BRETT STEENBARGER'S TRADING PSYCHOLOGY RESOURCE CENTER

Below are resources to help traders become their own trading coaches, improve their trading processes, and develop a positive work-life balance.  All the TraderFeed posts also contain links to valuable resources and perspectives.  

RADICAL RENEWAL - Free blog book on trading, psychology, spirituality, and leading a fulfilling life

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The Three Minute Trading Coach Videos

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Forbes Articles:

https://www.forbes.com/sites/brettsteenbarger/
  

My coaching work applies evidence-based psychological techniques (see my background and my book on the topic) to the improvement of productivity, quality of life, teamwork, leadership, hiring best practices, and creativity/idea generation.  An important part of the "solution-focused" approach that I write about is that we can often best grow by focusing on what we do well and how we do it--and then doing more of what works for us.  The key is to know our cognitive, interpersonal, and personality strengths and leverage those in the pursuit of performance. 

FURTHER RESOURCES

*  A Creative Way to Use TraderFeed 

*  Brett Steenbarger Bio

*  Brett's Books on Trading Psychology

I wish you the best of luck in your development as a trader and in your personal evolution.  In the end, those are one and the same:  paths to becoming who we already are when we are at our best.

Brett
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Finding Solutions To Your Trading Challenges

 

8/22/2025 - A major shortcoming of almost all coaching of professional traders is that it is conducted individually, not within the teams that they are part of.  The solution-focused framework described below is just as applicable to teams as to individuals--and often more so.  

Consider the possibility that the changes you want/need to make as a trader have already been made by someone on your team.  Suppose each team member already has a strength that you need to develop and that you have strengths that would benefit each team member.  

Now the goal of coaching is to be solution-focused within teams:  Find the exceptions to your problem patterns within the trading of one or more team members and make a concerted effort to model them.  Similarly, when you display a strength needed by a team member, you help that trader do more of what you're already doing well.

A good team is a combination of strengths and a community of traders that strengthen each other.  The trader you want to become is already present in some measure within your team.  This is a very important reason to not attempt to learn to trade in isolation.  All performance activities, in sports and in the arts, are learned through modeling and teamwork.  

8/21/2025 - The solution-focused paradigm is perhaps the most powerful framework for improving our trading because it naturally builds upon what we already do well.

The framework is this:

Find exceptions to your problem patterns:  occasions in which your problems do not occur or occur at a much smaller scale.  

When your problems aren't occurring, that is when you're doing something right.

Study what you're doing when you aren't having your problem, consider that as a possible best practice, and look to expand upon it.

For instance, one of my problems might be to take profits too early in a market move.  When I don't take profits early, it's because I have grounded myself in a longer timeframe perspective and have consciously identified a bigger picture target.  My confidence in the bigger picture idea, often anchored by research, outweighs the fear of losing my profit.

The exception to my problem pattern reveals a strength.

We develop as traders, not by focusing on our problems and negative emotions/patterns, but by identifying what we do when we make money and consciously "do more of what works".

Further Reading:

Becoming Solution-Focused in Our Trading

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How to Transform Ourselves: As People, As Traders

 

8/20/2025 - One of the most powerful paths to transformation is relationships.  A great deal of our development early in life is the internalization of relationships from parents, teachers, and other significant people in our lives.  We know from research in psychology that the quality of the relationship between therapists and clients is the single best predictor of success in making and sustaining changes in therapy.  The attachment to a mentor or colleague similarly helps us internalize their role modeling.  

A major challenge for individual traders early in their development is the absence of role modeling relationships.  Receiving teaching or coaching online can be helpful and informative, but it does not accomplish the transformation of a close relationship.  We develop expertise first by copying the work of successful mentors and then by synthesizing the learning and turning it into our own.  At the medical school where I teach, there are always multiple mentors in clinical training.  No one learns medicine on their own, and no one learns it from videos and websites.  We learn by doing, and we develop by learning from many role models in many settings.  Each role model is a path for development; multiple role models enable us to develop multidimensionally and uniquely.  This is why learning in teams is so powerful.     

