Michael Covel is the author of the internationally bestselling book Trend Following

Defining and Measuring Happiness

July 31, 2006

An interesting brief on happiness. An Excerpt:

"Popular writers focus on the causes of happiness, but defining and measuring it is a more basic first step for the advance of a science of happiness."

Blast from the Past: 1986

July 30, 2006

An article from Futures Magazine dated 1986 (PDF) from Tom Willis' web site. The article titled, "Do Trading Advisors Run Into A Dollar Trading Barrier?" shows some fears have been around for quite some time.

Commodities as an Asset Class

July 28, 2006

An excerpt from "Commodities as an Asset Class":

"Are commodities the new El Dorado for institutional investors? There are sufficient reasons for the re-evaluation of this asset class even without the significant increase in oil prices in recent years. For institutional investors there are aspects that are much more important than short-term speculative gains, such as the interesting potential of the commodities asset class in terms of correlation, diversification and protection from inflation."

Read paper (PDF).

Sell What You See, Not What You Think

July 27, 2006

A good excerpt from Yahoo Finance:

The main rule for selling is to sell what you see, not what you think. This rather difficult concept is counterintuitive, because stocks often climax and fall off the cliff even while their fundamentals, earnings history and future look spectacular. Chipmaker Marvell Technology Group (NASDAQ:MRVL) breezed past Thomson First Call consensus estimates in each of the past 13 quarters, by 2% to 11%. Earnings bounded 50% or more and sales 31% and higher in the past eight quarters. Double-digit earnings and sales growth are expected through next year. Profit margins have also been strong, while cash flow has been growing. So why is the stock 52% below its all-time high?

You don't need to know why it is 52% off its all-time high. You just need to know that it is.

Why Traders Lose

Brett Steenbarger put together a list of "common reasons why traders (and most other human beings!) fall short of being fully intentional":

1. Environmental distractions and boredom cause a lack of focus - All of us have limits to our attention span and these are easily taxed during quiet times in the market;

2. Fatigue and mental overload create a loss of concentration - The demands of watching the screen hour after hour make it difficult to be sharp, creating fatigue effects that are well-known to pilots, car drivers, and soldiers;

3. Overconfidence follows a string of successes - It is common for traders to attribute success to skill and failure to situational, external factors. As a result, a string of even random wins can lead traders to become overconfident and veer from trading plans--especially by trading too frequently and/or trading excessive size;

4. Unwillingness to accept losses - This leads traders to alter their trade plans after trades have gone into the red, turning what were meant to be short-term trades into longer-term holds and transforming trades with small size into large trades by adding to losers;

5. Loss of confidence in one's trading plan/strategy because it has not been adequately tested and battle-tested - It is difficult to tolerate even normal drawdowns unless you have confidence in your methods. This confidence does not come from mere positive self-talk. Rather, it is a function of testing your methods (historically and in real-time) and seeing in your own experience that they truly work;

6. Personality traits that lead to impulsivity and low frustration tolerance in stressful situations - Psychological research suggests that some individuals are more impulsive than others and less conscientious about adhering to plans and intentions. These personality traits often are accompanied by stimulation-seeking and a high degree of risk tolerance: a deadly combination.

7. Situational performance pressures - These include trading slumps and increased personal expenses that change how traders trade and lead them to place P/L ahead of making good trades. By worrying too much about how much money they make, traders can no longer follow markets with a clear head;

8. Trading positions that are excessive for the account size - This is much more common than is usually acknowledged. It creates exaggerated P/L swings and emotional reactions that interfere with cool, calm planful behavior;

9. Not having a clearly defined trading plan/strategy in the first place - Interestingly, many traders do not consider themselves to be discretionary traders, but in fact do not have a firm, explicit set of trading rules that they follow. It is difficult to be consistent with a plan (and to evaluate your consistency), if you don't have the plan clearly laid out;

10. Trading a time frame, style, or market that does not match your talents, skills, risk tolerance, and personality - All too often, traders veer from their plans because those plans are ones that they feel they *should* follow, but that don't truly come naturally to them. These departures from discipline are actually unconscious attempts to trade in a style that is more in tune with the trader's skills and talents.

