Book Reviews, Trading

Book Review of Market Mind Games by Denise Shull

The full title of this book is “Market Mind games: A Radical Psychology of Investing, Trading, and Risk” by Denise Shull.

This book is not easy to get through. The style of writing switches among three things: (i) a story being told, (ii) snippets of talks, and (iii) what you would have expected to find in this book but with a fair dose of “rhetorical questions”.

As an example, I just randomly flipped through the pages, and on page 13 of the book, you can find 6 consecutive sentences that end with a question. They end with “… at best any probabilistic viewpoint is only temporarily relevant?” “… how do they detect when the relevance end?” “… how much do you really know?” “… just because we can, does it mean we should?” “… does it mean we have been more rational because we have been numerical?” If you are a reader like me, i.e. I just want to quickly grasp the important points and move on, it can be a somewhat frustrating experience because I would prefer that the point be made in a short, simple sentence instead of in the form of guru-to-disciple-style contemplative questions.

The book highlights a number of things common to trading psychology books, e.g. embrace your feelings, understand their nature, make them conscious (i.e. mindfulness). Two things that the book focuses on as well is the need to keep your physical condition in tip-top shape (what Shull calls feelings context), and to analyze the past experiences / relationships contributing to the emotional difficulties in trading (what Shull calls fractal-emotional context). Shull puts the fractal-emotional context as the core, wrapped around by the emotional context, which is further wrapped around by the feelings context.

One point I don’t fully agree with is the application of psycho-analysis’ transference concept (i.e. the fractal-emotional context) into all trading situations. For example, if a trader doesn’t follow his plan, the explanation given is that it may be that the trader views his plan as his father, so he rebels against his plan (i.e. his father). I think it is plausible that for some people with strong emotional experiences or scars in the past, aspects of trading might look like a shadow of the past and incite similar behaviors. However, I don’t think that applies to all or even the majority of traders. If a trader had a childhood experience where he froze when he saw a menacing bear, and in trading he freezes when faced with a huge loss, I don’t think it is appropriate to link the two to say that the bear incident caused the current trading behavior. Again if someone rebels against authority when young, and ‘rebelled’ against his trading plan, it can just be that the person is not one that naturally follows structured rules and plans, rather than draw a somewhat dubious linkage that there is “transference” in action here and the situation in the past resulted in the present situation in trading.

One interesting takeaway is the observation that the market, by its very nature, will make you feel regret and blame yourself, because unless you nailed everything precisely, it will always be the case that you could have done better, which brings about feelings of “oh I should have seen this coming, why did I miss this sign?”, “I knew this was gonna happen, why didn’t I do XYZ!”, “I have told myself several times that I need to do XYZ, why do I keep making the same mistakes!”. This point is similar to one of William Echkardt’s point that the market has a tendency of inducing you to make the wrong moves at the wrong times.

Lastly, the book advocates making managing your psychological capital the top priority, over spending time to develop algorithms or figuring out the best method to beat the market. That, in and of itself, is a trading edge.


Key Concepts

  • The task in trading is to predict the future perception of other market players.
  • The brain relies on context to fill in the blanks when it is making a decision about something imprecise.
  • Beliefs are pre-existing conditions that create implicit context.
  • All decisions require emotion. Monitor your emotions just like any market data.
  • fC = feelings context, i.e. general physical feelings which include tired, hungry, energized, nauseated, etc.
  • eC = emotional context, which connect ideas and experiences to judgments and decisions (e.g. fear of losing)
  • F-eC = fractal-emotional context

The Spectrum of Fear

  • On the left: Fear of Losing
  • Middle: Anxiety due to Ambiguity / Uncertainty
  • On the right: Fear of Missing Out
    • Greed is just a specific ‘flavor’ of the fear of missing out.

The Market Makes You Feel Bad Majority of the Time

  • Unless you nail it right exactly, you will feel frustration / regret / fear in all other outcomes
    • When you get the trade direction wrong
    • When you got out too early
    • When you got out too late
    • When you miss a trade
  • Traders are always choosing among the lesser of the evils. Feeling regretful is practically inescapable.
  • Regret Theory says that people have the desire to avoid future regret when they make their decisions.

