Wednesday, August 31, 2022

BRETT STEENBARGER'S TRADING PSYCHOLOGY RESOURCE CENTER



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

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Most recent blog post - Why Process Is So Important To Trading

Most recent Forbes post - Why Mindset Matters For Our Performance



The Three Minute Trading Coach Videos

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Latest Podcasts:  

Trading Psychology and Trading Performance - With Confessions of a Market Maker

Keys to Trading Psychology - With Alex Bustos and BTheTrader

How Traders Are Succeeding in the Current Market Environment - With Mike Bellafiore and Money Show

Trading Psychology and Market Psychology with Daily FX

Ego Trading and Spirituality with Talking TradingPart One, Part Two

Recent YouTube Video:  Six Characteristics of Successful Traders (with SMB Option Group)

Recent Podcast:  New Perspectives in Trading Psychology with John Sinclair and Positive Trends

Recent Podcast:  Tools and Techniques for Minding the Markets with Optimus Futures

Recent podcast:  The Psychology of Performance with SUNY Upstate HealthLink

Recent podcast:  Trading Psychology and Spirituality with BearBullTraders

Recent podcast:  Ego, Trading, and Spirituality with Alpha Mind

Recent webinar:  How to improve your learning curve as a trader (with Bookmap)

Trading, like any great performance field, is an arena in which our self-development is an essential part of honing our craft.  Welcome to TraderFeed, a blog site that now also serves as a repository for over 5000 original articles on trading psychology, trader performance, and trading methods.  Within the extent of my knowledge, this is the largest single source of trading psychology material in the world.

The links on this page will help you navigate the database of posts to find the information most relevant to your development.

My coaching work is limited to trading and investment firms, so I cannot provide online advice or coaching services to individual traders.  I do, however, welcome specific questions about the ideas in this blog.  You can email me at steenbab at aol dot com.  I'm also available via Twitter (@steenbab), where I link new posts and articles.

TRADERFEED TABLE OF CONTENTS











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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Monday, July 06, 2020

Why Is Process So Important To Trading?

When I wrote my book Trading Psychology 2.0, I chose the subtitle:  From Best Practices To Best Processes.

As traders, we want to discover what we do well.  Our successes reflect our strengths, and we are most likely to succeed when we draw upon our strengths.  An excellent short-term trader, for example, may have strengths in the areas of speed and breadth of mental processing.  The ability to look at many markets or stocks and quickly perceive evolving patterns is not something everyone can do well.  When we study our successes and figure out how we are making use of our strengths at those times, we become able to define our best practices.  Best practices are what we do to increase the odds of our success.

Once we identify a number of best practices, we can unite them and create effective work processes.  For instance, an operating room at a hospital will have best practices for staffing, sanitation, prepping of patients, medications before and after surgery, specifics of surgical procedures, recovery, and lengths of stay.  The entire series of best practices comprises a process, which ensures the most consistent positive outcomes possible.  As new best practices are discovered, these are integrated into existing processes, creating ongoing quality improvement.  The entire framework is known as evidence-based medicine.

Process is important to trading because it turns inconsistent, subjective trading into  evidence-based trading.  When we discover our best practices for identifying opportunity, expressing opportunity as solid risk/reward trades, and managing positions in real time, we can unite these elements of success into a rigorous process.  In becoming process based, we find our most consistent profitability.  Do we see operating room surgeons going on tilt or over-cutting?  Of course not.  When we train ourselves in a process framework, doing the right things becomes second nature. 

Further Reading:

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Sunday, July 05, 2020

How To Build Your Trading Consistency

Above you can see a recent reading from my glucose meter.  As a person with Type II diabetes, controlling my blood sugar is important to my health.  To achieve that control, I wear a sensor on my upper arm that provides real time blood sugar readings to the meter shown above.  In the beginning, wearing the sensor and using the meter, my readings were all over the place.

By taking readings frequently through the day, I gradually learned the times of day when my blood sugar tends to be highest and lowest, how foods and exercise influence my readings, and how much medication to take to stay in my target zone.  This took a lot of trial and error.  I made many mistakes with what/when I ate and many mistakes with medications in order to learn what works.  The recent meter reading shown above illustrates what is possible when we measure outcomes continually and make small, targeted improvements with frequent feedback.  

Some people with diabetes jump from diet to diet and medication to medication and never make these improvements.  They look for big changes to their readings, and so they fail to make smaller, steadier improvements.

It's the same with trading.  The successful traders try lots of things, make lots of mistakes, get daily feedback, and then make very specific, targeted improvements in what they trade, when they enter, when they add size or scale out of positions, when they stop out, etc.  Every trade gives them a "meter reading" and they learn what works and what doesn't.  Other traders look for big changes to their trading and jump from "setup" to "setup", one style of trading to another, one time frame to another.  There is nothing cumulative to their experience, and their results show that.

We can't build a building jumping from one set of blueprints to another.  Ultimately we have to decide on our structure and lay the foundation brick by brick, gaining relevant experience as we go along.  The consistency of our trading will never exceed the consistency of our learning processes.

