Monday, April 07, 2008

Markets and Minds for a Monday


* Sector Strength - The above chart shows how stock sector ETFs have fared since the January and March market bottoms. Interestingly, Materials (XLB) and Energy (XLE) are strong performers since the January lows, but have not been so dominant since the March lows. Conversely, Financials (XLF) have moved only modestly since the January lows, but are leaders in the recent period since the March bottom. Homebuilders (XHB) show up strong since both bottom periods. The most recent rally has been led by beaten down sectors, as investors are showing less fear and more optimism regarding housing and banks. Health Care (XLV) has been something of a laggard, perhaps anticipating challenges following the upcoming election.

* Building Willpower - Thanks to a reader for passing along this research perspective on how to build self-control and willpower. That is exactly what biofeedback and meditation are all about. An interesting implication, supported by research, is that efforts to contain our emotions deplete our reserves of self-control. This could be one way that emotional arousal is connected to poor trading performance, as our efforts as self-containment leave us less capable of making disciplined efforts.

* Health and Emotions - Research conducted at Duke University suggests that, individually, depression, anxiety, and anger are positively correlated as traits with the risk for heart disease. When those exist in combination, however, the risk of heart disease rises dramatically. This suggests that the overarching trait of "neuroticism"--the tendency to experience negative emotion--may bring more than just psychological consequences. Indeed, hostility may be more predictive of heart disease than such risk factors as smoking and cholesterol. It appears that the combination of hostility and depression elevates inflammatory proteins in the blood. Moreover, hostility and negative patterns of thinking are directly associated with the risk of depression. How we think thus can affect how we feel, but also how healthy we'll ultimately be.

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Negative Thoughts and Trading
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2 comments:

David said...

Hi Brett,

Enjoying your posts and your recent interview with Atbfinance.net.

You mentioned in your interview how important it is for young traders to properly position size and control risk.

Do you or your readers have any favorite posts or info sources on position sizing and money management? I'd be interested to learn more. Thanks.

Brett Steenbarger, Ph.D. said...

Hi David,

Thanks; the book "Trading Risk" by Kenneth Grant is one of my favorites re: position sizing and money management.

Brett