We all know that greed and fear drives the market, here Lars Tvede peels the onion to give more insight about how human instincts propel markets. The first stage of the journey is to the rational world, where analysts undertake to understand the fundamental truths about securities, currencies or other tradable items. Naive investors believe that a company's prospects alone drive the market and investors need only seek out "true value". Tvede says, "the worst problem faced in the hunt for the true value is not that constructing the right economic forecasting model is difficult ... The worst problem is that the better the economic simulation models describe the actual dynamics of the world, the more chaotic their behaviour becomes."

The second stage of the journey shows that while sharp-pencilled advisors may recognise the fundamentals, the canny investor will understand how other investors are likely to react to these fundamentals. This is where the book take a step into the human mind. Because there is much irrationality in the markets, Tvede throws in a dash of chaos theory, describing the butterfly effect about "how a little old lady selling a few bonds in Brussels could cause a crash in Japan!"

Finally, he closes in on why charts capture human nature, real economic events and chaos, and how to trade using them. He warns: "One of the most popular rules for the moving average is simply to select a specific average and then buy every time the price breaks about the average and sell every time it breaks below. The best thing to do with this rule is forget it: it doesn't work."

In a detailed, yet not overbearing fashion, Tvede, a former derivatives trader, portfolio manager and investment banker, provides fascinating insights into what drives investors who drive the markets. --Bruce McWilliams

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The Psychology of Finance Lars Tvede The author approaches this fascinating area from the belief that "psychology can be used to explain important aspects of market behaviour, including some aspects of common technical analysis". Without giving too much away, Lars Tvede believes that there is an inherent structure in price movements, depending on the type of stock or market one is investigating. The authors style is very "handson", which results in an extremely readable and enjoyable account of the movements in prices of financial assets. Analysts, traders and bankers will find this book essential reading. Economists and the personal investor will also find The Psychology of Finance interesting. Finance/Investment Psychological Aspects --This text refers to an out of print or unavailable edition of this title.

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