Financial Decisions Real Time: Decision Fingerprint, ESSAY

1. Financial Decisions Real Time:
Decision Fingerprint,
ESSAY
Comments are Welcome!
dr.hegyesi@t-online.hu
lajos.hegyesi@t-online.hu
this version: June 21, 2016
Please do not cite or distribute.

2. 1. I attempt to study the properties of a „simplified” (which is incredibly complex in reality) theoretical loop from financial
market to actors/traders and back to the financial market.
2. I predict and hypothesize that every actor/trader has Unique Trading Identity and therefore Individual Trading Behaviour in
the real-time interaction with the financial market. This behaviour, and emotional state (somatic marker) are mapped and
manifest it in these real-time (Time Stamped) trading patterns flows. This Individual Trading Behaviour can be formalized and
recognized as Trading „Fingerprint” (Trading Stamp).
3. My assumption is that this Individual Trading Behavior is an integrative paradigm, consisting of personal (e.g., personality
traits, risk intelligence, financial background, biological markers...), contextual variables (stocks/equity, bonds, forex,
derivatives, physical assets…) and emotional management (e.g. euphoria-panic, greed and fear) as well.
Bechara and Damasio (2004) have presented that emotions are important for rational decision making. Decision making requires
emotion related signals, somatic markers.
All emotions can be seen as linear combination of two neurophysiology dimensions valence and arousal (Colibazzi et al., 2010).
4. Common experience suggests what Experimental Economics and Behavioural Trading confirms, that Traders do not decide
identically when faced with the same options, even when the circumstances of decisions with all relevant respects seem to
remain the same.
The core of my argument is that Traders combine/aggregate their Subjective Probability Distribution of Random Variables: as
Trading Personality, risk level, types of markets , emotional states, motivations, with their preferences (Self and Other
Regarding), to choose the „optimal” utility alternative (Subjective Expected Utility) „in the mind” in that dedicated decision.

3. Therefore an aggregate trading decision is a Subjective Probability Event representing Trader’s Trading Personality in that
dedicated moment.
The set of this dedicated trading decisions is the Trader’s Trading Fingerprint.
5. The Three Dimensional Trading „Fingerprint” Model is shown in Figure 1.,2., and 3.
This model describes the interrelations among:
- Financial Market Events ( Stimuli ),
- Individual Trading Behaviour (Buy/Sell/Hold) and,
- Emotions, Emotional Management, Gut feelings/reactions, behind simultaneously.
6. The financial system in this „simplified” model focus solely the process of individual decision making (e.g., manual
trading), without any computerized assistance.
7. Financial patterns proposed to analyze, are the patterns of „Pattern Day Traders”, making many rapid buy and sell
transactions in the same trading day, hoping to make small but consistent profit.

4. Individual Trading Behaviour
Pattern
Factor Analysis,
Pattern Recognition,
Regression Analyses,
Trading „Fingerprint„
Generation
Financial Market / Stock Exchange
Financial Behavioural
Biases
PPPersonality Traits
Financial Personality
Traits
Financial Background
Biological Markers
Mean Resting Heart Rate
Real-Time Market Pattern
Figure 1.
Individual Trading
Behaviour and its
characteristic elements.
EMOTIONS
Emotion
regulation
Monitoring
Emotions/Individual
Somatic Markers
Patterns of Somatic Markers
Stimulus event
Arousal
Valence
Stimulus event
Risk Type Compass

5. Stocks/equity,
bonds, forex,
derivatives and
physical assets
Stimulus Event
Market Pattern
Market Price
Behavior/
Reactions
Emotions
Psychosomatic
Marker
Buy/Sell/Hold
Buy/Sell/Hold
Three Dimensional
Trading „Fingerprint”
Figure 2.
Three Dimensional Trading „Fingerprint” Model Describes the Relations Among Stimulus Event (Market Price Pattern),
Emotion (Somatic Marker Pattern) and Individual Trading Behavior (Buy/Sell/Hold Pattern) Simultaneously.
Emotion Regulation
t3
t1
t2
Direct pathway (fast) D.Kahneman
Indirect pathway (slow) D. Kahneman
Financial
Market

6. Stimulus Event,
Market Price
Behavior
Sell
Behavior
Buy
Emotion,
Psychosomatic Marker
Dimensions of Trading „Fingerprint”:
Stimulus Event, Emotion and Behaviour
Figure 3.
Hold
Up
DownGreed
Fear

7. Ad. Financial Behavioural Biases : Hens and Bachmann: overconfidence, loss aversion, disposition effect, herding,…
Ad. Personality Traits: Big Five: openness to experience, consciousness, extroversion, agreeableness, neuroticism
Ad. Financial Personality Traits: The big spender, the futurist, the newbie, the experienced, the avoider
Ad. Financial Background: Age, wealth, marital status, financial literacy, profession, income
Ad. Biological Markers: Left hand: 2D,4D; Right hand: 2D,4D ; Facial masculinity, (testosterone, cortisol)
Ad. Mean Resting Heart Rate : Lower Mean Resting Heart Rate (MRHR) is associated with lower ratings of Arousal and Riskier
Behavior, Faster Responses, Higher Impulsivity (Barbara Schmidt et al., 2014).
MRHR can be considered as Personality Trait (Barbara Schmidt et al., 2014)
Ad. Individual Somatic Markers: Heart Rate Variability (HRV), Skin Conductance Responses (SCR), Pupil Dilation, Eye Tracking, Body
Movement, Cutaneous Electrogastography…,
Ad. Risk Type Compass : Risk Type Compass (Psychological Consultancy Ltd) is an instrument that assesses the different ways in which
individuals perceive risk. An individual’s Risk Type will give an indication of how an individual perceives risk, how much uncertainty they
can cope with, and how they will react when unexpected events or outcomes occur.
There are Eight Risk Types: Prudent, Wary, Intense, Excitable, Carefree, Adventurous, Composed, Deliberate.

8. The Model is an Approach to Advance our Understanding of :
- The Nature of Emotions/Emotional Management vs. Trading Behaviours,
- Trading Behaviour and Dealing with Uncertainty,
- Background of Highly Successful Traders and Emotional Personality/Personality Traits,
- Behavioural and Emotional Analysis of Losers vs. Winners in the Financial Markets
- Rational/Irrational Attitudes of Traders,
- Nature of High Frequency (noise/impulse) Trading,
- Mean Resting Heart Rate and Trading Personality Trait,
- Mean Resting Heart Rate and Riskier Trading Behaviour.
Lajos Hegyesi Ph.D.,( in Telecommunications )