Whats more powerful - fear or greed?
- Thread starter Bobby
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Depends on the person… generally fear psychologically overrides most other sentiments based on the fight or flight impulse…Bobby said:I'm working on an idea.
Need your opinion... you may chose to answer from a personal view or just your perspective
Please be true to yourself with your answer.
I'll share the idea if there are enough participants.
Regards
Bob.
Greed is like lust, fear is like someone has a gun in your face… what are you going to do if you were in the arms of a lover and a fire started - remain in that “embrace” or run like hell? Self preservation (at least the perception of) tends to override all other emotions – it’s pretty much hard wired into most people.
So, Bobby, what’s your great idea?
Regards
Magdoran
wayneL
VIVA LA LIBERTAD, CARAJO!
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I think it oscillates around the prevailing social mood. Whole populations become either greedy or fearful based upon social proof . An example in point is the recent real estate boom. Folks have taken on levels of debt that would have frightened the bejeezuz out of those same people only a few short years ago.
A thought; could some manifestations of greed, in fact be fear in disguise? i.e fear of missing out?
Perhaps fear & greed are the same beast with a different hat... just hypothesizing.
A thought; could some manifestations of greed, in fact be fear in disguise? i.e fear of missing out?
Perhaps fear & greed are the same beast with a different hat... just hypothesizing.
wayneL
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Bobby said:Gee Wayne you may well have a point ! maybe love & hate also
Just have a guess at what the rabbits would think please ?
Regards Bob..
Fear I reckon
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Bob, Wayne,wayneL said:
Sounds like fear to me too (I`m very tired though so my judgement may be impaired). Greed grows out of fear, and fear is a survival instinct. Without fear that big bear of Wayne`s would eat you up! :22_yikes:
Bob think I`ll get back to you tomorrow when I am awake.
Snake
wayneL
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A smart trader isn't to greedy and avoids the clutches of the fear trader who lurks around bottom feeding on the negative rollercoaster.
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Kahneman et al showed that human psychology [in aggregate] sought minimisation of loss, over and above the seeking of profit.
Viz. the psychology registered greater pain, on a loss, than pleasure on a win.
This was also the central credo of Game Theory, that the correct *rational* strategy was one of *not losing* rather than trying to win.
When linked to probability studies, the following was calculated;
Example;
An investor who can earn a return of 15% in excess of the Treasury rate, with 10% volatility. Calculated via standard deviations;
Probability of making Money
Scale...................................Probabilit y
1yr.........................................93%
1Quarter.................................77%
1month...................................67%
1day......................................54%
1hour.....................................51.3%
1min......................................50.7%
In the short-time frames, it is a 50/50 proposition, but stretched out to the longer time frames, the probabilities rise very high.
The longer time frame, is generally associated with the *investor* rather than the trader, although that is inaccurate as longer term trend following systems such as TT will exceed that timeframe.
What does become apparent however is this;
If, loss, effects a negative psychological reaction due to the aforementioned greater pain due to a loss, you will by trading short-time frames build up a lot of psychological damage due to the lower probabilities of success.
This aversion to the psychological pain, will affect function of the decision centres within the cortex that are vital for efficient and unbiased processing of information, thus exacerbating the breakdown of optimal *rational* functioning, and the change to *emotional* decisions.
Thus, in a chart, you no longer look at it in a rational manner, you look at it in an emotional mind-set, looking to minimise further losses.
This is the path that erodes, and eventually destroys discipline
Noise Theory which quite simply defined market noise in the context of deriving market prices. This theory was developed from work completed by Keynes.
Further work and refinement within Noise Theory has been completed by Tetlock.
Each day in the Wall St Journal, with some three million daily readers, follow the daily column, Abreast of the market
Cutting to the chase, the research has shown that articles, either positive, or negative, account for 0.081% points in the following days market.
Considering the average return from the index from 1984 to 1999, was 0.051 the noise factor looms as a critical component.
This of course correlates directly with; The market price is influenced by the psychological state of the participants, but, the price itself influences the psychological state of the participants
Thus, we now tie in the Behavioural Psychology component of the equation, to the Efficient market crowd, who, despite the title, are looking for inefficiencies with which to beat the market
Which brings us to some of the adaptations within psychology for dealing with, or thinking about the management of psychological issues.
From NLP we have; The map is not the territory
Very simply, the map, [methodology, psychology] is not the [market/reality] territory.
