Weekend Review | The Reptilian Brain

Commentary

A few years back, I read an article from a science journal that discussed the Triune Brain Theory and how the brain is essentially three brains in one.  The theory states that there is the neocortex (thinking) brain, the limbic (emotional) brain, and the reptilian brain.  

The youngest part of the brain is neocortex which is the outer part of our brains. It is responsible for reasoning, logic and rationalizing decisions. The limbic is the middle part and processes your emotional responses to situations.  It then shares those feelings with the neocortex and reptilian brain. The reptilian brain is the oldest part and is the area that makes decisions.  Many decisions are subconscious with its primary goal as survival.

As traders it's not unusual to have emotional feelings when trading.  However, when our emotions are triggered by non-relevant stimuli, our reptilian brains don't always make the best decisions.  Once these emotional feelings are invoked, they can become so powerful that the neocortex (thinking) brain literally shuts down.  We then no longer use logic to help reconcile our decision but instead use only emotion.  As traders this can result in cutting winners short, over trading, position size mismanagement, or in some cases not even taking trades.  

As a trader it's imperative that the thinking brain stays on.  In order to do this, one must focus on price and risk management.  In doing so, our reptilian brain can make decisions that are more likely to result in a positive outcome.

Portfolio Summary

+2.28% MTD | +10.45 YTD

Position Summary

10 long | 0 buys | 0 sells

Watchlist Summary

30 candidates

 

For the past several months the portfolio has been bouncing back and forth.  The month of May saw a tick up by 2% then June saw the portfolio move down by roughly the same amount. Now during the month of July, the portfolio has recovered what was lost in June.  At 65% invested, the portfolio has room to add a few more positions if the market continues progressing with a constructive trend.  

30 Year T-Bonds

The 30 year treasury bond appears to be in midst of a trend change.  From a daily perspective, the alert indicator displayed itself on 7/8/2016, which marked the recent top.  Since then, the 30 year treasury bond has closed below its first tier of support.   From the weekly perspective, the alert indicator has displayed itself on several occasions dating back to April 2003, December 2008, and most recently June/July 2016.   After each one of the these markers displayed, treasuries saw a relatively strong price decline.  Whether this occurs or not obviously remains to be seen which is why risk management per trade is always front and center.  Below are the two charts.

Oil

From a daily perspective, Oil closed below the main trend line for a second time since its high price in early June.  The short-term trend remains negative. 

Watchlist Summary

Since late June, the underlying screens which are used to find potential candidates have gradually increased to levels not seen in over a year.  A total of 320 stocks are now passing the screens.  Below is a sample of stocks that are currently on the watchlist.

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