Friday, August 05, 2022

BRETT STEENBARGER'S TRADING PSYCHOLOGY RESOURCE CENTER


Contact For Trading Firms and Media:  steenbab at aol dot com

My Twitter Feed:  @steenbab

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:


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.  Trading firms, teams, and portfolio managers interested in performance coaching and help with hiring processes can email me at steenbab at aol dot com.  Please note that my work is limited to trading and investment firms, so I cannot provide online advice or coaching services to individual, independent traders


FURTHER RESOURCES




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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The Key to Understanding and Overcoming Trading Tilt

 

I recently spoke on a YouTube video for SMB Capital regarding the dynamics of trading on tilt.  The example I gave in order to place the topic in perspective was that of a surgeon.  A surgeon performing a delicate procedure might feel frustration if things aren't going smoothly, but the surgeon never allows the frustration to take over.  (Can you imagine a surgeon on tilt, slashing away with no discipline whatsoever?!)  Why is it that the surgeon can maintain perspective and professionalism, but many traders cannot?

Tilt is a function of frustration; when we become frustrated, we're more likely to act impulsively.  This is why some of the most effective techniques for managing our tilt states involve physical control of the body.  If the body is calm, the mind finds it easier to maintain perspective and control.  As this video suggests, our frustrations typically stem from the need to be right.  In that sense, tilt is the natural consequence of our egos getting in the way of our best performance.  (See Radical Renewal for a detailed treatment of that topic; most trading psychology challenges are actually spiritual challenges in which we act from ego, not from soul).  

The key to understanding tilt is that the needs we bring to our performance ultimately dictate how we will respond to success, failure, and challenge.

What needs does a surgeon bring to treating a patient?  The number one need is captured in the physician's oath to "Above all else, do no harm".  The safety of the patient is always primary.  That is a soul-need.  It says, "I am a servant entrusted with this person's body".  It's not about me, it's not about how quickly I can do the surgery or how much I'll make from the procedure.  It's about the sacred responsibility of caring for another person. 

The successful trader brings to markets the need to trade well.  "Above all else, do no harm" means that our capital is valuable and that we need to manage risk and be able to accept expectable setbacks.  The trade is not about me; it's about identifying opportunity and acting decisively and responsibly to capture that opportunity.  If I bring ego needs to trading, every loss and every missed trade can become an ego threat.  If I bring my soul's need for growth and development to trading, I can take pride in my work and stay calm and focused, even when things aren't going according to expectation.

We can trade well and learn during a drawdown.  No one trades well with a wounded ego.

Further Reading:

Techniques for Overcoming Frustration

Facing Our Trading Fears

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Sunday, July 24, 2022

Creativity in Analyzing Market Information

 
In a recent video shared by SMB Capital, I discuss why creativity is necessary for trading success.  Quite simply, in order to achieve unique returns, we have to be able to perceive and act upon unique opportunity.  What we see in markets is a function of where we look.  If we're drilling for oil and look in the same places as everyone else, we'll come up with a lot of dry holes.  Half the battle is knowing where to look for the opportunities that others are missing.  

An important topic in the Trading Psychology 2.0 book is how to develop our creativity by asking questions that others don't ask and studying information that others don't gather.  Here's a nice example of creative processing from my trading many years ago.  My point in that article was that "creativity is the new discipline".  It's not enough to find an edge and stick to it in a disciplined manner.  Now the discipline has to extend to finding fresh edges.

Here's an example of a creative edge emerging from unique data sets.  For a number of years, I have tracked, each day, the number of stocks across all indexes that make fresh one-month new highs and fresh one-month new lows.  Normally, we look at the data reported by the NYSE regarding 52-week new highs and lows.  I have found value in the shorter-term measures.  Over the past three years, all of the market's gains (SPY) over a next 10-day basis can be attributed to low levels in the monthly new highs.  In other words, it's the relative absence of new highs that predicts positive returns over the next 20 days.  Similarly, a relative absence of new monthly lows is significantly associated with positive returns over the next ten trading days.  What is meaningful, interestingly, is the absence of new highs and new lows.  I would have never anticipated this had I not collected and investigated the data set.

