Trading Psychology  |  AUG 1998

Statistics And Trading Behavior by Ari Kiev and Ken Grant

Use statistics to profile patterns of trading behavior as part of an ongoing training program to help traders maximize their performance. Traders have habits and beliefs that have significant impact on their trading, whether they realize it or not. Introducing a trans-action- level database, though designed primarily for risk management, makes it possible to identify and examine specific and measurable patterns of trading behavior. The database, which we use in our weekly trading seminars, has enabled us to identify characteristics of those traders who are successful and those who are not. It has also led us to a greater understanding of the behavioral components of winning strategies and how to help traders improve their performance. A variety of data is routinely collected in a relational database of historical information. The data includes such information as the security traded, the buy/sell indicator, the position initiation, liquidation indicator, price, quality and so forth. Other information such as asset class, trading instru-ment (cash security, option, future, forward), market sector, instrument volatility, beta or other benchmark correlation statistics and average daily number can be superimposed on the database.

by Ari Kiev and Ken Grant