Christian Siva-Jothy

39 years trading. Partner at Goldman Sachs running the Global Macro Proprietary Trading Group, ('91-'05). Profiled in 'Inside the House of Money' by S. Drobney.

[Christian Siva-Jothy @ChristianJothy]

People will respond differently to these two different ways of framing the outcome.

[Christian Siva-Jothy @ChristianJothy]

This bias is common in aspiring as well seasoned traders (myself included). Think about it. If the outcome that presents itself is a 5 or 6 standard deviation outcome and it's not in your favour, what do you do?
Fascinating isn't it?

[Christian Siva-Jothy @ChristianJothy]

Put another way, a trader is taking advice on selling a call option, the advisor can frame the outcomes as
1: This trade has a 90% chance of making you $1000 if the option expires worthless, or
2: This trade has a 10% chance of completely bankrupting you.

[Christian Siva-Jothy @ChristianJothy]

@basquecapital Im not that smart! Just interested in human psychology and how it affects trading.

[Christian Siva-Jothy @ChristianJothy]

Human nature tends to follow the least worst outcome, even if its not rational with good calm observation because we don't want to die ( or suffer huge losses).
Good traders always scenario plan for different outcomes.

[Christian Siva-Jothy @ChristianJothy]

EG, a trader is presented with a data point or piece of information that has a high probability of being extremely detrimental to his / her position. However, the trader looks at that information in a way that is much less significant ( the framing bias) than in fact it is.

[Christian Siva-Jothy @ChristianJothy]

Human nature generally tends to point us in a direction that points to an outcome that is much less catastrophic than what is in fact being presented. The difference is subtle yet significant.

[Christian Siva-Jothy @ChristianJothy]

Initially it was identified in aviation as a strong factor in fatal accidents. Ie, pilots in extreme situations did not want to accept that a certain course of action could potentially kill them, they 'framed' the situation as one which was not deadly,

[Christian Siva-Jothy @ChristianJothy]

However, as powerful as that bias is, I believe there is another equally important one for macro traders,
2: Framing bias.

This is where a decision is made on the way information is presented and processed as opposed to how the facts really present themselves.

[Christian Siva-Jothy @ChristianJothy]

There are two very powerful biases that affect traders (in my humble opinion). The one we all know about,
1: Confirmation bias
Defined generally as 'the tendency to process information by looking for information that tallies with one's existing thoughts.'

[Christian Siva-Jothy @ChristianJothy]

@macroarb @MarkRitchie_II @nicklatinovic Thanks, ill give it a read once the weather turns bad up here, having an amazing late summer right now!

[Christian Siva-Jothy @ChristianJothy]

@factor_members Im in a fox hole. Have been for 3 months now and frankly quite enjoying it!

[Christian Siva-Jothy @ChristianJothy]

@factor_members Peter , couldn't agree more. Find your style, find your markets and stick to them! I'm not technical, I do best in 'event' driven situations. My weakness is that i see too many events where there are none.....😉

[Christian Siva-Jothy @ChristianJothy]

For clarity i want to make something clear. On balance I believe being an equity bull is very smart in the LONG run. Thats being called a long term investor. If you want to be an investor then you have to understand that markets can crucify you in the short term.

[Christian Siva-Jothy @ChristianJothy]

The market is what the market is.
My job is to ascertain whether i think its not efficient. Essentially I'm a card counter ( though i don't see myself as that). Do i have an edge? If i didn't think that then i simply shouldn't trade.

[Christian Siva-Jothy @ChristianJothy]

So, ill stick my neck out.
1. Fed cuts; 5% probability.
Gold rallies massively, equities initially also, but not for long.
2. No Fed move; 30% prob.
Gold rallies, equities also initially.
3. 25bps hike; 60% prob.
Gold drops, equities drop more.
4. 50 bps hike 5%. 😳

[Christian Siva-Jothy @ChristianJothy]

It is ( the last time i looked ) in the fed funds market. But that's just an analgamated view of the market. Forgive me, but remember a week ago the market was expecting 5.7% plus fed funds.

[Christian Siva-Jothy @ChristianJothy]

As Dirty Harry put it,
'Do I feel lucky? Well, do ya punk?'

[Christian Siva-Jothy @ChristianJothy]

The Greenspan Put had been born. This subsequently morphed into the FED put. With inflation way above target and employment running hot, the question is will the FED do what has become a Pavlovian response over the last 35 years?
'You've gotta ask yourself one question......'

[Christian Siva-Jothy @ChristianJothy]

The differences are glaring; the S&P was then making new highs at 335 ish ( yes, thats 335 ) with the US economy ticking along. Three weeks after the crash we put a bottom in (30% ish lower) and then headed higher relentlessly into 2000 ( S&P @ 1550).