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Sun, 31st July 2016

Anirudh Sethi Report

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Archives of “confidence” Tag

3 Important contributors to lack of trading confidence

1)  Not putting in the work – When we try to borrow ideas from others, we never really deeply understand those ideas.  The process of independently generating an idea ensures that the idea makes sense to us.  That gives us staying power during temporary periods of adverse price action;

2)  Negative self-talk – When we focus on everything we could have done better and everything we did wrong, we create mini failure experiences for ourselves over time.  Our self-talk reflects our relationship with ourselves.  How can we feel confident in who we are and in what we do if we’re constantly tearing ourselves down?

3)  Not playing to our strengths –  Many traders attempt trading styles that don’t match their personality and cognitive strengths.  Over time that generates frustration and erodes confidence.  Trading frequently when we function best as big picture idea generators inevitably exposes us to noise and randomness.

Understanding the perils of overconfidence (Links )

A thorough explanation of the overconfidence effect. (Wikipedia)

The Art of Thinking Clearly. (Psychology Today)

Examples of overconfidence outside the charts.  (Your Dictionary)

Key concepts of overconfidence. (Albert Phung via Investopedia)

There are three ways overconfidence can make a fool of you. (Christine Riordan via Forbes)

Managing Overconfidence. (Russo and Schoemaker via Sloan Management Review)

Two types of overconfidence. (Synapse Trading)

The dynamics of overconfident stock market forecasters. (Deaves, Luders, and Schroder via ZEW)

Can we use the overconfidence bias to game the system?  (Scott, Stumpp, and Xu via The Journal of Portfolio Management)

Overtrading is a by product of overconfidence. (Irwan Trinugroho via IJBM) and (Barber and Odean via Berkeley)

Do not be overconfident when investing. (Larry Swedroe via CBS Money Watch)

Overconfidence is more prevalent in… men? (Jeff Sommer via NYT)

Some examples of Overconfidence

  • OverConfidenceA person who thinks his sense of direction is much better than it actually is. The person could show his overconfidence by going on a long trip without a map and refusing to ask for directions if he gets lost along the way. 
  • A person who thinks he is much smarter than he actually is. The person could show his overconfidence by not studying for his SATs, ending up with a lower score than he could otherwise have received. 
  • A person who thinks he has a photographic memory and a detailed understanding of a subject. The person could show his overconfidence by deciding not to study for a test that he has to take on the subject, thus doing poorly on the test due to lack of preparation. 
  • A person who thinks he is invaluable to his employer when almost anyone could actually do his job. The person might show his overconfidence by coming in late to work because he thinks he is never going to get fired, or by being overly demanding about getting a raise and threatening to quit if he doesn’t get his way. 
  • A person who thinks his spouse or partner will never ever leave because he or she loves him too much. The person might try to take advantage of the spouse or partner due to the overconfidence, thus driving the spouse away.  Read More 

European confidence dented in April + 102 vs +103 exp

Europe’s economic confidence gauge unexpectedly dipped this month from the three-year high touched in March.

The European Commission’s economic confidence index fell to 102 points in April, down from a revised 102.5 in March and below the 102.9 reading indicated by economists polled by Bloomberg.

The gauge is calculated from sub-indices that measure industrial, service, consumer, construction and retail trade confidence surveys. All the smaller gauges underperformed expectations except consumer confidence.

Earlier today the French consumer confidence index unexpectedly fell to 85 points in April, denying new premier Manuel Valls the boost usually offered to a new face in the Champs Elysees.

Reuters Tankan report: Japan manufacturers index +18 in March (unchanged from February)

Reuters Tankan report:

  • Japan manufacturers index +18 in March (unchanged from February, up 1 point from 3 months ago)
  • Japan non-manufacturers index at +31 in March, up 1 point from February, up 6 points from December
  • Japan manufacturers June index seen at +12, non-manufacturers seen at +14
  • There is a Bank of Japan Tankan Survey, and a Reuters Tankan Survey.
  • Both are surveys of manufacturing and service companies designed to assess business conditions in Japan.
  • The BOJ Tankan is conducted quarterly, the Reuters Tankan is monthly.
  • Confidence at Japanese manufacturers held steady in March but is seen weakening over the next three months Read More 

A triple blow to US consumer confidence in October

It’s something of a triple whammy.