(A good exercise is to develop an explanation for why this edge exists and how you might use the underlying logic to create edges at other time frames or in other markets.  That's how the creative process works).

Here's another unique finding over that same period.  Essentially all the market's (SPY) upside on a next 3-5 day basis has occurred when few stocks close above their upper Bollinger Bands.  Similarly, we see superior returns over a next five-day basis when few stocks close below their lower Bollinger Bands.  

In short, there is information in the absence of strength and weakness.

When you look at new and different data, you open the door to seeing new and different patterns in markets.  And that means your drilling is more likely to strike oil.

Further Reading:

How Rare It Actually Is For Daytraders to Consistently Make Money

What is the Purpose of Your Trading--And Why That's Important

Thursday, July 14, 2022

The Key to a Successful Trading Psychology

 
In recent posts, I have shared my framework for thinking about trading and trading psychology.  I've also explained a few core concepts central to this approach, including how active traders can diversify their risk-taking; how to deal with stress in trading; and why volume is key to understanding trading opportunity.  In this post, I will explain the single most important psychological factor in active trading and why it is crucial to performance:  open-mindedness.

Pattern recognition is the core cognitive skill involved in active trading.  One mistake many beginning traders make is that they equate patterns in markets with chart patterns.  For the rational, evidence-based trader, patterns are only meaningful if they have explanatory value.  

When trading short time frames, the patterns in markets that are meaningful are ones that track actual supply and demand among market participants.  From the sequencing of trades in a market, we can observe increasing or decreasing volume and whether the volume has a directional bias.  Across many trades, we can detect trends and cycles.  When there is relatively stable participation in markets, we can expect the patterns of trending and cycling that we've observed in the recent past to continue in the immediate future.  That sets up potential opportunity.

One of the challenges of financial markets is their complexity.  Patterns show up across differing time frames, with trends and cycles nested within one another.  Thus, at one time frame, we may observe a trend, but at a longer time frame we can see that this trend is simply a directional move within a larger cycle.  A true understanding of market patterns requires the ability to place price behavior in proper context.  Successful pattern recognition is not merely seeing a trend or cycle on one time frame; it is the understanding of price behavior across multiple time frames.

In practice, that means our tracking of markets needs to be dynamic, not static.  We need to be tracking what is happening across shorter, medium, and longer time frames in order to detect the opportunity in their alignment.  Meaningful market patterns do not "set up" at any single period, but rather derive their meaning in how they are nested within one another.  I recently noticed the ES market cycling on a higher time frame (using charts where each bar represents 20,000 contracts traded) and making a clear higher oversold low on a shorter time frame (each bar was 5000 contracts traded).  That led to a profitable trade buying the oversold low and holding until we tested the high of the longer-term range.

At other times, those kinds of patterns will set up in the nesting of much longer time frames and even shorter ones.  Only if I am dynamically scanning the market across multiple time horizons can I begin to detect how the longer-term and shorter-term movement are meaningfully related.  During that dynamic scanning, I am not looking for trades and I am not at all focused on what I think the market will do or should do.  Rather, I am watching across the time horizons with a completely open mind, much as I (as a psychologist) might start a first meeting with person by listening, listening, listening.  Eventually, if I observe and listen long enough, a pattern--something meaningful--will jump out at me.

This is why maintaining an open mind is the key to a successful trading psychology.  Great trade ideas can't come to us if we are not open to them.  Pattern recognition, whether in a therapy office or in trading, means that we see relationships unfold.  This is why intuition is central to successful active trading.  The goal is not to have an optimistic mindset or a mindset filled with "conviction".  The goal is to be have a quiet and open mind, dynamically observing the interplay of markets and time frames.

The truly great trades are the ones that come to us.

Further Reading:


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Sunday, July 03, 2022

The Most Important Piece of Information for Active Traders

 
Just about everyone looks at volume, but do they actually *see* volume?