This has been bourne out certainly within the two forms of analysis. This confirms further the requirement of money management techniques to be bolted onto chart and technical based methodologies, but more importantly, why the discipline required to execute money management strategies, seemingly is so difficult, particularly for discretionary based methodologies, and less so for mechanical based methodologies.
Viz. the psychology registered greater pain, on a loss, than pleasure on a win.
This was also the central credo of Game Theory, that the correct *rational* strategy was one of *not losing* rather than trying to win.
When linked to probability studies, the following was calculated;
Example;
An investor who can earn a return of 15% in excess of the Treasury rate, with 10% volatility. Calculated via standard deviations;
Probability of making Money
Scale...................................Probabilit y
1yr.........................................93%
1Quarter.................................77%
1month...................................67%
1day......................................54%
1hour.....................................51.3%
1min......................................50.7%
In the short-time frames, it is a 50/50 proposition, but stretched out to the longer time frames, the probabilities rise very high.
The longer time frame, is generally associated with the *investor* rather than the trader, although that is inaccurate as longer term trend following systems such as TT will exceed that timeframe.
What does become apparent however is this;
If, loss, effects a negative psychological reaction due to the aforementioned greater pain due to a loss, you will by trading short-time frames build up a lot of psychological damage due to the lower probabilities of success.
This aversion to the psychological pain, will affect function of the decision centres within the cortex that are vital for efficient and unbiased processing of information, thus exacerbating the breakdown of optimal *rational* functioning, and the change to *emotional* decisions.
Thus, in a chart, you no longer look at it in a rational manner, you look at it in an emotional mind-set, looking to minimise further losses.
This is the path that erodes, and eventually destroys discipline
Noise Theory which quite simply defined market noise in the context of deriving market prices. This theory was developed from work completed by Keynes.
Further work and refinement within Noise Theory has been completed by Tetlock.
Each day in the Wall St Journal, with some three million daily readers, follow the daily column, Abreast of the market
Cutting to the chase, the research has shown that articles, either positive, or negative, account for 0.081% points in the following days market.
Considering the average return from the index from 1984 to 1999, was 0.051 the noise factor looms as a critical component.
This of course correlates directly with; The market price is influenced by the psychological state of the participants, but, the price itself influences the psychological state of the participants
Thus, we now tie in the Behavioural Psychology component of the equation, to the Efficient market crowd, who, despite the title, are looking for inefficiencies with which to beat the market
Which brings us to some of the adaptations within psychology for dealing with, or thinking about the management of psychological issues.
From NLP we have; The map is not the territory
Very simply, the map, [methodology, psychology] is not the [market/reality] territory.
This has been bourne out certainly within the two forms of analysis. This confirms further the requirement of money management techniques to be bolted onto chart and technical based methodologies, but more importantly, why the discipline required to execute money management strategies, seemingly is so difficult, particularly for discretionary based methodologies, and less so for mechanical based methodologies.
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Hi Bobby
I definitely had a fear based greedy streak and so does almost every contestant on that quiz show 'Deal Or No Deal' They nearly all break their own promises to themselves, friends and family. You get to see the snowball effect all the time especially when they become attached to a previous higher bank offer which they watch disappates on opening the next case. At that point most start gambling. What a pity most of these contestants don't decide 'what type of character they need to become' to walk away a winner.
You can learn a lot watching that show especially about attachment, gratitude and integrity.
'Markets tend to go up in steps and down like elevators' because 'The emotions causing a person to sell are stronger than the emotions causing a person to buy' Charts illustrate this very well over and over again
Cheers
Happytrader
I definitely had a fear based greedy streak and so does almost every contestant on that quiz show 'Deal Or No Deal' They nearly all break their own promises to themselves, friends and family. You get to see the snowball effect all the time especially when they become attached to a previous higher bank offer which they watch disappates on opening the next case. At that point most start gambling. What a pity most of these contestants don't decide 'what type of character they need to become' to walk away a winner.
You can learn a lot watching that show especially about attachment, gratitude and integrity.
'Markets tend to go up in steps and down like elevators' because 'The emotions causing a person to sell are stronger than the emotions causing a person to buy' Charts illustrate this very well over and over again
Cheers
Happytrader
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I've always believed there are only two base emotions and those are LOVE and FEAR. FEAR exists because it is the opposite of love and there must always be an antithesis. All other emotions are derived from one of these two, unfortunately most come from fear. Greed is one of these.
