The Psychology of Successful Trading
Behavioural Strategies for Profitability
This book is the first to demonstrate the practical implications of an important, yet under-considered area of psychology in helping traders and investors understand the biases and attribution errors that drive unpredictable behaviour on the trading floor. Readers will improve their chances of trading successfully by learning where cognitive biases lead to errors in stock analysis and how these biases can be used to predict behavior in market participants.
Focusing on the three major types of bias—Belief-Formation, Quasi-Economic, and Social—the book provides a rigorous discussion of the literature before explaining how each of these biases plays out in financial markets. The author brings together the fields of philosophical psychology and behavioral finance to introduce "theory of mind," providing readers with tools to predict biases in others as well as using these predictions to form optimal trading strategies for themselves. Readers will also learn to understand their own behaviors, counteracting biases such as overconfidence and conformity—and the "curse" of their own knowledge—to strengthen trade performance. Pairing his skill and experience with an extensive research bibliography, Short positions the foundational sources of cognitive biases alongside concrete examples, experimental designs, and trader’s anecdotes, helping readers to apply theoretical guidelines to real-life scenarios.
Shrewd professionals and MBA students will benefit from The Psychology of Successful Trading’s intuitive structure and practical focus.
Table of Contents
2. Beating The Market
3. Theory of Mind
4. Belief-Formation Biases I
5. Belief-Formation Biases II
6. Quasi-Economic Biases
7. Social Biases I
8. Social Biases II
Tim Short spent almost a decade on the trading floor of several investment banks. He is the author of Simulation Theory, published by Routledge in 2015.
"Although artificial intelligence is playing a major role in accelerating our understanding of investing and trading, through the analysis of increasingly available data, the ultimate drivers of investment decisions are still based on psychology. From a wealth of practical experience in both fields, Tim explores how our psychology affects our trading decisions." - Christos Danias, StormHarbour Securities LLP, UK