Volume tells us who is in the market.  Who is in the market determines how the market will move.  

Since 2019, yesterday's volume in SPY correlates with today's volume by over .80.

Since 2019, today's volume correlates with today's high-low range in SPY by a little under .60.

When volume expands, it's a sign that institutional participants are active in the market.  Because many of them trade directionally, their involvement/non-involvement contributes to volatility and the ways in which moves continue or reverse.

Since 2019, daily SPY volume correlates with VIX by over .80.

When we look at relative volume (how today's volume at a given intraday period compares to average volume for that time of day) and track its evolution through the day, we can clearly see--in real time--who is playing at the poker table and who isn't.  That helps us handicap the odds of moves continuing or not.

When we note the price levels at which relative volume expands or contracts, we gain a window into the intentions of other traders.  This is where Market Profile can be quite useful.

If you're an active trader, track your P/L as a function of time of day.  Odds are good that your profitability is related to the volume patterns for that time of day.

When we have stable volume trading day over day, the odds are increased that the cyclical behavior of recent markets will continue in the near future.  There can be a tremendous trading edge in this information.

The market magician has us looking at the hand that waves price in front of us.  But the magic is being done with the other hand, the volume hand that few people truly see.

Further Reading:



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Monday, June 27, 2022

Three Causes of Trading Stress--And What to Do About Them

 
Indeed, being stressed is no treat!  Stress typically occurs when we perceive threat.  That places our bodies in the classic flight-or-fight response, mobilizing for coping with the threat.  That mobilization draws blood flow away from our brain's frontal cortex, leaving us least grounded in our center of planning and reasoning just when we most need our rationality.  This becomes a particular problem when stress turns into distress:  anger, frustration, anxiety, etc.  As I emphasized in an earlier post, our first response to stress should be to identify where it is coming from.  In general, there are three sources of trading stress:

1)  Markets have changed, no longer behaving in ways that match our expectations.  In such an event, our stress represents information.  Just as we might feel uncomfortable if we should walk from a safe place to a high crime area, our stress in the new market environment alerts us to potential danger.  The proper response to this stress is to pull back from trading, reassess our environment, and revise our plans.  We need to adapt to the new environment.  The best trades come to us; that requires an open, focused mind.  The best trade ideas are of limited value if we trade them in a distracted mind state.

2)  Our stress is self-generated, reflecting pressure we're putting on ourselves.  It is easy to be our own worst critics.  When our self-talk focuses on everything we've done wrong or should have done differently, that negativity creates anger, frustration, and discouragement.  Perfectionism is a great example of such negative self-talk:  good is no longer good enough.  Cognitive techniques can be extremely effective in changing our self-talk, as described in The Daily Trading Coach; see also this series of three articles.           

3)  Our risk exposure exceeds our psychological tolerance.  Many times traders feel a need to make money and convince themselves that a huge opportunity is at hand.  They oversize their positions, creating volatility of P/L.  When the market itself becomes more volatile, the moves in the trading account can be difficult to tolerate.  The perception of threat that creates the stress is a function of the risk being taken.  Each of us has a different tolerance level for risk; the key is trading with a sizing that is not emotionally disruptive.  To be sure, we can have the opposite problem and not take enough risk in our trading.  That creates a different kind of frustration and distraction.  Good risk management is essential to good self-management.     

The most important point is that stress can impact our trading for many reasons.  By clearly identifying the source of our stress, we can best figure out how to move forward constructively.  A surgeon would not want to be stressed out during a procedure; peak performance requires peak focus.

Further Reading:


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Sunday, June 19, 2022

Finding Success By Diversifying Your Trading

 
A lot of trading wisdom repeated by traders is surprisingly unintelligent.  A good example is the mantra that it is important to "have a process" for your trading and follow that process religiously.  Sounds great--until markets change and the process that worked in one kind of market no longer works.  If a business repeated a process endlessly, it would never adapt to changes in consumer tastes, new opportunities, etc.  Similarly, a singular focus on "discipline" is shorthand for a failure to innovate.