Further Resources:


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Friday, July 03, 2020

One Of My Favorite Trading Patterns

If you click on the above, you'll see a screenshot from my trading platform (Sierra Chart).  There are five measures arrayed from top to bottom:  1) ES futures, each bar represents 50,000 contracts traded and lines represent shorter and longer moving averages; 2) amount of volume for each bar that is traded at the offer price (buyers more aggressive) minus the amount of volume traded at the bid price (sellers more aggressive); 3) a 10-period moving average of volume at offer minus bid; 4) a five-period RSI for the ES futures; 5) a five-period detrended oscillator reading for the ES futures.

The idea is that, in one view, I can see:

1)  Are we overbought or oversold?  (RSI, Detrended Oscillator; Price vs. moving averages)
2)  Have we seen dominant buying or selling pressure? (Volume at offer/bid; moving average of volume at offer/bid)
3)  How much price change are we seeing in response to buying and selling pressure?  

The yellow arrows point to occasions in which we are getting short-term selling pressure and oversold levels with very modest downside price change.  These are occasions in which there is meaningful selling pressure, but it's unable to move price meaningfully lower.  These sellers are eventually trapped and help fuel the next leg higher in the uptrend.

The proportion of volume traded at offer vs. bid correlates with actual price change around +.46 over the past 10 months.  That is a significant correlation, but note that the amount of variance in price change accounted for by buyers lifting offers vs. hitting bids is only a little over 20% (.46 squared).  It's when we get decent buying and selling pressure that cannot move price significantly that we see reversal opportunities set up.  Many of the best short-term trading opportunities come from occasions in which buyers or sellers become trapped and must run for exits.  We can identify those occasions and anticipate the unwinds.

Reading the psychology of the markets is just as important as being aware of your own psychology.

Further Reading:

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Tuesday, June 30, 2020

Reprocessing Emotions For A New Trading Psychology

Our losses, our mistakes are part of who we are.  We cannot eliminate all emotion around our setbacks, nor do we want to.  Self esteem means embracing the experiences that shape us, including the bad and the good.  All are potential fuel for learning.

Imagine vividly mentally rehearsing making various trading mistakes and, during the visualizations, filling yourself with excitement over learning from these or gratitude for the opportunity to learn or peacefulness over the realization that you can embrace the losses and move forward.  Again, again, again, you conduct the visualizations while keeping yourself in an eager mindset, a learning mindset, a grateful mindset, a peaceful mindset.  With that repetition, we reprocess our emotions, so that, in real time, what we rehearse will become our experience, because it has become part of us.  

This Forbes article explains how we can develop an enhanced mindset: one that we can rehearse as part of reprocessing.  This short video introduces the mindset concept.

Experiencing our problems in a fresh mindset: this is a powerful avenue for creating a new trading psychology.

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Saturday, June 27, 2020

Valuable Trading Psychology Lessons From My Cats

Well, at present we have four rescue cats and that makes for a full house.  Every morning they wake me up (around 4 AM), and I start every morning by petting them, feeding them, and cleaning up their litter.  I'm a firm believer that we set the tone for our day by what we do at the start of the day.  I don't start by looking at market quotes, news, emails, or chats.  I start by loving and serving those I love.

Actions, repeated, transform us: We become what we do.

Here are three trading lessons I've learned from our cats over the years:

*  We can overcome even the greatest adversity by making use of the strengths we have and finding something in our environment that engages us:  The story of Mali

*  If we want to change a negative pattern in our thinking, feeling, or acting, we need to tap into a motivation greater than the one that underlies our problems:  The story of Naomi

*  We don't create our opportunities.  We put everything of ourselves out there, and opportunity finds us:  The story of Mia

Once we can put our egos aside, we can learn from everything in life--even humble cats.

Brett
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Thursday, June 25, 2020

The Key To Becoming Your Own Trading Coach

There are many techniques in psychology that can help us overcome negative emotions and thought patterns, and also ones that help us build positive patterns.  The Three Minute Trading Coach series of short videos is an introduction to these techniques.  Each video focuses on a different exercise that can help you improve the consistency of your trading by working on the consistency of your mindset.

There is a secret to making each of these methods work:  practice.  Most of our negative patterns have been with us long enough that they have become habits.  To break a habit pattern, we need to work at recognizing what triggers it, work on interrupting it, and work on replacing the old habit pattern with a new, positive one.  The goal is to create new ways of thinking, feeling, and acting that are so well rehearsed that they become a natural part of us.  That takes daily (and sometimes more than daily) practice.

A rule I've found helpful is to rehearse these techniques religiously for 90 days and they will become a natural part of you.  If you want consistency of trading mindset and consistency of trading, you need to work on those things consistently.  Once you do that, you don't need to hire an expensive professional.  You've become your own best trading coach.

