Trading and "behavioral finance"

Sort of connected to my Philosophy of Economics exam, I have been reading a long book on behavioral finance, Hersh Sherwin's Beyond Greed and Fear and in particular, I have been trying to assess whether I am guilty of the types of biases to which this book refers. Intra-day trading is very demanding psychologically and one's mood can swing tremendously during the day - yet certain "big picture" matters have to be kept in mind. It would help to know if I was biased as well.

For instance, there are days like today when the morning consists of a series of market moves that are virtually guaranteed to slowly wear you down psychologically. Whenever I bought, the market would reverse, often within literally 10 seconds of my trade. When I sold, it would rally instantly. Therefore I incurred a long sequence of losing trades - something like 25 such trades out of 30 by 3:00p.m. No major losses, just the steady 5 - 10 points per trade (I don't suffer from the sort of "loss aversion" highlighted by Sherwin)

But finally all the various systems lined up and put me long the market and, finally, the market inched up slowly rather than reverse instantly. From around 5675, the FTSE100 inched up to 5700 and just beyond. This was enough in 45 minutes to wipe out much of the days loss. Soon after, the system began to close out the positions and the system trading the US markets went short. So a move of about 30 points is the sort of thing that I am typically after.

While I am trading I don't follow any market news but apparently Greece was being downgraded to junk and Goldmans was being interviewed by the US Senate committee. As a result of something perhaps related to this, both the UK and US markets began to fall and subsequently dropped about 100 points each in the space of about 30 minutes. This sort of move is, of course, quite rare and swamps the earlier losses and gains.

The interesting thing in connection with behaviour finance is that I tend to set up my trading systems with quite small price ranges (so I can see the detail fully). But this means that the 100 point fall is way above the sort of move I am looking at. Yet I need to keep in mind that such moves can occur. In particular, to not get too dismayed about sequences of small losses when something dramatic could happen at any time - that day, the next day, whenever.

In fact, the lessons of today will bear much thinking about.

I have also been watching the Senate hearings re Goldman - this has also been rather interesting. I am appalled by the ignorance of the Senators about things I certainly consider perfectly normal within finance (after a career of well over 20 years in the markets). But that said, the way Goldmans choose to reply was really odd - and very silly in my view.