Janice Dorn, MD, PhD
Neuropsychological Trading Coach
Janice Dorn, M.D., Ph.D., has been a full-time futures trader since 1994. Doctor Janice holds an M.D. in psychiatry and is board-certified by the American Board of Psychiatry and Neurology in general psychiatry and addiction psychiatry. She holds a Ph.D. in brain anatomy. A graduate of Coach University, she is a pioneer market psychiatrist and financial neurobehaviorist. Doctor Janice has written over 500 articles on the financial markets and coached over 600 traders worldwide. She is the Global Risk Strategist for Ingenieux Wealth Management Group, Sydney, Australia.
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Money is better than poverty, if only for financial reasons...Woody Allen
This is the only known roulette fable ( and some in Vegas say it actually occurred, but who knows since what happens in Vegas stays in Vegas?) that has direct application to the burgeoning, fascinating and often confounding field of behavioral neurofinance.
Whose money was it? It was the man in the green bathrobe's money, of course. He won it by just sitting on 15 and he kept sitting and hitting on 15 until it didn't work anymore. It was not the house's money. That is the fallacy that befalls so many when they think about their profits in the stock market. When are you playing with the house's money and when are you playing with your money? Just the word "playing with money" conjures up all sorts of imagines which are better left for another time, and would certainly be fodder for Sigmund Freud.
This fable tells a sorry tale. The groom, having come so close to the big multimillion prize, slinks away from the tables, returns to his room and calmly announces that he only lost ten dollars! It never occurred to him ( or did it?) that all that money he was so close to having in his hands was his! It was not the house's money.
Our handsome green-robed groom was a victim of what behavioral neurofinance calls Mental Accounting (the tendency to value some dollars less than others, and thus to waste them). I will write more about this, but for now, just learn the concept and remember the green bathrobe. This story could easily have been called “Why Do Casinos Always Make Money?" The answer is not because the odds for every game are in the house's favor, although that is certainly part of the whole picture. Another major reason is because most people think just like the handsome groom: because they start out with $10.00 their loss is limited to that amount. In other words, the huge losses were not really a huge loss at all because his winnings were not really his money!
Did he think about this while he was gambling? I don't know. But what I do know is that, when I first started trading over twelve years ago, I developed an affinity for checking my account balances several times a day. I had made a couple of really great trades amidst a bunch of losers, and the balances just kept going up every day. I thought I had a lot of money and was making plans to spend for Christmas and New Year's gifts. Visions of a very long trip to Hawaii danced in my head. I was really making bank! But I did not take profits. And the account balance started to drift downward. With every passing day, it decreased until finally I had to sell at almost break even. WHEW! Got out without a loss. DUH!! How stupidly ridiculous was that? I saw the money and could not take it, not even a partial schnitzel.
Was that greed? Did I not believe I deserved it? Did I want to lose it for some reason? Did I think that magically it would come back into my account if I just kept holding and hoping? I don't remember, but whatever it was, it didn't feel good.
Has this ever happened to you? How did it feel and what did you do about it? Please talk to me and tell me about it so you will learn more about why you did it so as not to repeat it?
Doctor Janice's Rx for 2007: This is the first in a series of Trading Wisdoms about Behavioral Neurofinance. It is my goal for 2007 to take the subscribers of www.trending123.com on a journey which no other technical trading advisory service provides. You will learn everything you ever wanted to know and were too afraid to ask about why very smart people make boneheaded trading and investing mistakes. You will learn new words for these mistakes and, in the process you will understand the Nobel Prize winning theories of Kahneman and Twersky which govern the way you think about money and the way you trade and invest. If not now, when? Are you all ready? And yes... there will be quizzes along the way, so heads up for a Fantastic and Fun with Money New Year!
The only thing new in this world is the history that you don't know...Harry Truman
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