Source: Brett Steenbarger

Barbara Dixon: Donchian Student Wisdom

July 25, 2006

Barbara Dixon, a student of famed trend follower Richard Donchian, wrote twenty years ago in Commodities magazine:

Donchian is one of the most respected technicians on Wall Street - especially in commodities. He began his career on 1930 and says he became hooked on markets when read Edwin LeFevre's fictionalized biography of Jesse Livermore, Reminiscences of a Stock Operator. His interest in technical analysis arose after he suffered some losses following the 1929 crash. This led to his discovery that only the chartists made sense and money. Donchian wrote his first market letter in 1930 at the age of 25, and Shearson's present 'Trend Timing' commodity letter originated in 1960 when Donchian joined Hayden Stone. These letters have served as primers for countless commodity traders. The 'Twenty Trading Guides' make a fine supplement to the letters and will probably survive and prove valid for the next 44 years as well.

1. Beware of acting immediately on widespread public opinion. Even if correct, if will usually delay the move.
2. From a period of dullness and inactivity, watch for and prepare to follow a move in the direction in which volume increases.
3. LIMIT LOSSES, ride profits - irrespective of all other rules.
4. Light commitments are advisable when a market position is not certain. Clearly defined moves are signaled frequently enough to make life interesting, and concentration on these moves to the virtual exclusion of others will prevent unprofitable 'whipsawing.'
5. Seldom take a position in the direction of an immediately preceding three-day move. Wait for one-day reversal.
6. Judicious use of stop orders is valuable aid to profitable trading. Stops may be used to protect profits, to limit losses and to take positions from certain formations such as triangular foci. Stop orders are apt to be more valuable and less treacherous if used in proper relation to the chart formation.
7. In a market in which upswings are likely to equal or exceed downswings, a heavier position should be taken for the upswings for percentage reasons - a decline from 50 to 25 will net only 50% profit, whereas an advance from 25 to 50 will net 100%.
8. In taking a position, price orders are allowable. In closing a position, use 'market' orders.
9. Buy strong acting, strong background commodities and sell weak ones, subject to all other rules.
10. Moves in which rails (now the Transportation Index) lead or participate strongly are usually worth following more than moves in which rails lag.
11. A study of the capitalization of a company, the degree of activity of an issue (a varying factor), and whether an issue is a lethargic truck horse like Consolidated Edison or Exxon or a spirited, volatile race horse like Teledyne (NYSE) or Resorts International (American) is fully as important as a study of statistical reports. (Volatile stocks are 1978 counterparts of two issues mentioned in 1934, Aluminum Co. of America, then on the Curb, and Case Threshing Machine, now J.I. Case, a part of Tenneco.)

More from Boone Pickens

July 23, 2006

I posted a quote the other day from Boone Pickens. Some more:

Be willing to make decisions. That's the most important quality in a good leader. Don't fall victim to what I call the ready-aim-aim-aim-aim syndrome. You must be willing to fire.
T. Boone Pickens

I've always believed that it's important to show a new look periodically. Predictability can lead to failure.
T. Boone Pickens

Keep things informal. Talking is the natural way to do business. Writing is great for keeping records and putting down details, but talk generates ideas. Great things come from out luncheon meetings which consist of a sandwich, a cup of soup, and a good idea or two. No martinis.
T. Boone Pickens

Work eight hours and sleep eight hours and make sure that they are not the same hours.
T. Boone Pickens

How Many Trade the Macro Trends?

Here are the top earners for 2005:

1. James Simons $1.5 billion - Renaissance Technologies
2. Boone Pickens $1.4 billion - BP Capital Management
3. George Soros $840 million - Soros Fund Management
4. Steven Cohen $550 million - SAC Capital Advisors
5. Paul Tudor Jones $500 million - Tudor Investment
6. Edward Lampert $425 million - ESL Investments
7. Bruce Kovner $400 million - Caxton Associates
8. David Tepper $400 million - Appaloosa Management
9. David Shaw $340 million - D.E. Shaw
10. Stephen Mandel $275 million - Lone Pine Capital

You can't make this kind of money with short term in and out trading.

The Special Quality of Sports

A great excerpt from Yahoo Finance by Jim Citrin:

"Participation in sports and fitness has multiple benefits for people of all ages. For young athletes and girls in particular, organized sports boost self-esteem and motivation, essential ingredients in the development of future leaders. Studies show that young athletes who are happy earn better grades, have fewer problems outside school than non-athlete classmates, have better attendance, and drop out far less frequently. Not that sport is unique to developing these qualities. Other competitive collaborative activities such as the military, theater, dance troupes, or debate teams can build them up as well. But there's something special about the physicality of sports and fitness. Those who exercise regularly know the manifold benefits to keeping active and in shape. A lot of scientific evidence shows that exercise provides a short-term increase in the ability to process data. Exercise has also been shown to reduce depression and anxiety, illnesses that can hamper the functioning of the brain. And over the long term, exercise has been shown to help prevent the mental effects of aging."