8/18/2025 - Sound trading is training in intentionality, the capacity to establish and sustain purpose.  Quite literally, when we establish and follow trading processes, we train the brain to sustain purposeful action.  The enemy of good trading is not emotion or lack of discipline.  Those are the result of our failure to sustain the efforts needed to follow our best practices.  Our enemy is distraction and the inability to guide our thoughts and actions purposefully.  The small, repeated experiences referenced below are the ways in which we make efforts and turn those into routines.  That frees our minds for yet other, further efforts.  Process progress is measured in terms of taking purposeful behavior and turning that into reliable routine.  What takes effort day after day becomes relatively routine week after week and a natural part of us month after month.  We transform ourselves by turning our best actions into repeatable procedures and turning those procedures into reliable habit patterns.

If we're not building new routines and pushing new boundaries, we're stagnating.  The emotions that impact trading and that we hear so much about are simply the result of our challenges overwhelming our ability to sustain our best practices.         

8/17/2025 - In just a few months, the kitten we adopted has come a healthy young girl.  She began her time with us frightened and has grown into an active, playful, loving friend.  The transformation did not occur all at once.  Quite the contrary.  It was daily experience of feeding, holding, playing, and sleeping together that built a strong bond not only with us, but with our other cats.  The psychological principle here is that the most powerful changes occur through small, repeated experiences.  Doing new and different things--day after day--makes us new and different over a surprisingly short period--but only if those experiences are consistent and repeated many times per day.  Transformation is not accomplished by one big act of will.  It is achieved through sustained, consistent effort.  Day after day of loving Nomi turned a frightened kitten into a loving family member.  And changing our trading?  That occurs one trade at a time, doing the right things the right way--again and again and again.  

Doing new things renews us.

Further Reading:  The Naomi Principle - Overcoming Trauma

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How You Know You're Trading Well

 

8/15/2025 - Eight questions to assess whether you are trading well:

1)  Does your trading give you energy, challenge, and excite you or does it leave you drained and frustrated?

2)  What is one significant way in which you have grown in your trading over the course of this year?

3)  What is the one way you could most improve your trading and how are you working on that each trading session?

4)  How many people can you identify whose trading you are making better on a regular basis?

5)  How many people can you identify who are making your trading better on a regular basis?

6)  What have you learned this month from your greatest trading mistake?

7)  What have you learned this month from your greatest trading success?

8)  So far this year, what is your Sharpe ratio?  How does the average size of your winning trades compare with the average size of your losing trades?  What is your hit ratio (number of winning trades compared with number of losing trades)?  What are you doing--specifically--to improve your performance stats?  Can you truly expect to improve if you don't take the time/effort to keep score?

8/14/2025 - You know you're trading well when you can trace a clear evolution in what you do and how you do it.  Any great business evolves; it's not the same from one year to the next, one decade to the next.  They develop new products and services to replace older ones; they expand distribution; they make manufacturing more efficient; they offer new and different services to customers.  Great businesses keep score and know where they're performing well and where they are lagging.  

You're trading well when you develop new processes for generating ideas; an expanded range of ways for managing positions and risk; new markets and instruments to master.  The great trader spends as much time and energy on self-mastery as on market mastery, because success hinges on both.

8/14/2025 - You know you're trading well when you do a great job of being wrong.  The key question is, "How good are you at losing money?"  For talented directional traders, I've consistently found that win rates are not all that far from 50%.  Where those traders excel is in structuring trades to limit losses and allow for the possibility of large wins.  They don't just go long or short; they wait for flows to show them that the moves are happening *now* and then structure a trade with great reward relative to risk.  Then, if they're stopped out, they have plenty of dry powder and can step back and reassess their views.  Very often, a sound trade idea that doesn't work is telling you something about your market and can lead to an opportunity in the other direction.  Trading well means trading with an open mind and allowing losses to provide you with important information.  Trading well is trading flexibly, not with a fixed view and mindset.

Note that every trade is not only a view of direction, but also a view of volatility.  Where we take profits and let profits run captures our underlying view of how much the market is likely to move on our time frame.  Many times, traders focus on direction, not so much on vol.  You know you're trading well when you not only anticipation the direction of movement, but the extent of movement.  Trading well is trading with awareness, taking lessons away from winning trades and losing ones. 

