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Shull is a trader herself, running her own trading desk at a major Nasdaq market maker and NYSE firm and has also received her M.A. from the University of Chicago, where she researched how unconscious forces drive behavior.
Shull challenged attendees to re-think their thinking in order to manage risk more effectively. This major thought shift should be predicated on the concept that Wall Street and the markets are a human game as opposed to a game of analyzing historical data sets and predictive models.
"We're so focused on financial engineering but it's a human gameand the emotional data set has become devalued," she said.
"Price action always has a context," according to Shull. She said this theory revolves around the concept of "theory of mind" or mentalizing, which she describes as putting yourself in someone else's shoes, when thinking about the markets or making decisions.
In other words when something happens on Wall Street, prices go up or down or the credit crisis of last year happens, it can be traced back to human roots. No predictive models or data sets could have led an algorithm to know what was going to happen over the last year and a half.
But some traders and hedge fund managers were able to see the value of houses was going up beyond the prices others would be willing to pay for example and saw that the crash would come. This took the human side though, the emotional act of looking beyond the data or the models into everyday life.
Shull also explained that regret and potential regret often drive traders decisions and are more motivation than reward. She advised traders to ask themselves, "Am I operating out of fear or frustration of missing out?"
Emotions are actually key to trading behavior, according to Shull. "The only thing to fear is no fear," she said. This fear chemistry signals the unexpected or uncertainty and these feelings of fear can help a trader if they pay attention as a piece of their larger data set.
She said that market strategy should be more focused on the human side, the who, what, where, when, why questions that a journalist depends on can also be applied to trading decisions and the markets. "It's important to bring more objectivity into the scenario," she said.