I have met many people in my life who were successful, however, the ones who have had sports backgrounds always seem to have something 'extra'.

Feedback from Old Pro

July 20, 2006

I have received feedback over the months from an old pro in the trading industry. I share some excerpts below:

Your Boone Pickens story reminds me of how lucky I am to have met some of the great ones over the years and Boone was one of them. In the mid eighties one of my trading mentors was xxx from xxx. He died a few years back but had accumulated a small fortune from trend following and his oil business. One of his neighbors was the legendary Oil wildcatter xxx. [He] had sent his Lear 25 to [my home town] to ferry me back to xxx for the day...[they] told me Bob Mosbacher and Boone Pickens were in Town visiting and we could have lunch at the country club with them if I liked. Boone was as down to earth as any man I ever met and Bob Mosbacher was a peach of a guy himself. Bob is a Texas wildcatter cut from the same cloth as Boone. Multi-million dollar deals done on a handshake type folks. I also remember Mrs. Mosbacher who was very easy on the eye and a real down to earth lady. All these guys were successful in business and trading and the thing that stuck with me through the years was how nice they were as people. Boone treated me like we were old friends I guess partly because of my relationship with xxx but he seemed truly interested in my plans to become a CTA, which I did in 1986. I guess when I met these guys the oil business had been terrible and I bet they were all broke or close to broke. Boone Pickens told me he had been broke before but never between his ears. I would relate that to some of the ups and downs we go through as traders but it is important to never be broke between one's ears. [From my mentor] I heard several truisms that have stuck with me over the years.

#1 They don't dedicate monuments to crowds.
#2 A man that won't lie to his wife is no gentleman.
#3 Brokerage houses: they may be "right" but I am the one making the money.
#4 You cannot trust a man with no bad habits or a bible on his desk. If you see a picture of Jesus in his office run. xxx was a Christian but he did not trust those who wore it on their sleeve.
#5 I smoke short camels because I can smoke them faster. Of course xxx died of a heart attack brought on by his smoking habit.
#6 If you want to know what a market is going to do just put a weekly chart up on the wall and back away a distance. Whatever the market has been doing it will keep doing until it does something else. We would call that a trend although I never heard him use the word "trend" one time in 15 years but he was a trend follower.

Yahoo Slide

July 19, 2006

Here is 3 month chart of Yahoo (reflecting today's 20% drop).

Here is 1 year chart of Yahoo.

If you were not only looking at Yahoo fundamentals, was today's move a 'surprise'? if you were looking at the price action, were you surprised?

Trading 'Binaries' at HedgeStreet

The exchange HedgeStreet sent me a news release the other day on binaries (PDF). A useful primer and exchange for many traders. My hope is that they will also eventually go the route of providing much longer term options like LEAPS®.

Maybe We Should Leave That Up to the Computer

July 18, 2006

From the NY Times, an interesting read (PDF). An excerpt:

Models have other advantages beyond their accuracy and consistency. They allow an organization to codify and centralize its hard-won knowledge in a concrete and easily transferable form, so it stays put when the experts move on. Models also can teach newcomers, in part by explaining the individual steps that lead to a given choice. They are also faster than people, are immune to fatigue and give the human experts more time to work on other tasks beyond the current scope of machines.

T. Boone Pickens on the Value of MBA

Last night on Nightline, T. Boone Pickens (made 1.4 billion in 2005) reminded the fawning reporter:

"I have been broke 3 or 4 times. But fortunately for me I'm not an MBA, so I didn't know I was broke."

Now that's good stuff. Love it.