Regret is Worse Than Fear or Anger

  • Fear doesn’t feel good nor does anger, but that feeling that you made a mistake — sometimes a very serious one — and there isn’t anything you can do about it, is worse. You are powerless to change the past, and feeling powerless leads to feeling depressed.
  • Getting over regret is harder than recovering from other feelings. It tends to nag at us.. “if, only if”. You dream of being in the alternative situation and have to relive the reversion back to reality.
  • Missing entries blasts the fear of regret-o-meter.

Emotional Fractals – The Market is the Ultimate Authority Figure

  • We apply what we learned about ourselves, our relationships to important people in our lives, and our perceived role in the world when we were young, to our perception of what is happening in our adult lives.
  • The market acts as the ultimate authority figure, and its tick-by-tick declarations tap into the feeling contexts from earlier in life.
  • The markets, as symbolized in the most implacable authority figure — price — creates an inference regarding whether your current value is better or worse. That taps directly into how you feel about yourself.


Hold On to Winners by Improving Self Awareness

  • Talking yourself out of being nervous because you don’t want to give profits back, doesn’t work.
  • Write out exactly how the doubt and fear felt, put the feeling into words.
  • You need to bring your beliefs to the forefront and uncover the relevant Feelings Context (fC). Knowing the fC you bring to any uncertainty decision effectively vaccinates you against it.
  • As you become more and more comfortable with using an awareness of all that you are feeling — on a physical as well as emotional level — you will find that you make fewer poor decisions.

“Emotions as Data” — Monitor Your Emotions for Analysis

  • Record what you are feeling by speaking directly into an audio recording device, writing on a notepad, or tracking them by some method.  The simple act of acknowledging it will actually provide some protection from the destructive and unconscious acting out of feelings.
  • You can also put your feelings into words. Name the different combinations of feelings you have (e.g. fear of losing — want less, fear of missing out — want more).
  • Reams of research indicate that putting feelings into words does indeed provide a great benefit, it not only reduces anxiety but verbalization can actually allow us to work more effectively on a thinking level.

Unconscious Motivations Are Dangerous

  • For example, being consciously and intentionally “stubborn” can be your best ally when you are getting through challenging moments in school or in your career. However, when you do so without really knowing who or what you are fighting back against (e.g. if you unconsciously think “I’ll show you Mr. Market, I will be right, and sooner or later you will have to admit it.”), it tends neither to serve our best interests nor to make us money.

Accept Your Emotions as Natural and Stop Blaming Yourself

  • Example common cycle is that you take a trade before its ready because you fear of missing out, then you feel frustrated when the market dances around, you exit the trade, then you feel guilty of making the same mistakes over and over again.
  • What you should have done is to look at the anger and say “I see why I am irritated. I got in too early and I added or exited. Of course I feel this way”. Accept your emotions, then move on to decide on the best thing to do next.
  • But-I-Know-Better (BIKB) trades set up feeling and emotional contexts of self-recriminations. Just catching yourself in those — and the feelings surrounding them — will impact your bottom line in a positive way.
  • Get used to admitting to yourself (and if possible to someone you can trust) what you are feeling. Instead of trying to overcome or intellectualize a feeling (saying to yourself, “stop doing that”), say I feel like x, y, or z. Just let it be and don’t judge it.
  • Most of the time, if you have the courage to feel badly, get to the root of the feeling, and realize that x-y-z feeling or fractal-emotional context crept up on you without you knowing it, the feeling ‘pops’ like a balloon. Even if it doesn’t pop, it begins losing air like a tire going flat. The overwhelming sense of urgency begins to dissipate. The debilitating part just won’t last that long if you just let yourself feel and articulate it, even if only to a journal.