8/13/2025 - How often are you in the "flow state" when you're trading?  In the flow state, we see markets differently and see things that we miss when we're not optimally focused.  If you're trying to find things to trade and attempting to not miss out, you're surely not in a flow state.  In flow, we are so focused on what we're seeing that opportunities come to us.  The patterns that we've reviewed and traded stand out when our minds are clear.  It is for this reason that it's a mistake to try to substitute positive thinking for negative thinking.  The best trading mindset is one in which we turn off our self talk so that ideas can come to us.  A great frontier for trading psychology is training our brains to stay in flow.  If we are scattered in our daily lives, can we expect to be focused in our trading?      

8/12/2025 - The quote from Rolf at Tradeciety captures an important dynamic.  The need to make money keeps us focused on short-term performance.  A desire for mastery keeps us focused on longer-term growth.  We know we're trading well when we are actively studying our performance as well as markets, taking away some learning--some important lessons--each day.  Here's a great psychological test:  If trading exhausts you, you know that you're a victim of the ups and downs of P/L and the need to make money.  If trading inspires you, you know that you're tapped into your growth as a trader.  Traders in professional settings are typically organized in teams, and they typically reach beyond their teams to connect with others, share views, and engage in mutual learning and development.  Great trading gives us energy.  Great trading processes immerse us in what we do well and what is meaningful to us.  We know we're trading well when trading is a platform for developing the best of who we are.

Best Practices for Building Your Trading Business

 

8/11/2025 - If you're building an enduring trading business, your review processes need to be as detailed as your trading processes.  Professionals in performance fields spend more time practicing, reviewing performance, and working on improvement as they do in formal performance.  The best reviews focus on opportunities you may have missed; what happened to your trades after you exited and how you could have managed the positions better; where you could have tactically added to positions and where you could have taken profits; etc.  In review, you're looking for the patterns in your trading just as rigorously as you look for market patterns.  Successful traders are motivated by the drive for improvement and mastery, not just the drive to make money.  Look at the trading journals you keep.  If you saw someone working on their trading the way you work on your trading, would you invest in them?

8/10/2025 - Your trading business should be grounded in some unique strength/experience that you possess and that others do not.  If you're not expert in some area, can you expect performance that reflects expertise?  What do you know and what do you do with that knowledge that makes you distinctive?  How are you special?

I'll just mention that my own trading is grounded in years and years of detailed study of patterns of stock market breadth:  overall market breadth and the breadth of various sectors.  These breadth patterns have an excellent historical track record of anticipating momentum/trend (continuation of recent movement) and reversal.  For example, when we see overall stock market strength in the major indexes but many sectors well off their highs and displaying poor breadth, the odds of reversal increase significantly.  

Note that we're near all-time highs in the broad equity indexes but well off our highs in small cap stocks, in the real estate sector, in the healthcare sector, in the regional banking sector, and lagging recent highs in the materials and energy sectors.  As of Friday, 449 stocks in the NYSE universe registered new monthly highs and 700 made fresh monthly lows.  We need to see breadth expand from here to keep the bull going.    

8/10/2025 - A unique challenge in building a trading business is that it takes optimism to sustain efforts across the ups and downs of P/L, but it takes realism to manage risk and limit losses.  A great principle is that, each day, you should know what--specifically--will tell you that your trade is wrong and you should get out.  That level should also be one that still allows you to recover your losses on your next trades.  In practice that means that the trade is different from the idea you are trading.  The trade is a risk-to-reward proposition that expresses an idea.  The idea may ultimately prove correct, but the trade is an attempt to capitalize on the idea here and now.  Even when we may hang onto an idea, it's important to be able to let go of the trade if the idea isn't playing out; i.e., if the marketplace is not recognizing that idea.  Conversely, it's important to recognize when the idea is truly playing out and to be able to treat it as more than a short-term trade.  Successful trading is a marriage of tactical and strategic thinking; being in the right mind frame is necessary for success but hardly sufficient.       

