Scribd
Upload
55 views

How Experts Make Decisions Under Uncertainty2

BOOKS STOCK-MARKET-BOOK-COLLECTION STOCK MARKET PSYCHOLOGY OF TRADING

Uploaded by

LUCKY
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
55 views

How Experts Make Decisions Under Uncertainty2

BOOKS STOCK-MARKET-BOOK-COLLECTION STOCK MARKET PSYCHOLOGY OF TRADING

Uploaded by

LUCKY
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
You are on page 1/ 4

How Experts Make Decisions Under Uncertainty Part II

Brett N. Steenbarger, Ph.D.


www.brettsteenbarger.com

In Part One of this two part series, I pointed out research that suggests
that the subconscious processing of athletic performers displays a Bayesian
quality, weighting recent events against past ones to respond to shifting patterns
of circumstances. When a market shifts volatility, for example, the expert trader
must integrate the new data with his or her large database of experience to
anticipate the next tick or the next directional move. How much weight to give
the new experience, and how much to alter that weighting with each fresh
experience, is the task of the Bayesian. It appears that the subconscious mind is
capable of performing sophisticated integrations of new and old data to anticipate
future events. This allows for peak performance under fast, stressful conditions
that do not permit conscious, explicit processing, such as those faced by fighter
pilots, professional boxers, and scalpers.
Can this subconscious basis for expertise be cultivated? In an earlier
article drawn from the training of elite Army Rangers, I looked at one possible
model for facilitating superior performance. Perhaps we can also learn from the
training of elite athletes and develop models for improving the performance of
traders.
Research in Sports Psychology
What do we know about the psychological factors that contribute to
success among athletes? A comprehensive research review reveals several
important ingredients of superior performance:

Goal-Setting Over 500 studies find that setting goals facilitates


performance across a variety of short-term tasks and long-term objectives.
Goals that are highly specific, achievable but challenging, and
performance rather than outcome-focused tend to be most effective.
There is also evidence that blending short- and long-term goals, as well as
group and individual goals, can enhance effectiveness in achievementoriented settings.

Practice A wide range of studies of athletes, as well as experts in other


fields, finds that cumulative practice is closely related to the development
of expertise. This is especially the case where there is implicit learning
situations requiring the acquisition of performance skills that cannot be
verbalized (such as learning to hit a tennis ball). Large numbers of
practice trials with immediate feedback are particularly helpful to skill
development.

Arousal Research suggests that moderate degrees of stress aid


performance, while high distress can produce catastrophic declines in
performance. Recent findings indicate that it is how anxiety is processed
how each person views their own stressthat is more important to
performance than the absolute degree of physiological arousal.

Self-Efficacy The athletes beliefs about his or her own capacity to


perform is significantly related to actual performance. The belief in ones
own capacity to succeed is the single most important personality factor
associated with athletic success. Studies find that interventions that
improve self-efficacy tend to improve athletic performance, even when
they involve mental practice (imagery) rather than actual athletic
performance.

Coaching Recent research finds that the self-efficacy beliefs of coaches


are significantly and positively correlated with improvements in the
performance of their athletes. Differences in coaching style also
meaningfully affect athletic performance, primarily by influencing the
motivation of the athlete.

How are these different findings related to the research on subconscious


learning?
A plausible explanation is that goal-oriented intensive practice with rapid
feedback not only builds skills, but also increases the self-efficacy of athletes.
This allows the elite athlete to use arousal to facilitate rather than interfere with
performance, as stress is viewed non-threateningly. The role of the coach is less
to teach skillssince the skills are implicitthan to create the conditions under
which skill acquisition can be maximized. These include motivational conditions,
but also conditions related to the effectiveness of practice sessions.

It is worth noting that much of this elite training takes place in team
environments, including sports teams, military units, and business settings. The
team setting assists with motivation by creating a supportive environment for
demanding training, but also allows participants to learn from each other through
observation and peer coaching. Friendly competition between teams also serves
as a preparation for actual competition, honing skills under realistic performance
conditions.
Summary
The success with which a trader can learn to read ever-changing market patterns
may be related to the quality and extent of training he or she undertakes. Every
major study of implicit learning finds that it takes thousands of concentrated
learning trials before an individual develops mastery of a task. Most traders fail, I
would suggest, because they never develop the critical mass of intensive
learning trials needed for subconscious expertise. Without a team environment
to model skills, motivate skill development, and provide goal-oriented coaching,
the majority of individual traders may never develop the self-efficacy needed to
weather inevitable periods of loss and flat performance. This is particularly
problematic for the part-time trader, who may lack the intensive practice needed
for mastery simply as a function of the reduced amount of time available to
internalize market patterns, rehearse execution skills, and utilize feedback.
While much market writing focuses on the development of new indicators or
methods for analyzing market data, it may well be the case that the most
promising avenues for improving trading performance are tools and technologies
that supercharge learning and accelerate the learning curve.

Brett N. Steenbarger, Ph.D. is Associate Professor of Psychiatry and Behavioral Sciences


at SUNY Upstate Medical University in Syracuse, NY. He is also an active trader and
writes occasional feature articles on market psychology for MSNs Money site
(www.moneycentral.com). The author of The Psychology of Trading (Wiley; January,
2003), Dr. Steenbarger has published over 50 peer-reviewed articles and book chapters
on short-term approaches to behavioral change. His new, co-edited book The Art and
Science of Brief Therapy (American Psychiatric Press) is due for publication during the
first half of 2004. Many of Dr. Steenbargers articles and trading strategies are archived
on his website, www.brettsteenbarger.com.

You might also like