Wishes, Hopes and Desires

July 17, 2006

Janice Dorn sent in nice feedback:

Without realizing it, people tend to perceive things according to how they want to see them, suggests a new study, soon to be published in the Journal of Personality and Social Psychology. In five separate tests conducted by a graduate student from Cornell, participants regularly labeled an indistinct figure in a way that would lead to their obtaining a taste reward.(in this case fresh-squeezed orange juice as opposed to a lumpy gelatinous veggie smoothie). In other words, when faced with ambiguity, the subjects made the choice which would result in something pleasurable for them. This gives credence to the age-old hypothesis that wishes, hopes and desires actually influence what a person sees. The analogies to trading are clear. We see whatever is happening in light of our expectations of reward, and will use all manner of neural trickery to rationalize "why" something is happening rather than to deal with the reality that it is actually happening. We want the orange juice, and will lie to ourselves about what we are actually seeing, in order to attempt to obtain that reward. Just as we feel uncomfortable in our personal lives when faced with "uncertainty" or not knowing, so do the markets. We want to get the orange juice, and this tends to distort our perceptions and lead to an insidious kind of self-deception. Sigmund Freud said that neurosis was the inability to tolerate ambiguity. Do we bias the outcome of ambiguous situations in favor of hope and away from fear? What do you think?
Janice Dorn, M.D., Ph.D.

Words Mean Things #2

July 16, 2006

From tonight:

By Christopher Wang,
AP Business Writer Wall Street,
Reeling From a Whirlwind of Bad News, May Find Solace in Earnings, Economic Data

NEW YORK (AP) -- Although a whirlwind of bad news and deepening uncertainty sent stocks tumbling last week, Wall Street could see a return to reason in the week ahead with a fresh round of economic and earnings data that could help investors regain their footing.

I don't understand. A return to reason is for all markets to go up? If we make it back to reason, will there ever be a time when need to leave reason again?

David Harding Responds

July 14, 2006

David Harding recently responded to a letter to the editor. I have had the opportunity to spend some time with David for an interview; he is a very sharp guy. Here is the published letter and his response (PDF).

Watch CNBC & Learn!

July 11, 2006

Feedback emailed in tonight:

I just recently got a job working for an investment bank here in New York. During my interview I asked the senior vice-president of the firm what methods they use to determent what securities to recommend for their clients. He said to me, "we will show you how to interpret what CNBC is talking about and how to find out what other major firms are doing." How can anyone rely on this kind of advisement?

Peter Coy Lays Out 'Questions'

From Peter Coy at BusinessWeek Online comes 'questions':

"We're halfway through 2006, and the year still seems as opaque and unpredictable as it did last New Year's Eve. Investors are puzzled: Will the economy march forward, with business investment picking up the slack from a retrenching consumer? Or is the Federal Reserve on the verge of overtightening monetary policy, undermining the housing market and sending the U.S. into its second recession of the new millennium? Was the stock market's big gain on June 29 a harbinger of a second-half bull market, or just a feint?"

Just once, I mean only once, it would be nice to see a reporter for a national magazine or newswire say, "We have no clue about anything so we advise first waiting for the market to move in a direction then to get on board."

Malaysia Trend Trader Seeks Relief

July 10, 2006

Feedback from a reader in Malaysia:

Hi Michael, First of all I would like to say THANK YOU for writing what must (or should) be the most important finance theory book of recent times. It was an absolute revelation, an eye-opening, out-of-this-world experience...well for me, at least. I work as a fund manager in the largest financial institution, here in Malaysia and it is not easy to put forward this Trend Following concept which seems so alien to the traditional fund managers in Malaysia. As you have rightly mentioned...some people do it to become smart or to show-off their intelligence and capability to analyze hundreds of accounts, economic data and financial data, whereas the enlightened ones..simply do it for money. I have never believed in fundamentals from the very beginning of my training and have been labeled as a loose-cannon cowboy fund manager amongst my peers for my refusal to accept any of the fundamental/traditional economic theories. Your book has given me the enlightenment that I so need and to know that there is such a simple concept/theory as following something as simple and real such as price is absolutely godsend! You wont believe how thrilled and ecstatic I was after reading the book that my wife bought for my birthday. She must have gotten ear bleed from listening to my babblings about Trend Following! I started my training in technical analysis, which after awhile I found to be useless as well because there is no way anybody can predict anything and I have become a complete convert after reading your book. But I would greatly appreciate if you could provide some insights and advice on how to use the system in a long equity (only!) market? I have developed an Excel based system to backtest my parameters and the result is astounding. Using crossings of simple moving averages, the return from the sample data of Top 60 stock (in terms of market cap) in the Kuala Lumpur Composite Index was an unbelievable 1800% for the past 10 years from 1996-2005. Can this be right? Am I doing something wrong or is the system THAT good? Perhaps I need to get the Wealth Lab software for a more reliable backtesting system and get more detailed results and analysis of the system? I would also appreciate if you could advice on how I can argue the concept of following price against fundamentals, as I am continuously being shot down by my superiors and the Chief Investment Officer who seems adamant that there is no other way except the fundamental way! Our daily morning meetings are flooded with discussions on what Bernanke meant, where the US interest rate is going, the Malaysian GDP, the US dollar vs. ringgit, inflation level and the topic of the year, OIL PRICE! And my supremely intelligent research team constantly tries to find non-existent correlations between everything and anything and how it will affect our local stock market! I'm beginning to feel very frustrated that nobody seems to be able to accept that none of that works and the only thing we can use is PRICE! XXX Portfolio Manager - Equities

