias blindness
Volatility vs. risk
Separating your politics from your investing
Financial media as entertainment
Whether Seawright encountered any pushback after putting out his article
Letting go of the high leverage idea
Why the more we trade
The worse we do
Nobel laureate David Baltimore
Adversarial collaboration
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My guests today are Susan Polgar and Douglas Goldstein.
Susan Polgar, American chess grandmaster, and Douglas Goldstein, Certified Financial Planner, had the unique idea of looking at chess and applying the wisdom to investing.
The topic is their book Rich As A King: How the Wisdom of Chess Can Make You a Grandmaster of Investing.
In this episode of Trend Following Radio we discuss:
Polgar’s early history as a four-year-old chess playing prodigy, and the trouble some older males had in accepting her; nurture vs. nature; the connection between the Turtle story and chess; the skills that chess provides outside of just playing the game; the importance of keeping your emotions in check; process vs. outcome; and thinking through the possibilities from a chess perspective.
Douglas Goldstein, Covel discusses how the idea came about to combine finance with chess in a book; tactics vs. strategy; and pattern recognition
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