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Tuesday, June 23, 2020

Two Best Practices I See Among Successful Developing Traders

I've worked over a period of years with two proprietary trading firms:  Kingstree in Chicago and SMB Capital/Kershner Trading in New York.  The advantage of working inside such trading firms is that I get to see what is really going on and, most important, I get to see the P/L of each trader.  Putting these experiences together, I can identify two best practices that have been associated with success among developing traders:

1)  A rigorous planning and review process - Winning basketball and football teams prepare intensively for each opponent.  They stay in shape with drills, review game film to find weaknesses in the opponent and correct their own weaknesses, and practice plays over and over again before game day. Similarly, successful developing traders review in detail what happened over the past day and week, plan for potential opportunity, and track their performance so that they are actively working on goals that enable them to get better.  One practice I've seen that works especially well is recording the market day and then replaying the video, stopping at key points, and seeing--frame by frame--how opportunity set up.  Think of how many more reps those traders are getting than the average noob.  SMB provides a nice example of a "monster trade review", in which the trader studies ways in which good trades could have become great trades.  Note how that reinforces--every single day--the idea of becoming a great trader.

2)  Developing multiple ways to win - To use Mike Bellafiore's phrase, successful traders work on developing a playbook outlining patterns associated with opportunity and how those set up in real time.  Like a good football team, the successful trader has a deep playbook that allows for an adaptation to many different conditions.  So, for example, any football team has a diverse set of running plays and passing plays that can exploit a wide range of defensive setups, field conditions, and game clock constraints.  Knowing which plays to run under particular situations is a key strength of any coach and quarterback.  Successful traders have studied opportunities in various kinds of markets and that set up at various times of day and over various time frames.  That means that, like the star quarterback, they can run the right plays given the conditions they face.  Successful traders are anything but one-trick ponies.

As I emphasized in the trading performance book, success in any performance domain is a function of talents we're born with and skills we cultivate through deliberate practice.  The traders I see succeeding are ones spending an unusual amount of time working on their trading outside of market hours.  They are getting feedback from coaches, mentors, and peer traders, and they keep score of their trading with detailed statistics.  The great traders love markets, love learning, and love growing.  To use Ellen Winner's phrase, they display a "rage to master".  It's not P/L that motivates them.  It's the process of mastering a field that speaks to their greatest talents and interests--and that is what brings the P/L.

Further Reading:

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Wednesday, June 17, 2020

Your Self-Talk Shapes Your Trading Psychology

Self-talk is our ongoing processing of life events.  Most often, this processing reflects whether events are good or bad for us, what we would like to happen, etc.  This is why I emphasize in the Radical Renewal book that self-talk is our ego.  To the extent that our egos intrude upon our trading, we cannot be fully market focused.  One way of dealing with this problem is meditation, which quiets self-talk and takes us out of ego mode. Another way of dealing with disruptive self-talk is to learn to step back from negative processing and interrupt its damaging effects, as described in the recent Three Minute Trading Coach video.

The meditation approach attempts to exit us from ego.  The cognitive approach keeps us in ego mode, but shifts the focus from negative to constructive.  From the cognitive perspective, the problem is not self-talk, but disruptive self-talk.  If we talk to ourselves in constructive, encouraging ways, we can maintain a positive mindset--and that is associated with superior learning and performance.  The key question is whether our self-talk is helpful to our subsequent processing of market information or whether it distorts our plans and intentions.  

One of my favorite forms of self-talk following a losing trade or missed opportunity is, "What can I learn from this?"  I don't continue trading until I have a concrete takeaway either in terms of the market or in terms of how I'm trading the market.  For example, I recently shorted the market in early morning trade and then watched as the market initially went my way and then rebounded sharply on higher-than-expected TICK readings.  I immediately said to myself that the buying support was significant and that I should be alert for a pullback to a higher low.  Sure enough, that scenario materialized and I was able to take the long side and profit from a move to overnight highs.

This form of self-talk is more about processing what *is* happening, rather than what is happening to me and my P/L.  Talking what is happening out loud is a kind of real-time journaling.  We talk it, we hear it, we internalize it.  A great goal for traders is to become better and better at constructive self-talk.  

More:

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Saturday, June 13, 2020

An Important Takeaway From The Recent Market

This past Monday, we had roughly 92% of all stocks in the Standard and Poors 500 Index trading above their ten-day moving averages.  That is very broad strength.  Just three days later, the percentage trading above their ten-day averages was a touch over 2%.  That is very broad weakness.  All within one week!  (Data from the excellent Index Indicators site).

What we are seeing is a market with an unusual amount of herd behavior.  Many of the market participants that I speak with simply cannot take a lot of heat.  On Thursday alone, the market went down about 6%.  At many hedge funds, that kind of drawdown could knock one out of the game.  When risk limits are tight, traders have to pile into trades and have to run for exits, and that contributes to volatility and market extremes.

A key tell for the market is relative volume (RVol).  When volume expands significantly day over day, that tells us that the herd is active.  For example, volume in SPY on Monday and Tuesday was between 70 and 80 million shares.  On Thursday, we traded over 200 million shares!  When we see volume elevated in the first hour and negative extremes in the advance-decline ratio and the NYSE TICK, we want to think about front-running the herd and we want to think about the possibility of a downside trend day.  Conversely, low relative volume tells us that the herd is not active and that we could see sector rotation.  Volume shapes the opportunity set:  that's an important takeaway from the recent market.

Further Reading:

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