8/8/2025 - One of the most important lessons I learned early in my hedge fund career is that the best trading is planned, not reactive.  Indeed, every part of the trade--from the research of the idea to the timing/structure of the trade to the management of the risk--follows a plan.  That plan creates a replicable process that ensures we do the right things the right way with the right consistency.  This is yet another way in which your trading truly is a business.  The successful business does not operate by impulse and whim.  It follows best practices that have been shown to be profitable.  We cannot be our best selves and run our best businesses if we are reactive.

We can never be more planned in our trading than we are in our day-to-day lives.  If we are not living each day, each week intentionally, we unwittingly reinforce reactivity.  How we manage our risk ultimately mirrors how we manage our lives.  What will make today successful?  What will make this week successful?  What can I do right now to move forward with the plan for my day and week?  Living with purpose cultivates our ability to trade purpose-fully.

8/7/2025 - If you are approaching your trading business as a true entrepreneur, then you should be able to deliver an elevator pitch to someone who might want to invest their funds with you.  The elevator pitch would quickly summarize what makes you and your trading unique and why you are able to achieve superior returns relative to other traders in your space.  In the spirit of the below post, consider what your elevator pitch would be and whether you would invest with someone who delivered that pitch to you.  If you're truly running your trading as a business, you should be able to describe what you do, how you do it, and why it is uniquely successful in a short pitch.  If you don't have your edge thought through to that degree, should you really be investing in a strategy that you would reject if someone else brought it to you?  

8/7/2025 - Every serious trader is an entrepreneur.  We take the first step toward development when we make our trading business our business.  That means having a business plan, detailing our goals and the resources we need to reach those goals.  A great exercise that I've described in the past is to write out the business plan for your trading business.  Then put it away and read it carefully the next day, asking yourself, "If someone came to me with this plan, would I invest my money in their business?"  If the answer isn't "Hell, yeah!", perhaps we should rethink what we're doing with our time and energy.

A solid business plan for a trader describes in detail the opportunities pursued in markets and how those will be pursued; how capital will be allocated to trades; how risk will be managed; how performance will be reviewed and improved; and how new areas of business opportunity will be researched and developed.  Without sound business planning, can you truly expect to trade in a planned and sound fashion?       

Our Religious Beliefs, Our Spirituality, Our Trading: An Invitation

 

8/5/2025 - Life is a series of transitions, as we learn from the past and present and build a new future.  Each of our life's activities, from marriage and career to raising children, is also a series of transitions.  We build our lives by rebuilding our lives.  Just as we're created at birth, we re-create and renew ourselves.  Personal growth is not a smooth process.  It is a series of transitions and rebirths.  What is painful now is a birth pain for the person who will emerge.  How are your trading challenges meant to shape the person you're meant to become? 

8/4/2025 - Two pillars of success are the psychological dimensions of happiness and fulfillment.  Happiness is what brings us joy and fun; it makes us feel good, and it brings us emotional energy.  Fulfillment is different.  It is what is meaningful to us:  what brings us a sense of purpose and significance.  Many traders look to trading for happiness, but fail to pursue trading in a way that is fulfilling.  One topic we'll discuss in the upcoming online session (see below) is how we can bring greater meaning and purpose to our trading.  That is what is meant in Radical Renewal about trading from the soul and not only from the ego.  There will always be periods of profit and periods of loss in trading.  If there is nothing beyond P/L to make trading significant in our lives, we won't sustain the ups and downs.      

8/3/2025 - The reason we fail at trading is not because negative emotion takes over.  The reason we fail is that we adopt a trading process/approach that does not tap into what we do best and what we find most meaningful.  We copy some approach that we learn from another source with no assurance that the approach leverages our strengths and what gives us energy, meaning, and fulfillment.  (My book coming out early in 2026 tackles this topic in detail).  Suppose my greatest strength and source of inspiration is intellectual curiosity.  How is trading some mechanical indicator or chart pattern going to be fulfilling for me?  We fail at our discipline because we inevitably gravitate to who we are and what we do best.  Working on our negative emotions only doubles down on the problem.  The whole challenge of trading is to find approaches to markets that leverage our uniqueness and draw on our sources of energy.  Ironically, it is not our weaknesses that undermine us; it's our strengths.