Use Future Feelings Instead of Intellect to Discipline Yourself

  • Vow to always ask: How will I be feeling in the future if I take this trade?
  • Instead of telling yourself using intellect that you shouldn’t take another trade, you are projecting yourself into your future feelings and using future expected “emotions as data” that helps you to feel the likely outcome which in turn gives you more power than using your intellect to lecture yourself.

Walk Away When Your Emotions Get Intense

  • When the feelings and emotions you are experiencing become the most intense, you can be assured that it is not really about the markets or the money.
  • When the thing you need to do, get out or walk away, seems to be literally the hardest thing to do, you can be assured that what you are feeling has a fractal component.
  • The sooner you can remember this, in the heat of battle, the less trouble you will get into. Realizing that the intensity of wanting to be right, frustration over being wrong, or fear of missing something emanates from your past dilutes enough of the physical energy embedded in the emotion and gives you a window through which to unravel it, as opposed to acting out (or trading) with the money you manage.

Detecting Your Unconscious Mental Fractals

  1. Find a voice recorder and record your stream of consciousness through the sequence of two to three trades or decisions.
  2. Do this in sequence
    • Write down five to ten memories from before you were 18 years old.
    • From that list, pick three that stand out from the rest. Maybe they still have an emotional charge, maybe you even think of them every once in a while.
    • For these three memories, write the story of what happened, in the form of a kind of news report on who, what, where, why, and when.
    • Take these stories and look at them from a different point of view. Ask what the other people in the story were feeling or what it seemed like they were feeling.
    • Last, write down how the situation made you feel in the moment and what you told yourself about the situation.
    • Then set the writing and the recordings aside for a few days or weeks. Just let both simmer in the back of your mind.
  3. Keep a bedside notebook and jot down your thoughts and feelings from your dreams right away. What matters is the sequence of feelings and emotions in the dream; or, in other words, those feelings that you wake up with in reaction to the events in the dream.
  4. Now summarize the following using the data of your memories
    • What do I expect for myself?
    • How do I expect things to turn out?
    • How do I seem to feel about myself?
    • What kind of labels do I talk about myself with?
    • What fears come up?
    • How do I react to others?
    • How do I react to being told something other than what I want to hear?
  5. Go back to your trading recordings and summarize what feelings came up during your decision-making moments. We are looking for the themes and feelings that repeat themselves across market and decision sequences. Compare his information with what you discovered in the previous steps. What seems similar? If it doesn’t immediately click, let it rattle around in the back of your brain for a few weeks.


Use Your Emotional Awareness for Risk Management and for Reading the Market

  • The more conscious you are of your emotions, the more you can use this knowledge first as risk management and eventually as a tool for reading others in the marketplace. Whether they know it or not, they live on this spectrum too.
  • If you get a psychological injury, e.g. got stopped out and lost money, recognize that your psychological capital has been debited. The quickest way to recover is to rest, so you might leave the screen, go hit the gym, recover your psych cap, before going back to play.

Tiredness and Anger Alters Your Perception of Risk — Don’t Trade

  • If you lack physical energy, your likelihood of correctly judging the perceptions of other market players is impaired.
  • Research shows that sleep deprivation will alter your perception of how much risk you are taking in any given situation. Our intentions shift toward trying to find more profits while disregarding losses.
  • Don’t be worried about missing great trades if you are not at your desk all the time, it is better to buy into fewer but better trades.
  • Anger tends to modify how we see a risk in a way that decreases our perception of it. Feeling angry makes potential trades look like a better bet than they usually are.
  • Feeling “over the moon” also carries the same risk signal as being tired or angry. It creates a context that skews your perception and your beliefs, at least for the time being.

Maintain your Physical-Psychological Edge

  • Trading is actually a physical game. Playing the “sport” of trading should be handled as if you are the quarterback of an American football team.
  • Rest: Being well-rested is an edge.
  • Diet: When one really concentrates, the body and brain use an inordinate amount of energy. Eating properly keeps your energy up and adds to that physical-psychological edge.
  • Exercise: Exercise gives us a physical boost that makes us feel more optimistic, and that counts as psychological capital.
  • The body counts essentially as much as your intellect. If the body is feeling the static of tired or drained, the feelings and emotions of risk-management and people reading can’t properly communicate their data.

