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The Mental Edge in Trading explains the critical link between successful trading and personality traits--and it gives you the tools to use ...
The Mental Edge in Trading explains the critical link between successful trading and personality traits--and it gives you the tools to use this information to make smarter trades.
A highly trained psychiatrist, Dr. Jason Williams, son of legendary trader Larry Williams, explains how to assess and measure your innate personality traits and align them with your trading style for more profitable trading on a more consistent basis.
Dr. Williams tested proven winning traders who were managing billions of dollars to see what the great winning traders had in common, what personality traits made them so successful. The results are in this groundbreaking book that will help you become like these winning traders.
His conclusions are based on hard science, the latest brain research, and the careful study of successful traders, not on psychobabble meanderings. Dr. Williams provides:
With The Mental Edge in Trading, you have everything you need to apply your cluster of personality traits to become a better, wiser, and more consistently successful market trader.
Solid trading strategies and accurate market indicators are crucial. But when push comes to shove, the glue that binds them is your emotional state at any given time. When things go south, the best trading system will collapse like a house of cards--if you allow it to.
The Mental Edge in Trading provides the tools you need to ensure this never happens to you by helping you understand and use your emotions when it counts most. It's the key to long-term trading success.
Until now, no other book has provided a practical, detailed method for achieving the mental edge in trading. What you'll find inside is based on intensive research into the minds of today’s most profitable traders.
The Mental Edge in Trading explains the immutable relationship of human thought, emotion, and behavior and reveals how to:
This complete trading-improvement tool gives you the information you need to determine and improve your personality traits, discover your dominant emotions, and use this information to adapt your behavior for more successful trading.
The Human Mind: A Primer
Your entire mental life (the biosystem known as the human mind) is defined by and can be broken down into a combination of three basic elements:
These three components are not discrete. That is, they do not have clear boundaries and, in fact, are inextricably related to one another. For example, your thoughts clearly affect the way you feel, and your feelings (urges) often drive your behaviors. Nevertheless, these three realms are sufficiently different to provide a commonsense distinction and framework for what constitutes human mental life. And we all know what they mean: we all talk in terms of thinking, feeling, and doing.
It is also important to observe how each of these three elements can (either for good or bad) drive or feed into one another in any direction, as depicted in Figure 1.1
As a very simple example, a negative thought ("How could I have made such a stupid mistake?") will tend to cause one to feel worse (low self-esteem, incompetence, worthlessness, demoralization, sadness, and so on), and such feelings can evolve into negative actions ("drinking my blues away"). But again, notice that the arrows point in both directions. By drinking your blues away, you may feel guilty, and so on.
One final point on the core constituents of the human mind: The term "subconscious" ("or subconscious mind") is often used in many different contexts, and it has no single or precise definition. Also, there is no reliable way to tap into the subconscious mind to find out what it is thinking or feeling. Anyone can claim to understand and interpret the subconscious, but there is no way to scientifically study or prove such claims at this time. All of this greatly limits the significance of the subconscious mind as a definition-bearing concept. As a consequence the term tends to be avoided in academic and scientific settings.
We should not go so far as to say that the subconscious has no meaning at all or that it doesn't exist. But for all intents and purposes, it does not come into play when trying to understand how the human mind interacts with market trading. So we will leave this concept alone for the rest of this book and instead focus on feelings, thoughts, and actions.
Mental Edge Tips
Always strive to be aware of and in tune with your thoughts, emotions, and actions and how they are interrelating and driving one another at any given moment in time.
Trying to understand your subconscious mind is like trying to chase the wind. Merely trying to master your conscious mind (thoughts, emotions, and behaviors) is a plenty difficult task in itself, and I suggest you start there!CHAPTER 2
How Does the Brain Generate the Mind?
How does the brain generate the mind? The answer is very simple: we do not know. Since the time of Plato, philosophers and anatomists alike have debated and struggled to figure out how the human brain produces the mind (thoughts, feelings, and behaviors). Over the centuries, inquisitive and intrepid scientists pretty well figured out how all the other organs in the human body fit together and perform their respective jobs. For example, we know quite well the various components and mechanics that are at work inside a cardiac cell, and we have clear explanations as to how living heart tissue functions as a nice pump to move blood around the rest of the circulatory system. We also have a good grasp on the kidneys, bones, the pancreas, and so on. But the brain ... ah, the brain is truly in a league all its own.
