The New Trader Psychology: Part 1

10/13/2017 2:27 pm EST

Focus: STRATEGIES

Jake Bernstein

Publisher, The Jake Bernstein Online Weekly Capital Markets Report and Analysis

In this three-part series I will attempt to give you an overview of how important behavioral economics is and how increasingly important it will become to all of us who trade and or invest, writes veteran trader Jake Bernstein.


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This week the Nobel Prize committee announced the winner of the prize in economics. Much to the likely dismay of many traditional economists the award was given to Richard Thaler of the University of Chicago.

What surprised many academics was the fact that Thaler specializes in a relatively new field of economics called “behavioral economics.” To fully understand what led to his receiving the prize I suggest you read the following link:

Essentially, Thaler’s thesis of behavioral economics is that the behavior of individuals and crowds influences economies and that people are predictably unpredictable. I realize that sounds like doubletalk but there is much more here than meets the eye.


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In this three-part series I will attempt to give you an overview of how important behavioral economics is and how increasingly important it will become to all of us who trade and or invest. Let’s begin with the known knowns.

I have written several books and many articles on the subject of trader psychology (The Investor’s Quotient -Wiley, etc.). These books were written relatively early in my trading career and although they still make a great read and contain considerable trading wisdom we have advanced well beyond the principles and explanations contained therein. And that’s how things should be in a world that continues to grow intellectually.

While these books detail my core theories about trader psychology, they are only a starting point.

Is there an ending point? I say no. Why? because as traders we must continue to grow and improve our relationship and understanding of our behavior relative to the markets and vice-versa. In other words: how do the markets impact our emotions and how do our emotions impact the markets?

This of course begs the question: “why not turn all trading over to emotionless, logical and purely rule based machines”?  Or, in the words of Morpheus in the movie The Matrix: “never send a human to do a machine’s job.”  Let’s explore some of the topics that are relevant to what I call the new trader psychology.

Among these topics are the following:

  • Is trader psychology only about self understanding?
  • What is the actual role of trader behavior in the formula for success?
  • What is trading discipline?
  • What is the relationship between discipline and confidence?
  • What is the optimum balance between computer and human?
  • How can we use behavioral economics to our trading advantage?
  • What are some recent examples of behavioral economics?

If I’ve piqued your curiosity, come back in a few days for the next installment.

Trade well and prosper

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