Alpha Trader: The Mindset, Methodology and Mathematics of Professional Trading

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At a bank you also get some structured on the job training from people who have been doing this professionally and that is clearly an advantage. For the best ever and super simple explanation of how p-hacking, snooping and data-mining work, Google “xkcd green jelly beans”.

Spend as little time as possible thinking about trades that happened earlier today or yesterday or six weeks ago. Until you see yourself doing it, you have not really recognized how confirmation bias negatively impacts your decision making.Make sure you allocate enough time to strategy (coming up with trade ideas) and tactics (entry point, stop loss, etc. By completing your purchase, you agree to Audible's Conditions of Use and authorise Audible to charge your designated card or any other card on file. Be aware when you receive information from people like this; they will never change their view and as such their view is probably not worth much.

The time to look back is when you are consciously in process-analysis mode, looking thoughtfully back on your trades and trading patterns in recent weeks or months. We observe that subjects who rely on the randomized experts pick those who were successful in the past, showing behavior consistent with the hot hand belief. On a scale of 1-10, where traders self-evaluate their risk seeking nature, I've found that that the best traders often score themselves 7. In Chapter 3 you learned that superior performance on the Cognitive Reflection Test (CRT) predicts trading success.At some point, make sure you read Thinking, Fast and Slow (Kahneman), Fooled by Randomness (Taleb), and Irrational Exuberance (Shiller). The main driver of the underperformance from trading too much is transaction costs, but even in experiments where there are no transaction costs, the subjects that trade most perform worst. People who are rational and do not jump to quick conclusions using mental shortcuts (heuristics) are more successful in trading.

Sticking with the topic of events, there is a subtler way that upcoming events can influence markets. While it’s great to listen to the market noise and try to come up with your own view on sentiment, data usually beats anecdote. In markets, where incomplete information and group behavior are an intrinsic part of the game, you need to make sure you are always thinking for yourself. What we perceive as luck is often just a combination of good observation skills and the ability to seize unexpected opportunities. So first we will examine the different types of trader bias, then discuss techniques to deal with each.You need to have your own views and thoughts but Alpha traders are also inside the mind of the market and know what matters most to the market as a whole. If your goal is to make money trading, you should be comfortable shifting between long or short risky assets depending on market conditions. The easiest way to volatility-adjust (or vol-adjust, as most professionals say) is to use a spreadsheet that determines position size and stop loss parameters based on a volatility input. Maybe you notice you never make money in USDJPY but then the reason is simply that it hasn’t moved in ages. Preparing the trading desk, trading systems and reporting to satisfy the demands of European and global regulations.

Many traders are not very good at adjusting their position size and risk management strategies in response to volatility. This book is truly fantastic and would be great for anyone to read, whether they’re an independent trader, a bank trader, or a hedge fund trader.While traders are no different in their use of ‘intuition’ or ‘gut feeling’ to other people, the majority of them are markedly improved in their propensity to engage in reflective thinking and are less susceptible to ‘cognitive impulsivity’. IQ is a controversial topic in the world of psychology, and there is heated debate over what exactly it measures. To succeed in trading, you must learn to accept and deal with the fact that it is a competitive field with few barriers to entry and no specific credentials are required.