Which brings us to yet another piece of common wisdom that masquerades as wisdom:  Be patient and only put on your very best trade ideas.  Sounds great!  Don't overtrade and wait for the really good "A+" opportunities.

Not so.

In the most recent post, I outlined my approach to trading, highlighting finding opportunities in which detecting market cycles allows for good risk/reward entries in established trends.  What is interesting about this approach is that it applies across a very wide range of time frames.  Thus, one could look at long-term data and trade dominant cycles within broad trends, or one could implement the approach intraday.  As a rule, variability of price action increases as time frames increase, so it's unlikely that one would obtain the same risk-adjusted returns trading long-term vs. intraday.  By the logic of the idea of "be patient and only put on your very best trade ideas", we should only trade the time frame that yields the best results.

The problem with that view is that opportunities differ across time frames, as well as across instruments.  While it could make sense to trade a short-term pattern from the long side, this might be a mere blip for a good longer-term short trade.  When we trade multiple patterns that are relatively uncorrelated (or perhaps even negatively correlated), we as traders achieve the diversification normally associated with investing.

We can think of it this way:  an investor diversifies holdings at a given point in time.  The investor might hold in a portfolio relatively uncorrelated positions in currencies, rates, stocks, etc.  That diversification allows trades with a decent Sharpe ration to create a portfolio with a truly superior Sharpe.  If you put enough different edges together in a portfolio, the portfolio will show relatively smooth positive returns, because some ideas are always working when others aren't.  That's the beauty of diversification.

The active trader tends to participate in fewer opportunities at any given point in time, but over time will trade multiple cycles and trends, some shorter-term, some longer-term, some in one instrument, some in another.  Note:  A flexible trader might put on multiple long and short trades during the day, achieving over time what the investor structures all at once:  diversification!  

The successful active trader will have multiple, promising patterns ("setups") to trade, creating multiple, independent edges.  That is the beauty of Mike Bellafiore's idea of "playbooking".  Like a football or basketball team, the trader practices many different "plays" and thus can adapt to any environment.  Can you imagine a basketball team consisting of players that won't take shots because they don't have the wide-open look at the basket?  Any team--and any trader--is competitive only if they can find multiple ways to win.

Sitting passively and not trading until the perfect trade presents itself is not discipline; it's the essence of being a one-trick pony.  And when the market changes, the one-trick pony becomes a lame horse.  Many different edges of different quality and different instruments and different time frames creates what we might call a "trader's portfolio".  It's a lot harder to lose when we have many ways to win.  

Good traders have an edge.  Great ones constantly find new ones.

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Further Resources:

The Daily Trading Coach - Trading psychology self-help methods

The Three Minute Trading Coach - Short videos on trading psychology
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Sunday, June 12, 2022

A Framework for Trading and Trading Psychology

 
If you were to listen into the conversation of a basketball coach with a player, you would hear quite a bit about how to play the game.  The coach might talk about getting back on defense or working harder to get position on rebounds or taking the high percentage shot, but the conversation would be about playing better.  Whatever needed to be addressed in terms of psychology would be embedded within the coaching regarding the playing.  

For example, if the player is not taking the high percentage shot at the top of the key (a failing for which I vividly recall being taken to task), the coach will address the psychology by making it abundantly clear that he believes in you and that you will never be blamed for missing a high percentage shot.  The coach might also include a ridiculous number of top of the key jumpers in the next round of shooting practice.  Such coaching *very* much addresses psychology, but in the context of actual playing.

Oddly, trading psychology is rarely approached in such a fashion.  I find it refreshing (and unfortunately rare) to hear a trading coach talk about actual trading.  It is as if the game inside the trader's head is completely separate from the game of trading and somehow, magically, the two are supposed to converge.  I can't think of any other performance field where psychology is so completely decontextualized.

In coming weeks, I will be returning to regular trading and, yes, I will be reviewing my performance and coaching myself.  You can be sure that I will not be exhorting myself to perform positive affirmations; nor will I be telling myself--in generic fashion--to follow my process and trade with discipline.  I will review each trade like a basketball coach reviews game film with a team.  In so doing, I'll address my psychology within the context of what was done well and what needs improvement.  That is what deliberate practice is all about.

