Monday, October 15, 2007

Regret Trading and Other Ideas to Start the Week

* Trading by Regret - We often think of trading in terms of risk aversion and risk seeking, but there is good reason to believe that many trading decisions are made to minimize regret. Moreover, regret following trading decisions is an important psychological factor in shaping the next trading decisions, sometimes leading to risky decisions to undo regret. Moreover, I know many traders who sit on the sidelines during a good market move, simply because they regret not having caught the market top or bottom. I'll be pursuing this topic shortly; it gets too little attention.

* Perceptual Distortions - What you see in trading is not always what you get.

* The Week Ahead - Barry Ritholtz scouts out the coming week, including an interesting perspective on a stock price explosion. The movement of money by sovereign funds into equities makes this not such a far fetched possibility, IMO. See also this post on the amazing surge in money supply in the U.S.

* Riding Out Emotions - Thanks to Corey for the generous link to my trading principles post. Check out his interesting views on riding out emotions by timing them.

* The Next Market Crash - Trader Mike's updates include a view on systemic failures in markets and what they could mean for traders and investors.

* Reviewing Your Trading - This post from Globetrader is a great example of the kind of analysis that can improve trading performance. See also his reviews of his trades. Excellent model.

* Trading by Trend - The Trade by Trend blog publishes the results of its trading model and also offers the system's current positions.

* Walking the Line - BZB Trader notes the Q's following a neat regression line.

* Market Update - The Trading Psychology Weblog summarizes major indicators and offers a view on the current U.S. equity market.


bzbtrader said...

I think another concept to consider might be "trader remorse". Webster's defines remorse as "a gnawing distress" and regret as "sorrow aroused by circumstances beyond one's control". Not to argue semantics, but "regret" seems like the product of a poorly conceived trading plan. . .the stock you bet the farm on just announced horrible earnings, fell 25% and you didn't have any hedge in place. This versus remorse, where you wish you had purchased more of that stock naked that just rose 25% on good earnings, but you were hedged at a 10% cap and left 15% on the table. In the later case, the trade worked out according to your trading plan, it's just that your risk management comfort level cost you a 15% opportunity.

Investment Guru said...

Dr. Brett,

My $0.02:

I think while talking of the money supply, people are forgetting about the velocity of the supply. If the velocity reduces, an increase in money by the fed might not be enough and the total money in the system could go down. This article discusses this further:

Investment Guru

Brett Steenbarger, Ph.D. said...

Hi Investment Guru,

Thanks for the link; great point about velocity. Supply matters less if it's going nowhere!