8/3/2025 - Trading, properly pursued, makes us better as people.  When we truly train ourselves to trade well, we train ourselves to focus and listen to markets; to collaborate and learn with others, making everyone better; to reach a level of discipline and self-control where we can act with purpose and planning; to embrace our mistakes and learn from them; and to blend our analytical and intuitive capacities and act on opportunity.  Trading trains us to put our egos aside and make the right decisions at the right times for the right reasons.  Like all great pursuits, it pushes us from real to ideal:  to become more of the person we know we can be.  See below if you're interested in a free online session on the topic.  I don't solicit business at these sessions, but look forward to sharing and learning.

8/1/2025 - In my (free) blog-based online book Radical Renewal, I made a first attempt to explore the spirituality of trading, as opposed to the psychology of trading.  The key question I wanted to address is whether our spiritual development can benefit our development as traders.  As I explored the topic, it seemed to me that many trading problems are ultimately ones in which our egos get in the way of our performance.  The role of spirituality is to transcend ego, not simply eradicate negative emotion.  From that vantage point, the religious and spiritual beliefs that make us better people also can make us better at what we do:  in life and in markets.

I know, I know, I know, most of us are uncomfortable talking about our religious beliefs and practices and sensitive about not wanting to impose them on others.  It is rare indeed to encounter such talk in the field of trading psychology.  So we ignore a major dimension of human experience--which (ironically) may be the very problem that holds us back in our personal and trading success!

My own religious background is Jewish, and I regularly post to a website/blog, Integrative Judaism, that captures spiritual themes and lessons.  I'm continually surprised by how often these are themes that show up in my trading.  For example, repentance is a practice that shows up in many religious and spiritual traditions and that is particularly relevant at this time of year for those in the Jewish faith.  It is also something that helps us grapple with the ways in which we allow our egos to subvert our personal and professional lives--including our trading.

I would love to host an online session for traders of different spiritual/religious beliefs and share how these impact our trading--and our daily lives.  If this is of interest to you and you would like to be part of the sharing/learning, please feel free to email me at steenbab at aol dot com.  It would be fun--and hopefully enlightening--to connect a small community of spiritually-grounded market participants!

Thanks as always for your interest and support--

Brett    

Powerful Predictors of Trading Success

 

7/30/2025 - Personally, my most powerful predictor of trading success is when the trade idea lines up on multiple dimensions.  Specifically, if the pattern I am tracking (for instance, a moving average crossover on the adaptive moving average indicator) is occurring on multiple time frames *and* if the idea is confirmed by backtested historical evidence (for example, superior returns following oversold breadth conditions), the odds of success rise quite a bit.  Trading success comes from being willing and able to not trade until the lining up occurs.  In that sense, the predictor of success is selectivity and the ability to refrain from trading when the picture is mixed--and the ability to size up trades when the odds are skewed in your favor.  Not unlike poker in that respect.    

7/29/2025 - In every performance field, elite performers spend more time preparing for performance than in actual performing.  A basketball or football player spends more time in practice than in playing games.  Olympians spend more time in training than in performing their events.  Actresses and actors spend more time rehearsing their roles than performing on stage.  Elite military teams spend more time developing and practicing their missions than in actually carrying them out.  A powerful predictor of trading success is the amount of time and efforts spent preparing for actual trading.  Time in front of the screens is not necessarily preparation.  In sports as in markets, the rigor of preparation is how we earn success.            

7/27/2025 - Here are a few of the best predictors of trader success that I've found during my years of helping trading firms with their hiring.  The best candidates meet the following criteria:

*  They can describe their edge(s) in great detail.  Their descriptions include unique information that goes into their ideas and unique ways of entering/exiting trades for best reward relative to risk.

*  They can explain why their edge works.  Their reasoning is not correlational (I trade the X period crossover of the Y period average because it's worked in the past).  Their reasoning is causal.  They understand who is in the market, how those participants behave, and how to take advantage of their behavior.  Causal edges are more likely to persist.

*  They can provide specific examples of how their trading has grown/adapted/expanded over the past year.  They are always looking for new edges and broadening their coverage.  They develop many edges for different market conditions, different trading instruments, and different time frames.  This breadth of edge provides diversification, helping them adapt and succeed when markets change.

The great traders aren't just looking to trade.  They are continually building a business.