I look forward to sharing what I'm learning, in markets and in psychology!

So let's start with trading.

My framework for trading is to break the market down into three components:

*  Trend
*  Longer-term Cycles
*  Shorter-term Cycles

Trades are placed based upon the assumption that the trend and cyclical components that characterize the most recent market action will continue into the immediate future.  That assumption of what is called stationarity is based upon an assessment of the stability of market participation from one time period to the next.  It is for that reason that I trade at certain times (which, historically, tend to be stationary/uniform) and avoid trading at other times.

The charts of market action that I track are based on events, not time.  When we look at bars on a chart that are denominated by volume, trades, ticks, etc., we create more stationary data series.  That enables us to find more uniform cyclical behavior within markets.

Trends and cycles are two primary dimensions of market behavior.  A third dimension is rotation.  Most markets display a rotational component where certain sectors and industries within the market are relatively strong; others relatively weak.  Trend determines the direction of the trade; cycles determine when to trade.  Rotation is crucial in identifying what to trade.  A significant portion of overall profitability comes from trading the right instruments.  

Note that trades in a very strong rotational market can be structured in relative terms--long the strongest market segments, short the weakest--to create trend trades.  There are also situations in which volatility is priced cheaply in a market that has the potential for a meaningful directional move.  Structuring the trade idea with options can provide particularly favorable reward relative to risk.  Trade structuring is a fourth dimension of trading.  A significant portion of profitability comes from optimal structuring of a market idea.     

At the end of the day, I am looking to buy troughs of cycles in rising markets and sell peaks of cycles in falling markets.  An important way I identify those potential troughs and peaks is by determining regions of market activity where bears have been dominant and cannot push the market lower and where bulls have been dominant and can no longer lift the market.

In posts later this summer, I will illustrate my trading--and my trading psychology.  The focus in these posts will be the integration of psychology with the actual trading.  

Key lesson:  We develop psychologically by doing things differently.  There is no meaningful psychological development apart from doing.

Further Reading:




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Sunday, May 29, 2022

The Difference Between Trading and Investing--And Why It Matters

 
Trading and investing are fundamentally different activities (pun intended).  Many trading psychology challenges occur when market participants fail to respect the differences between the two.

Trading is a bottom-up activity in which we assess supply and demand moment to moment to determine when buyers or sellers are dominant.  This enables us to place short-term trades with favorable reward relative to risk.  For example, readers know that I track the upticks and downticks among all the stocks in an index, so that I can see, minute to minute, if there are significant shifts in buying or selling activity.  I might see relative volume (volume as a fraction of the usual volume for that time of day) spike and upticks jump as well.  That tells me that new market participants have entered the market as aggressive buyers.  On the first hint of downticks that fail to push the market lower, I might go long to ride the upside momentum.

Investing, on the other hand, is a top-down process in which we assess company fundamentals and broad economic, monetary, and geopolitical conditions and infer from shifts among those whether valuations are low or high and whether they are likely to rise or fall.  The investor doesn't focus on what is happening moment to moment.  Rather, the investor is concerned with fundamental factors that impact the valuation of assets.  For example, the investor might read research suggesting that inflation will go higher through the year and might infer that this would put pressure on central banks to raise interest rates.  A scan across central banks and inflation trends across countries could lead to a view that one particular country's rates are unusually low relative to anticipated price rises.  Shorting the bond market of that country could be a worthwhile investment.

Market participants who are better wired to function as fast thinkers and pattern recognizers are generally best suited as traders.  The slower, deeper thinkers who possess stronger analytical skills are often ideally wired as investors.  Of course, there can be mixtures of the two modes, as in the case of hedge fund portfolio managers who trade actively.  Those active investors often have separate analytical and trading processes to draw upon each mode.