Today, despite multiple advances in the neurosciences (such as PET scans and other high-tech brain imaging modalities, an increasingly better understanding of neurons and neurotransmitters, and so on), the world's very best scientists still are quite puzzled by, and even largely clueless about, how the three-pound lump of tissue know as the brain generates thoughts, feelings, and actions. Sure, we know that the brain consists of neurons, and that these neurons are endowed with certain electrochemical properties. We know there are certain tracts and regions of the brain that are involved with different functions. But how human consciousness springs forth is truly one of the great mysteries of the universe. Perhaps on this plane we will never be able to figure out the connections between brain tissue and mental life, or perhaps one day we will. But for now, the answers to this "mind-brain problem" remain very much hidden from our own ability to understand them.
If people tell you otherwise, they clearly do not know what they are talking about.
Mental Edge Tips
The mainframe computer warehoused inside your skull is the most powerful and fastest computer known to mankind and is the most intricate "thing" in the known universe. Think of it: All of the world's supercomputers were themselves designed and programmed by human minds. Marvel at the beauty and elegance of the human mind.
Don't get bogged down in the philosophy of the brain and mind. Focus on the here and now!CHAPTER 3
Anatomy of the Brain 101
Although we don't really know how the brain generates the mind, we do have a pretty good understanding of what different regions of the brain do and how they are connected to one another by various pathways.
Popular science will tell you that the major distinction inside your head is "right brain" versus "left brain." Please delete that thought from your memory banks. You will hear people say, "I am a right-brained person." Rubbish. Although the right and left sides of the brain have some differences, they actually have far more things in common. More important, the two sides of the brain are always working together. It's not like the right brain and left brain work independently. You only have one brain at work.
The way you really need to think about the brain's anatomy is in a hierarchical way: superficial brain (cortex) versus deep brain (subcortex). You are about to read a very gross oversimplification of the brain's architecture, but for your purposes (as a trader or investor), it's all you really need to know.
Some people like to think that trading is all about logic: analyzing all available data, considering the various pros and cons of different courses of action, and then coming to a logically sound conclusion. If only it were that simple!!
Sure, intellectually smarter people do, by and large, make for better traders. Sound logical reasoning is a valued asset for any trader. And the more practical wisdom you have gathered from real-world experiences over the years also helps. But clearly intelligence is not the whole picture.
In fact, there are plenty of very successful traders who sport very normal intelligence quotients (IQs). There have also been bloody geniuses who failed miserably trying to trade the markets. Take, for example, Sir Isaac Newton, the man who single-handedly solved the riddle of gravity and then went on to figure out the laws of motion for the entire universe. Were you aware that Newton (despite knowing so much about gravity, falls, and crashes) was wiped out by the 1720 stock market crash because his emotions got the best of him in a bubble market? Emotionally charged with excitement by a peaking market, Newton purchased stocks at precisely the wrong time.
Poor Newton. He fell for the same old temptation that to this day still propels many bright, but novice, investors and traders into ruin: enthusiastically buying at market peaks and selling in a panic, when it is too late and th
Excerpted from THE MENTAL EDGE IN TRADING by JASON WILLIAMS. Copyright © 2013 by Jason Williams. Excerpted by permission of The McGraw-Hill Companies, Inc..
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Foreword by Larry Williams
Chapter 1 The Human Mind: A Primer
Chapter 2 How Does the Brain Generate the Mind?
Chapter 3 Anatomy of the Brain 101
Chapter 4 The Four Perspectives of Mental Life
Chapter 5 Introduction to Personality Traits
Chapter 6 Where Does Personality Come From?
Chapter 7 Personality Inventories
Chapter 8 Introduction to the NEO PI-R
Chapter 9 The Five-Factor Model in Detail
Chapter 10 The 30 Personality Facets
Chapter 11 General Interpretation of NEO-AC Scores
Chapter 12 Personality Styles
Chapter 13 Personality Disorders
Chapter 14 Neuroticism and Trading
Chapter 15 CBT for Traders
Chapter 16 Risk Aversion and Trading
Chapter 17 Conscientiousness and Trading
Chapter 18 Optimism and Trading
Chapter 19 Excitement-Seeking and Trading
Chapter 20 The Secret to Happiness
Chapter 21 The Overly Dependent Trader
Chapter 22 A Case Study: Larry Williams
Chapter 23 Personality Case Study: Dan Zanger
Chapter 24 Personality Case Study: KD Angle
Chapter 25 Personality Case Study: Linda Raschke
Chapter 26 Personality Case Study: Andrea Unger
Chapter 27 Personality Case Study: Ralph Vince
Chapter 28 Personality Case Study: Scott Ramsey
Chapter 29 Case Study: "The Perfect Trader"
Chapter 30 The Addictive Personality
Chapter 31 Conclusions
Appendix A: The Personality Facets in Detail
Appendix B: The Styles of Personality
About the Authors