7/25/2025 - I've been working for over 20 years with traders in proprietary, hedge fund, and investment bank settings.  During that time, I've seen great success and I've seen heartbreaking failure.  The number one predictor of success is the presence of active mentoring.  By "active mentoring" I mean the opportunity to research and generate trade ideas with experienced, successful traders and the direct observation of those traders in expressing, sizing, and managing the resulting trades.  The odds of success for a developing trader are directly proportional to the opportunity to watch a mentor in real time and learn from their best practices, discuss the trade, and participate in the generation of new trade ideas.  Once the learning becomes second hand--via books, videos, etc--its effectiveness goes down tremendously.  

The best predictor of success is learning by doing and benefiting from the live role modeling of successful professionals.  This is how young athletes develop, and it's how medical students mature into capable physicians.  Trading psychology is not the best predictor of success.  Indeed, problems in trading psychology often are the result of inadequate training.  Mentoring is always live, in person, and conducted via teams.  When you become part of a successful team, you internalize the mindset and best practices of success.

Why Do I Go On Tilt?

 

7/24/2025 - A wild thought:  What if we're in different brain states when we recognize opportunity setting up in markets vs. when we are focused on markets but don't see opportunity vs. when we're not focused on markets.  What if we could monitor our brain states in real time and identify not only when we're in the zone, but also when we're seeing opportunity?  Does intuition leave a distinct brain footprint?  That's my next project--  

7/23/2025 - On the Fitbit device that I use (Muse S-Athena), there is an exercise on the app in which the goal is to keep an owl in flight.  If blood flow is going to the brain's frontal cortex, the owl rises in elevation and flies faster.  If blood flow is moving away from the frontal cortex (our center of thought/reasoning/decision making), the owl lands and stops flying.  Before we ever experience tilt, our blood flow moves away from our thinking centers and toward our flight/fight regions.  The goal of the exercises on the device is to be able to sustain longer and longer periods of flight for the owl--and to be able to return the owl to flight after it has landed.  This measures our cognitive endurance, and it measures our capacity for recovery.  If we train the brain for endurance and recovery, we become able to prevent tilt mode before it ever hijacks our actions.

The problem with tilt is not an excess of emotion.  The problem is a lack of brain fitness:  poor cognitive endurance and poor capacity for recovery.  This is a game changer for trading psychology.

7/22/2025 - The cognitive technique below is quite promising in intercepting the frustration that leads to tilt trading.  A different, behavioral, approach involves learning to keep oneself calm and focused with visualization and deep breathing.  (I am finding brain training devices helpful for this).  Once we have mastered that skill and can get ourselves in the zone on demand (which takes practice), we can then engage in our focused relaxation while we vividly imagine frustrating trading situations that could put us on tilt.  We begin with mildly challenging situations and gradually visualize more frustrating ones.  We don't proceed to a more frustrating visualization until we can keep ourselves fully relaxed while imagining the less challenging one.

Once we can keep ourselves calm in imagination mode, we then start trading with small size/risk and employ the focused breathing in real time when challenging situations occur.  When we can trade small size/risk successfully without tilt and handle drawdowns and unexpected events without losing our concentration, we gradually step up our sizing/risk-taking.  

What this does is literally train mind and body to respond to losses and unexpected trading events in a mode that keeps us grounded in planned trading, not a reactive mode.  This takes practice, but once you have the skill, you have it for a lifetime of successful trading--and you can apply it to other challenging areas of life.  

7/21/2025 - How can we prevent tilt from happening in the first place?  In this post, I'll describe a cognitive approach; in the next, I'll outline a behavioral method.  The cognitive approach links tilt to our self-talk.  In other words, we go on tilt not just because of what is occurring in our trading, but because of what we tell ourselves about what is occurring.  Tilt is preceded by frustration and frustration shows up as negative self-talk.  The key to preventing tilt is identifying the feelings of frustration and the frustrated self-talk *as they are occurring*.  