The final reading of US consumer confidence for October from the University of Michigan shows a drop in the overall index to 73.2 from an initial reading of 75.2.

But it’s not the only number that dropped:

  • An index of how consumers’ assess their current position fell to 89.9 from a first reading of 92.8.
  • An index of future expectations was also down, falling to 62.5 from an initial reading of 63.9.

October was scarred by a political fight in Washington over the debt ceiling and the partial shutdown of the US government.

Great -Mark Douglas Trading Quotes

In trading your mind may be the ultimate technical indicator that determines whether you persevere and win in the markets or get broken in half by fear, greed, ego, stress, and uncertainty. No matter whether you are a an investor, retail trader, prop trader, or professional money manger your success will still be determined on the management of your mind. Never underestimate the importance of keeping a cool head in rough times.

Here are ten of the best quotes from Mark Douglas, an author who verbalizes the real nature of trading as well as I have ever seen it captured. If you can absorb these teachings it will help you get through that rough period when you have 10 losing trades in a row or experience a 10% draw down in your trading capital. If you are not matching risk correctly you may have to come back from a complete wipe out of your account like many other have had to do. But do not give up, you can do this if you really want to.

“I know it may sound strange to many readers, but there is an inverse relationship between analysis and trading results. More analysis or being able to make distinctions in the market’s behavior will not produce better trading results. There are many traders who find themselves caught in this exasperating loop, thinking that more or better analysis is going to give them the confidence they need to do what needs to be done to achieve success. It’s what I call a trading paradox that most traders find difficult, if not impossible to reconcile, until they realize you can’t use analysis to overcome fear of being wrong or losing money. It just doesn’t work!”
-Mark Douglas

“There is a random distribution between wins and losses for any given set of variables that defines an edge. In other words, based on the past performance of your edge, you may know that out of the next 20 trades, 12 will be winners and 8 will be losers. What you don’t know is the sequence of wins and losses or how much money the market is going to make available on the winning trades. This truth makes trading a probability or numbers game. When you really believe that trading is simply a probability game, concepts like “right” and “wrong” or “win” and “lose” no longer have the same significance. As a result, your expectations will be in harmony with the possibilities.”
-Mark Douglas Read More 

China July FDI up nearly 25 per cent from last year

Non-financial foreign direct investment into China rose in July 24.1 per cent year on year, slightly faster than the 20 per cent growth in China’s outbound direct investment, according to the country’s Ministry of Commerce.

FDI into China in July rose to $9.41bn, with outbound investment hitting $50.6bn.

That growth of inbound investment in July is a far faster clip than the nation has seen year to date—between January and July, FDI has risen 7.1 per cent. The strong figure indicates continued confidence in the world’s second-largest economy even amidst worries that wages will rise and its overall growth will slow.

According to the ministry, foreign investment from Germany grew the most, with a rise of 58 per cent to $1.5bn. Overall EU investment into China rose 16.7 per cent to $4.6bn, while investment from the US grew 11.4 per cent to $2.2bn.

Key quotes from the RBA minutes

The Australian currency has hardly budged today after minutes from the Reserve Bank of Australia last meeting failed to excite.

The RBA cut its benchmark lending rate by 25 basis points on August 6. Here are key comments from the just-released minutes of that meeting:

On benign inflation:

Inflation remained low and, allowing for the effects of the introduction of the carbon price, was around the bottom of the target range. Wages growth was slowing. … inflation would be pushed up for a period by the lower exchange rate, but even so was forecast to be around the middle of the target range.

On slowing growth:

Near-term prospects for business investment outside the resources sector remained subdued, with quite weak levels of confidence across many segments of business. Read More