Wealth-Lab is definitely a step in right direction.

In terms of arguments about trend following v. fundamental analysis, my book, blog and podcasts should give plenty of ammunition!

'Hedge Fund Toddlers'

July 08, 2006

An article forwarded to me from BW titled Hedge Fund Toddlers (PDF).

Donchian: Blast from the Past

July 07, 2006

A good read about Richard Donchian from 1978 (PDF) - wholly relevant to today's traders.

Criticism: Learning from It

July 06, 2006

I get criticized by some people. They don't like my message perhaps. Or maybe they detect an attitude that doesn't work for them. It all comes with the territory. Along those lines I saw Mark Cuban offer a good bit on criticism today at his blog:

"The easiest thing in the world to avoid is criticism. All you have to do is nothing. Do nothing of your own free will. Do only what is asked of you and nothing more, and chances are you will never be criticized. For those of us who set goals and want to have an impact in the business world in particular, criticism is part of the job description. You have to be able to be able to take it and sometimes you can’t be afraid to dish it out. Although criticism is typically perceived as a negative, it can be one of the most positive and motivating forces any of us can experience. The key to turning criticism into a positive is understanding the nature of the criticism. In a nutshell it comes down to content. Is the criticism based on content or not. I’ve received a ton of criticism in the media over the last few weeks. People criticized where, when and how I did things. Not a single person criticized or challenged why. I get criticized a lot. So what. If someone says something of value. I will learn from it. If they criticize to fill up a column or to hear them[selves] talk, I can get a good laugh out of it. What it all comes down to is content and effort. If someone puts in the effort and challenges the content and makes me rethink my position, I come out ahead. So criticize away."

This 'attitude' is useful for anyone and everyone no matter what they do or pursue.

Bridging the Gap

July 05, 2006

From Morningstar comes this ditty:

"There are several tools that Morningstar uses to interpret the fundamentals of a firm in order to bridge the gap between art and science, hopefully paving the way to a nice profit in the process. Two of our favorite bridges that help us arrive at prediction of a company's intrinsic value and a "consider-buy" price are moat and risk. Briefly, an economic moat is a firm's ability to utilize its sustainable competitive advantages to outperform rivals and earn returns greater than its cost of capital. The risk of a company, on the other hand, is the strength of the underlying business and the predictability and certainty of its future cash flows. Risk is determined by analyzing factors such as cyclicality, leverage, legal issues, and other outside events. In turn, risk ratings affect the size of the margin of safety that we build into our investment recommendations. But not everyone's opinion, interpretation, or prediction of these metrics is the same. This is where we believe value can be found: by correctly selecting firms with economic moats that are trading at attractive discounts to our fair value estimate, given the margin of safety implied by our risk rating."

How is the average trader (or frankly the professional) supposed to do all of this and do it right? Why do many of the great traders never think like this?

What Do You See When You Look in the Mirror?