That takes practice in thinking about our thinking and maintaining awareness of what we're feeling.  In real time, you're aware not only of the market and what it's doing, but also in what you're thinking and feeling about what it's doing.  In my own trading, I actually talk aloud as my position is moving, evaluating what is happening.  The talking aloud enables me to hear myself and stay aware of myself.  If my talking aloud becomes at all emotional, I can catch my frustration in real time before it manifests itself as tilt.  When I find myself getting tense or talking emotionally, I can quickly return to a focused mode by breathing deeply and slowly and focusing on the trade in front of me.  

As a rule, I find it very helpful to have my stop loss orders entered into the book in advance.  That way, I don't have to worry about emotionality interfering with my trading plan when a trade doesn't work out.  When our trading decisions are mapped out in advance and entered in the order book, our trading can be planned and not reactive.

  

7/20/2025 - Reacting to market action is necessary for the management of risk and reward.  Overreacting to market action is a function of the unmet needs we bring to trading.  We can overcome emotional trading by turning our best trading practices into trading routines:  repetition brings familiarity, and we don't overreact to something that is routine.  If we *need* to be right--if we *need* to make money to feel successful as a person--then we will overreact to loss.

The key to overcoming tilt is to anchor our self-assessment in longer-term improvement, not in immediate P/L.  And how do we do this?  By first trading in simulation mode, where there is no money at risk at all.  That trains us to make the right decisions in real time and turn that decision-making into habit patterns.  Only once we've internalized those habits do we begin taking small risk and rehearse making the right decisions.  When we're consistent and profitable at the small level, we bump up the risk-taking gradually, in small increments.  The idea is to build the right habits and learn to enjoy the process over the proceeds.  Small, steady improvement based on consistency is what helps us internalize great trading.  What is familiar and routine cannot shake us up.  There is no overwhelming frustration if we're focused on doing the right things.  

When we take the ego out of each trade and just focus on doing the right things, there can be no tilt. 

The Psychology of Finding and Trading Edges in the Market

 

7/18/2025 - Essential to trading edges is our trade execution.  There are different execution rules and strategies for different kinds of markets.  Treat all markets the same and you'll get suboptimal results, become frustrated, and then blame your problems on "trading psychology".  Key consideration:  Is the current market trending; is it cycling; or is it cycling within a directional trend?  Very often, there are short-term cycles even within strong trends that offer great risk/reward entries and effective spots to take profits.  Amazing how our psychology improves once our market understanding improves-- 

7/17/2025 - Yesterday taught an important lesson in the market.  Stories about the possible firing of the Fed Reserve Chair created sudden volatility and large price swings in the overall market.  I was in the middle of a decently sized position in the stock index futures market when the news hit.  The position was based upon a well-researched idea, and the idea was working out--until it stopped working out.  I waited for the next bounce, took modest profits, and waited out the storm.  The important lesson is that the idea is not the trade.  The idea informs your position, but the management of the position involves tracking price, volume, and the here and now risk and reward.  It's important to find and trade edges in the market, but that's only the first step in sustaining profitability.

7/15/2025 - In my first book, The Psychology of Trading, I described my college experience with playing pinball machines.  What I found is that each machine had a particular quirk that could be exploited to consistently score points.  For example, on one machine, if you let the ball come down the chute and hit the left flipper (without using the flipper), the ball would bounce to the right flipper, where it could be sent back through the chute for points.  Rinse and repeat.  I consistently won free games exploiting this quirk and I quickly learned to experiment and find quirks on other machines.

The stock market is not a pinball machine.  It is a collection of different machines.  The quirks of one stock or one type of market differ from others.  The key is to be willing to experiment and experiment and lose and lose until you figure out the quirk/edge of the current type of market.  Very often, as with the pinball machine, the quirk comes from a non-obvious way of playing the game--and consistently exploiting that edge.  Success comes from doing something unique very well and very consistently.  As in poker, the need to keep playing the game under all conditions eliminates all edge.         

7/13/2025 - Traders are typically looking for probabilistic edges in the markets and instruments they trade.  They look to put the odds in their favor.  