Julia
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Hi Bob
Definitely fear.
Julia
Definitely fear.
Julia
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wayneL said:
I totally agree.
For instance, it was damn hard not to buy a house in Sydney a few years back, cause everyone was talking about how they had bought a place and how much money they had made. There was the Block tv show, the papres everyday telling you how houses were skyrocketing.
Logic said to me don't buy, fear was telling me to buy cause I'll miss out.
It was not greed but fear of missing out, driving me.
I overcame that and am damn glad I did.
Geez Bob,Bobby said:
I thought my point was pretty clear, I was using an analogy… I’m suggesting that generally fear is more powerful than greed.
There are exceptions such as someone with strong discipline or commitment (say a committed combatant in a war who fights for a cause they believe in and are prepared to die for – as opposed to a soldier who fights because of the fear of authority and being shot for desertion – two different mental states). I still think part of this is drawn from the fight or flight impulse. In trading then discipline can overcome fear (or for that matter greed – keep your head when everyone else is losing theirs).
Think about a group of Cromagnons and the social structure that allowed them to surpass the Neanderthals. They co-operated in large groups and had social cohesion. But there seems to be evidence that there may have been a hierarchy of who got the prime meat (just look at nature programs on monkeys).
While there are (perhaps) emotions of affection (love – I think juddy raised an interesting perspective here, but suspect that the nature of our emotions is more complex than a simple thesis/antithesis model – I suspect that millions of years of evolution yielded a considerably more complex and multifaceted set of hard wired emotions with inbuilt areas of flexibility, and that these vary considerably – ala nature vs nurture polemics) in such groups which have an important place in the social behaviour, but that the emotions of fear are possibly the core influence on behaviour.
Examples are: fear of separation, fear of physical harm from a stronger member of the group or fear of the dominant faction in the group, fear of not getting their fair share of the food or wealth, fear of other predators or hostile rival groups, fear of the unknown (e.g. lightning), jealousy etc. I don’t accept that fear is the opposite of love. They are different complex emotions. Some people hold that hate is the opposite of love, but I suspect that these terms have limited application because we view these emotions subjectively, and that they are far more complex than most believe.
Also, Ducti raises some interesting ideas in this area to – that of mass psychology – aggregated emotions. This is the other dimension to think about. Not just what you’re feeling, but how you react to the market, and how massed participants react. This context adds a whole layer of complexity on simple individual psychology, and is the key to understanding markets. If fear of losing overrides the pleasure of winning on a mass scale, perhaps this tells us something about how markets trade as ventured by Ducati.
So, when it comes to the market, happytrader made an excellent point about just looking at how markets trade – just look at most charts and what do you see? – in stocks you see fast moves down. Why is this arguably consistently so? Look at commodities when there is a fear of a shortage. See how they skyrocket in a blow off move. Go back and look at sugar futures in the late 1960s and early 1970s (ala Jim Rodgers book “Hot Commodities” pp.182-183) where sugar peaked at 47 times the price from 1.4 cents to 66.5 cents.
Look at those who benefit from these strong moves. Look at George Soros and his understanding of the financial banking institutions in Europe. By shorting the UK pound he made millions, and set aside fear and made decisive business decisions. This is the mind set required to succeed, but the gaining of this mindset is elusive. This is why books by Mark Douglas for instance are sought after since they elegantly assist the individual to recognise their own psychological makeup.
So there is a distinction here: Individual psychology and mass market psychology. One looks at the inner workings of a trader/investor, and the other looks at the aggregated way markets trade.
At the core, it would seem plausible to argue that fear is more powerful than greed, but it depends on the context. Greed in the long run has driven humanity to significant levels of prosperity historically. The sheer material wealth in this age dwarfs any previous age if you compare living standards in the past centuries (in the developed world – if you look at all people though, there is mass poverty in developing nations – perhaps this should also be considered in a broader context, but the focus here is on markets in developed nations and world markets).
On an individual trading level though, Ducati’s and happytrader’s points clearly argue that greed is the primary emotion, and at this level I agree with that hypothesis.
Regards,
Magdoran
Julia
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Magdoran
Your last post is one of the best I've ever read. Thank you.
Julia
Your last post is one of the best I've ever read. Thank you.
Julia
