Psych cap is about the second part of the joint probability distribution that determines the results a trader actually delivers.

Think about it, isn't it the decisions that a risk-taker makes that determine their success in the market. Well… how do they make those decisions? Is it only about the model and the math? If you think so, think again.

Biases, mostly unconscious, show up everywhere. For example, there is a strong bias to expect the result of your next decision to be the same as your last. This causes people to make the wrong choice with new data.

Psych cap is about learning to understand oneself so well that you can detect and correct your own biases. Emotions are meant to re-direct your focus. Think of them as information first. Actions can come later.

Trader psyches got started a few years ago because the whole "control your emotions" idea for financial professionals was SO outdated. Doesn’t work, makes it worse. Gotta have a new strategy.

Denise Shull started thinking about the juxtaposition of the markets with the human way back as she left The University of Chicago to trade with some former CBOE floor guys. Finally getting around to blogging, Denise now invites you to share in the conversation and thinking with her.