One of the greatest mistakes beginning traders make is to assume that an edge can be derived from a single source:  a chart or indicator pattern, an earnings release, a breaking news event, etc.  This fails to identify--and understand--the context in which the opportunity is occurring.  Here are some of the most powerful edges I have encountered with the traders I've worked with:

*  A move occurs across multiple time frames, as in the case of a short-term breakout that is also a breakout on a longer-term basis or a failure of overbought conditions across time periods.  The broad context of the shorter-term move often defines the opportunity of that move.  When time frames line up, meaningful movements often occur;

*  A move occurs multidimensionally.  Some of my charts have time on the X-axis; others feature bars that represent fixed units of volume.  The most promising opportunities show up across the different charts as well as across time frames.  For instance, the moving average crossovers that I track via Ehlers' adaptive moving average measure sometimes occur on the volume-based charts as well as the time-based charts, capturing shifts in momentum in a multidimensional fashion.  I have found these opportunities to be especially promising.  Similarly, simultaneous signals from multiple indicators/systems tracking opportunities in different ways are worthy of attention.

*  A move occurs across related markets.  If a move can be detected across the broad range of sector ETFs, there's a good chance that this represents a momentum move of the entire market and broad based participation of institutions.  Similarly, if a move is occurring across such asset classes as stocks, bonds, and the dollar, the odds are good that something is occurring across macro markets that is attracting the interest of large investors.  Such broad-based participation often signals an evolving trend.

What this means in terms of trading psychology is that one must be focused on many time frames and many markets and charts to identify the most promising opportunities.  The great enemy of performance in this dynamic situation is distractibility.  It's the ability to see many patterns across many time frames and instruments that enables the trader to capture the best opportunities.  This is why it is vital to work on our capacity for focus when markets become busy.  It is also why traders often perform best in team settings, where there are multiple sets of eyes on multiple markets and time frames.  

Opportunity occurs as patterns of patterns.

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Our Trading Psychology Is Shaped By The Questions We Ask

 

7/9/2025 - One vital question for those who are early in the process of learning how to trade:

* Are you actually getting mentoring, or are you only getting information and instruction?  Because trading is a performance activity, teaching is not the same as training.  Can you imagine someone pretending to teach you football by emailing you diagrammed plays and showing you clips from games?  Would that really teach you how to play the sport and what to do in specific situations?  Mentoring means directly observing the performance of an accomplished professional and being able to ask questions about that performance and--eventually--trying the performance on one's own with direct supervision and feedback.  The saying in medical school is "see one, do one, teach one".  The way junior analysts learn trading on a hedge fund team is by seeing the actual, live trading of the portfolio manager and reviewing what was done and why, as well as what could have been done differently.  If you're not watching your mentor trade live, you're not getting mentoring.  You're getting instruction.  No one ever learned to perform on stage or perform on a basketball or tennis court in a classroom or through videos.  True mentors mentor through live performance and supervise your live performance.    

7/8/2025 - Here are three more questions that reflect best practices from successful traders and hedge fund managers/team members:

1)  How do you begin your trading day to ensure that you're in peak condition in terms of energy, focus, and preparation?  My experience is that the day is often won or lost based upon what the trader does before placing the first trade.

2)  How do you spend your time outside of trading to ensure that you're in a state of maximum well-being?  That means making the most of activities that are enjoyable, fulfilling, and energizing, including relationship activities and physical workouts.  For the hard-working professional, the great enemy of performance is burnout.  

3)  What research am I doing today that has the potential to open new doors of opportunity for my trading going forward?  Successful traders don't have "an edge"; they are constantly searching and re-searching new sources of edge in different instruments and market conditions.  If we're not innovating, we're going stale.

 

7/6/2025 - Successful traders, I've found, are distinguished by the questions they ask, not just by answers they've come up with.  Here are a few questions that can shape our success:

1)  What is the one lesson I can learn from the day that can make me a better person?  A better trader?  How can I apply that lesson to tomorrow?

2)  What is the market's personality right here and now and how has it been changing?  Are we becoming more or less volatile?  More or less correlated from sector to sector?  Broader or narrower in strength and weakness?  Look more closely; step back further:  what are traders/investors failing to see?

3)  If I wait patiently for great trading opportunity, how can I best learn and grow during the waiting period?  How will my learning and growing benefit my future trading?

4)  What makes my best trades different from my other trades?  How can I recognize that in real time to take greater advantage of my strengths?

5)  What makes my worst trades different from my other trades?  How can I recognize that in real time to reduce my vulnerabilities?