July 04, 2006

Janice Dorn, M.D., Ph.D (bcoached@cox.net) sent me her most recent article:

"The way we perceive our actions or the consequences of our actions is, often, entwined closely with the way we identify who we are. We traders often define ourselves in terms of our trading...our actions and inactions, our triumphs, our gains and our losses. As a result, it is easy to merge so strongly with a decision that has resulted in unexpected negative consequences that we actually become that decision. The disappointment and shame we feel when we make what we perceive is an error, grows until it becomes a dominant part of our identity. We rationalize our "poor" decisions by labeling ourselves incompetent decision makers, or, in the trading vernacular "idiots." Imagine walking around all day telling everyone that you are an idiot? Why are you doing that? What gain are you getting from that, and what message are you giving to those around you? Your true identity cannot be defined by your choices. Your essence---what makes you a unique human being-- exists independently of your decision-making process. This is one reason why we are able to love someone (and, ideally, ourselves) without condition. We love who they are as a person, and understand that people do not always make choices that are in their best interest or the best interest of others. Nonetheless, we continue to love them. Trading is not about being right or wrong. It is about making money. It's about making more than you lose. All trades contribute to your development and are an integral part of your evolution to trading mastery; yet they are still separate from you as a person. A trade that does not result in its intended outcome (making money) is in no way a reflection of who you are as person. (The same is true for winning trades, and I will have more to say about that at another time). Nonetheless, a trade gone bad (losing money or not cutting your losses short) can have dire effects on your ability to trust yourself. Your self-esteem suffers and this spills over into every aspect of your life. You can avoid becoming your trades by affirming that a "bad trade” was just an experience, that you did not let your losses run, and that the markets will always give you another chance. Every trade is an opportunity to learn, grow and make you a better trader. If you are not learning, you are not growing and your trading ability will stagnate. You will not progress through the four critical phases necessary to achieve trading competence. You are not your trade, but you are RESPONSIBLE for your trade. If it doesn't work, get out, regroup yourself and wait for the next signal. It is fine to analyze after the fact what you did and why you did it. In fact, it is essential to trading success to look at every trade you do, why you did what you did and how you felt at the time you did it. However, be quick about it. Avoid lingering in the past and beating yourself up over the bad trade. Try to analyze, backtest and reflect on the consequences of your decision from a rational rather than an emotional standpoint. Allow your primitive, limbic, rat brain to send emotional signals quickly into the new, rational brain for processing and integration. Accept your rat brain and feel the feelings, but get out of that part of the brain and into the higher learning centers. Strive to understand why you made the choice you did, forgive yourself, and then move forward. In other words, get over yourself as quickly as possible. A perceived mistake becomes a valuable learning experience and is, in essence, a gift from which to learn and grow. You are not a bad person and you are not your trading decisions; you are simply human. Keep going, keep trying, learn from your great trades and your not-so-great ones, and never ever give up!

Feel free to drop Janice a line at her email above. I understand her web site will be up soon.

Problem: The Majority of People...

July 03, 2006

A good presentation found recently (PDF) covering 'Successful Communication using Behavioural Finance'. A quote from the powerpoint:

Traditional Finance is more concerned with checking that the price of two 8oz bottles of ketchup is close to the price of one 16oz bottle of ketchup, than in understanding the price of the 16oz bottle.
-Larry Summers

Two Systems of Reasoning

July 02, 2006

James Montier in a paper a few years back offered two systems of reasoning:

System One/X-system/Reflexive/Intuitive
Holistic
- Affective (what feels good)
- Associative - judgements based on similarity and temporal contiguity
- Rapid parallel processing
- Concrete images
- Slower to change
- Crudely differentiated - broad generalisation
- Crudely integrated - context specific processing
- Experienced passively and preconsciously
- Automatic and effortless
- Self-evidently valid: "Experiencing is believing" or perhaps wishing is believing

System Two/C-system/Reflective
- Analytic
- Logical
- Deductive
- Slow, serial processing
- Abstract images
- Changes with speed of thought
- More highly differentiated
- More high integrated- cross context processing
- Experienced actively and consciously
- Controlled and effortful Require justification via logic and evidence

He explains:

System X is essentially the emotional part of the brain. It is automatic and effortless in the way that it processes information. That is to say, the X-system pre-screens information before we are consciously aware that it even made an impact on our minds. Hence, X-system is effectively the default option. X-system deals with information in an associative way. Its judgements tend to be based on similarity (of appearance) and closeness in time. Because of the way X-system deals with information it can handle vast amounts of data simultaneously. To computer nerds it is a rapid parallel processing unit. In order for the X-system to believe something is valid it may simply need to wish that it were so.

System C is the 'Vulcani' part of the brain. To use it requires deliberate effort. It is logical and deductive in the way in which it handles information. Because it is logical, it can only follow one step at a time, and hence in computing terms it is a slow serial processing unit. In order to convince the C-system that something is true, logical argument and empirical evidence will be required. The table below provides a summary of the main differences between the two systems.