Profiting from Global Behavioral Systems via Foreign Exchange Markets

Todd A. Ward, PhD, BCBA-D

bSci21Media, LLC

In my talk titled ABA Beyond Autism: How to generate novel business ideas, I discuss Skinner’s grand vision for taking behavioral science to the world, and provide a few general tips to set you on the path to financial independence.  One of those tips include taking an inventory of your own strengths in the field.  Amongst behavior analysts, two common strengths include data analysis and research.  This means we are generally good at figuring things out through research, and leveraging data to facilitate decision making.

If we take these two component skillsets and look at the world around us, opportunities abound.  After all, behavioral science is all around us.  Moreover, most of our behavior is interconnected via global economic systems, aka, behavioral systems.  Such systems are based on the value of currencies, which operate in much the same way as token economies – a concept most of us are already familiar.

Currencies, like tokens, are arbitrary stimuli with no intrinsic value.  The value in a currency, like a token, resides in what it can get you.  Moreover, our daily lives revolve around the production of currency in the form of wages.  We all need money to live.  We need to make a living to pay our mortgage and feed our kids.  If we don’t make money, there wouldn’t be a way for the field of behavior analysis to exist in the first place.  We would have to allocate our behavior elsewhere to meet the basic economic necessities of daily life.  Lastly, in the real-world, we literally purchase our environments.  Most of the stimuli we interact with on a daily basis are around us because they were purchased.  Anthropologists such as Marvin Harris call this our mode of production – the way we produce resources needed to live.

What I focus much of my attention on is how to expand the ways behavior analysts can pay their mortgage and feed their kids.  One way to do this is to leverage behavioral systems analysis and data analysis to trade in foreign exchange markets (i.e., Forex).  Although I am not a Forex expert, and have not made millions in trading, I have been able to leverage my behavior analytic repertoire to turn a profit.  Waking up in the morning to see that you profited while you slept, based solely on your ability to decipher a financial chart, and research market fundamentals, is very empowering.  So, while I will not offer any trading advice here, or even tell you that you should put your own money at risk – and it is risky – I will help you connect the dots between behavior analysis and Forex so you an decide for yourself if it is something you want to pursue.  The bottom line is this is simply another way for behavior  analysts to make a living, and for the field to get a little closer to Skinner’s vision.

Markets as Macrocontingencies

First, we need to understand a bit about markets.  From a behavioral perspective, we can think of markets as macrocontingencies.  According to Glenn (2004), macrocontingencies consist of the behavior of many independently-acting people, and its resulting cumulative effect.  The classic example is commuting to work and air pollution.  Millions of people drive to and from work every day, clogging the streets during rush hour.  This is macrobehavior.  Air pollution that may result from said macrobehavior is the cumulative effect.  Together, they comprise a macrocontingency – an if/then relation between commuting and air pollution.

Macrocontingencies are also prevalent in business.  As a consumer purchasing a product or service, you participate in macrobehavior with millions of other market participants.  The cumulative effect is profit for the company whose product you purchased.  Similarly, in financial markets such as the Forex market, the price of a given currency pair is a cumulative effect of millions of people and banks around the globe buying and selling the currency – a macrocontingency.

The more you can understand about what influences people to buy or sell a currency, and the more you can pick up patterns in a price chart, the more likely you can profit from these global financial macrocontingencies.  It all boils down to behavior and the situations that evoke buying and selling.  The macrocontingency provides value because it links cumulative effects to mass behavior.  We can then look to the contingencies affecting the behavior of people in different segments to better predict market trends.

Here’s a few things to keep in mind:

The Forex market is highly liquid.  Investopedia estimates more than $5 Trillion a day in currencies trade hands around the globe.  The stock market, by contrast, only has a daily volume around $80 Billion.  This means you will almost always have someone to buy at your price when you are ready to sell, and vice versa.

The Forex market is decentralized.  There is no centralized exchange.  Forex is exchanged on a global network of computers, with the biggest players being central banks and corporations.

The Forex market is open 24/5.  Unlike the stock market, which has regular hours during each business day, the Forex market is open around the clock from Sunday evening to Friday evening, if you are in the U.S.  This makes trading more convenient if you have a full time job.

Forex fundamentals, or the factors that move prices, are centered on countries.  By contrast, the stock market is centered on companies.  Economic indicators such as interest rates, GDP, and country wide events such as Brexit, are important movers of currencies, and there are many more.  Such factors dovetail nicely with the cultural literature in behavior analysis, such as those from B.F. Skinner, J.R. Kantor, Sigrid Glenn, and Tony Biglan.

There are fewer options in Forex.  Forex comes in currency pairs, and there are four major pairs – EUR/USD, GBP/USD, USD/JPY, USD/CHF.  This means it is easier to focus on a few instruments without becoming overwhelmed with thousands of options as is the case in the stock market.

Charting tools are readily available online. Many news websites such as CNBC have basic charting tools available for free. And more advanced options can be found at TradingView.com and TD Ameritrade’s Think or Swim platform, both of which are free.  The charting aspect is virtually the same as the stock market, but it was worth mentioning here.

Financial charts are time-series in nature. In other words, the data is very similar to the data we are trained to use in behavior analysis.  The only difference is that we aren’t looking at the behavior of individuals – we are looking at the behavioral products of millions of people over time.  Nonetheless, the basics are relatively straightforward, and we discuss the simple concept of moving averages in a previous article.  The more difficult part comes in interpreting the charts, in the context of fundamentals, and developing a strategy with a set of buy and sell rules.

What are some other ways behavior analysis can connect to financial markets?  Let us know in the comments below, and be sure to subscribe to bSci21 via email to receive the latest articles directly to your inbox!

Todd A. Ward, PhD, BCBA-D is a science writer, social philosopher, behavioral systems analyst, and the President and Founder of bSci21Media, LLC, which aims to connect behavioral science to the world in an engaging, non-academic way.  Dr. Ward received his PhD in behavior analysis from the University of Nevada, Reno under Dr. Ramona Houmanfar.  He has served as a Guest Associate Editor of the Journal of Organizational Behavior Management, and as an Editorial Board member of Behavior and Social Issues.  His publications follow a theme of behavioral systems analysis, organizational performance, theory & philosophy, and language & cognition.  He has also provided ABA services to children and adults with various developmental disabilities in day centers, in-home, residential, and school settings, and previously served as Faculty Director of Behavior Analysis Online at the University of North Texas.  Dr. Ward can be reached at [email protected]