Have a Psychological Leverage Trading Plan

  • Create the physical energy.
  • Read other people.
  • Get the risk management edge through knowing yourself and how you feel (your emotional contexts) operating at any given moment.
  • Get the strategy edge by using that knowledge of yourself to understand others (their emotional contexts), which they most likely will act out.
  • Know when to push it because you have emotional capital and psychological leverage.
  • Know when not to push it because you are acting out of an emotional context fueled by the past, be it the immediate past or the distant fractal past.

Differentiating Between an Impulse vs. Intuition from Experience

  • If a feeling feels urgent, if it feels compelling, suspect it as impulse.
  • If on the other hand, it feels calm, if it is a sense coming out of nowhere, consider it as recognition of something you know but aren’t conscious of yet.
  • Book knowledge has no feeling attached to it. Without experience, one lacks the sense, which is of course a type of feeling context, of how things fit together or whether they are true or false.

Let Your Unconscious Work By Deliberating Without Attention

  • Our brain can assemble tiny details in nanoseconds, and delivers a feeling to our consciousness that we can’t intentionally access with the same speed. It’s almost as if when we think about it, we are taking up precious time in our brains.
  • Deliberation without attention brings better results than conscious linear thought (i.e. attentive deliberation). It pays to walk away from your market screens or your research and intentionally not think about it. Let your unconscious go to work on the data and deliver to you a better answer. When you leave for coffee and then when it is poured, ask yourself, what’s your best decision?

Why Pros Trade the Close, and Amateurs Trade the Open

  • Think about it, if you have the information that conveys “the mood,” the speed, and the rhythm of the day (or week or month or year) from which to judge, you can make a better decision about what you are trading against.
  • Literally, your mind has more contextual details to make a judgment call about what the next play will be.


Why Traders Naturally Cannot Follow Their Trading Plan

  • The brain automatically engages “distinct mechanisms” to handle these two scenarios differently: (i) risky situation where the probabilities are known, and (ii) ambiguous situation with incomplete information where historical probabilities provide only a clue. For the latter, there will be a “uncertainty circuit” that will raise a red flag to say “more information needed”.
  • This results in traders trying to do exactly what they planned while their brain fights them to find more information or to scramble in the face of a clear, but maybe only subconsciously perceived, threat.
  • Just because you decided on taking a long or short trading position, your “brain on uncertainty” doesn’t change how it goes about making judgment calls in uncertain circumstances. The basic process steps through the context-belief-perception cycle because it can’t help it.
  • Uncertainty means — at least to part of your neural and white matter networks — that a black bear, ready to eat all your apples (and you with them) could be just around the corner. The more uncertainty, the more you can realize how much you are relying on contextual clues in order to make sense of the situation.

Why People Fight Trends

  • I have yet to find someone who habitually fights trends that doesn’t ultimately reveal a very clear and specific reason that arises out of their personal and family history.
  • The easiest ones are traders who can notice that they want to prove to someone (e.g. their fathers) that they are smarter than they were ever given credit for.
  • The relatively conscious feeling contexts that cause people to fight trends are
    • Missed the trade and want to be in the market
    • Fear of missing out on the move altogether, but can get the pullback
    • The feeling that “it just can’t go any further”

Why People Can’t Take Trades

  • While the most pervasive feelings context is the fear of missing out, you yourself live on the other end of the spectrum (i.e. the fear of losing). In your case, the fear of future regret revolves around how it will feel to have lost money or to be wrong. That is a stronger feeling for you than missing out.



One thought on “Book Review of Market Mind Games by Denise Shull

  1. Thanks a zillion billion ….. I also found the book tough going and did not finish it. Really glad I found your website.

    Posted by Denmar | October 11, 2015, 9:24 am

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