Jim Paul

Brendan Moynihan

Presents a serious psychological analysis of a trader Explains the three biggest mistakes made by traders investors, how to avoid them, which pattern all losses take, and why the most important factor in trading successfully is not losing.

What I Learned Losing a Million Dollars

Jim Paul's meteoric rise took him from a small town in Northern Kentucky to governor of the Chicago Mercantile Exchange, yet he lost it all--his fortune, his reputation, and his job--in one fatal attack of excessive economic hubris. In this honest, frank analysis, Paul and Brendan Moynihan revisit the events that led to Paul's disastrous decision and examine the psychological factors behind bad financial practices in several economic sectors. This book--winner of a 2014 Axiom Business Book award gold medal--begins with the unbroken string of successes that helped Paul achieve a jet-setting lifestyle and land a key spot with the Chicago Mercantile Exchange. It then describes the circumstances leading up to Paul's $1.6 million loss and the essential lessons he learned from it--primarily that, although there are as many ways to make money in the markets as there are people participating in them, all losses come from the same few sources. Investors lose money in the markets either because of errors in their analysis or because of psychological barriers preventing the application of analysis. While all analytical methods have some validity and make allowances for instances in which they do not work, psychological factors can keep an investor in a losing position, causing him to abandon one method for another in order to rationalize the decisions already made. Paul and Moynihan's cautionary tale includes strategies for avoiding loss tied to a simple framework for understanding, accepting, and dodging the dangers of investing, trading, and speculating.

An in-depth look at the failure of Wall Street's "proven" financial models Origami is the Japanese art of folding paper into intricate and aesthetically attractive shapes. As such, it is the perfect metaphor for the Wall Street financial engineering model, which ultimately proved to be the underlying cause of the 2008 financial crisis. In Financial Origami, Brendan Moynihan describes how the Wall Street business model evolved from a method to transfer risk into a method for manufacturing risk. Along the way, this timely book skillfully dissects financial engineering and addresses how it's often a mechanism to evade regulatory constraints, provide institutional investors with customized products, and, of course, generate revenue for financial engineers. Reveals how Wall Street's financial engineering business model morphed into something destructive Highlights how the origami model worked well in the comparatively stable years of the early 2000s, when there was less risk to transfer Discusses how Wall Street began manufacturing risk by creating products that multiplied risk exposures and encouraged subprime lending With the collapse of Lehman Brother the Wall Street business model effectively broke. But there are many lessons to be learned from what has transpired, and Financial Origami will show you what they are.

How the Wall Street Model Broke

Financial Origami

Successful traders know that before stepping into the wilderness ofthe speculative markets, you need a solid understanding of basicmarket behavior. But the conventional methods often fall short ofproviding this basic knowledge. Academics assert one thing,economists and fundamental analysts another, and technicianssomething altogether different. And, seemingly, none of them agreewith each other. Trading on Expectations explores the ideas behind the dominantschools of analysis, and shows the validity of each anddemonstrates how each, albeit at different times, reflects what themarket is doing. Sometimes market prices can be predicted using theeconomists' models; sometimes prices follow a "random walk" as theacademics claim; at other times price is responding to thepatterns, trendlines, and breakout levels identified bytechnicians. In this groundbreaking new book, Brendan Moynihan draws on hisexperience as a trader, analyst, and researcher to develop a methodthat focuses on the prime mover of prices and incorporates thestrengths of the conventional methods. Drawing on theparticipant-focused Chicago Board of Trade Market Profile and thepsychologically focused Contrary Opinion, he synthesizes andmodifies the best in these different methods and skillfully createsa single model of market behavior --the Sentiment-ActivityModel. Moynihan carefully describes how the combination of participants'actions and expectations about the future determines the directionof prices in the markets. This dynamic interaction between actionsand expectations explains the emergence of the dominant phases ofthe markets: price trends, trading ranges, and trend reversals.What's more, Moynihan's unique model enables you to pinpoint thecombinations of activity and sentiment that determine the threestates of the market as they unfold, in time frames ranging from asingle day to several weeks or months. The Sentiment-Activity Modelalso provides a way to determine how the market is likely torespond to various news items, explaining the apparent anomalies ofprice behavior in the process. To document his finding, Moynihanprovides illuminating applications over a multimonth time period tofour markets: Treasury bonds, soybeans, deutsche marks, and crudeoil. Offering a new, more powerful way of understanding the dynamics ofmarket behavior, Trading on Expectations is a must-read for alltraders in stocks, options, and futures. "Brendan Moynihan has studied the 'real' economists and found thetruth about how human action and individual motivations determinemarket prices. Trading on Expectations combines the best of thetraders' economic and technical tools. I recommend this book toanyone who wants to learn how to trade more successfully." --BrianS. Wesbury Chief Economist Griffin, Kubik, Stephens & Thompsonand former chief economist Joint Economic Committee of the UnitedStates Congress "In today's fast-forward society, readers of this book can quicklyabsorb the real essence of Trading Reality that takes years tounderstand. In fact, many traders have come and gone withoutrealizing how successful traders operate. It could take years togather the perspectives of this book. The Hightower Report plans touse the book for training its analysts!" --David C. Hightower,Editor The Hightower Report "Where most market texts simply reheat and serve the same oldapproaches, Trading on Expectations offers a fresh perspective bycombining the best of several market disciplines into a logicaltheory and workable system for trading all financial markets."--Michael Zentz Director of Fixed Income Research PegasusEconometric Group

Brendan Moynihan

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