Problems occurs when market participants veer from their strengths and approach markets in ways that provide them with no edge.  The short-term trader will latch onto a big picture market view and will become inflexible as supply and demand conditions shift.  The macro investor will become anxious about market action and will find themselves staring at screens and managing positions based upon noise.  Usually, the short-term trader will latch onto superficial fundamental information when expanding their view, turning them into poor investors.  Similarly, the investor caught up in the minute to minute action of the markets typically lacks analytical tools for assessing short-term shifts in supply and demand and thus becomes a poor trader.  

This is why our greatest edge in markets lies in knowing ourselves and how we best process information.  What we genuinely see and understand in markets provides the conceptual underpinning of our success.  Just as the sprinter and distance runner cannot win in each other's Olympic events, so the trader and investor need to ensure that they are consistently playing the game that they can win.

Further Reading:

How Our Relationships Shape Our Trading

Spirituality and Trading

The Spirituality of Trading

Radical Renewal:  Tools for Leading a Meaningful Life

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Wednesday, May 25, 2022

Intrinsic and Transactional Relationships: Why They Are Important to Trading

 
In these posts, I attempt to provide perspectives in trading psychology that go beyond the usual platitudes and generalities.  Today's topic may seem unusual:  how our relationships shape our trading.

Consider the distinction between transactional relationships and intrinsic ones.  A transactional relationship is one in which each person agrees to do something for the other.  In that sense, it is like a business transaction.  For example, a couple could get married if one partner promised money to the other and the other promised social status.  Employer-employee relationships necessarily have a transactional basis:  one party provides a salary and benefits; the other performs expected work.

An intrinsic relationship is one in which there is a commitment to the other person, not for any specific things they are expected to do, but for who they are.  When a baby comes into a family, we expect nothing from the little one.  We love her out of an ongoing bond.  Similarly, in a good marriage, the parties are special to one another because of who they are.  

Transactional relationships are unusually fragile.  As soon as needs and interests change, or as soon as one person's ability to meet the needs of the other is diminished, the basis of the relationship is threatened.  If I've married a person for their looks, I may become less interested in them as they age.  If I lose my job, my partner may become disenchanted if money was central to their expectations.  At an intuitive level, we recognize that transactional relationships are selfish and ego-driven.  They are only as solid as certain conditions can be met.

Many relationships are mixtures of transactional and intrinsic modes.  Yes, there is a transactional aspect to working at a trading firm, but we are most likely to be loyal to an employer if they also display an intrinsic interest in our growth and well-being.  I can think of hedge funds that have portfolio managers who have stuck with them for years and years because of a personal commitment shown by management.  I can also think of funds that are known for firing traders as soon as they lose money.  Those funds generate little loyalty and have great trouble in retaining employees.

Even intimate relationships have their transactional aspects.  Yes, Margie expects certain things of me in terms of responsibilities at home and commitment to family and I have similar expectations of her.  But in a lasting, loving relationship, the bond goes beyond that.  I am confident that if Margie or I were to no longer fulfill our expectations due to illness or disability, the relationship would lose no element of love and commitment.  To use the terms of the Radical Renewal blog-book, intrinsic relationships come from the soul, not the ego.  Intrinsic relationships are necessarily unique, because they are grounded in what is special about the other person.  That is why, Fitzgerald notes, there can never be the same love twice.

So how are these ideas relevant to trading psychology?

If our interest in markets is purely transactional, based on what markets can give to us in terms of profits, then we will be unable to thrive during periods of inevitable drawdown.  You can always tell when a trader's interest in markets is predominantly transactional.  They talk about P/L, getting bigger in their trading, making more money, finding more opportunities, etc.  They rarely if ever talk about their fascination with markets, what they are learning from their trading and research, and how they are contributing to the development of other traders.  Once drawdowns occur, they experience emotional disruption, not because they lack discipline or because they're trading poorly, but because they cannot tolerate the frustration and emptiness of unfulfilled needs.

When our interest in markets and trading is intrinsic, we find value in our learning and development.  We are also motivated by the intellectual curiosity of finding opportunity in ever-changing circumstances.  Similarly, an intrinsic interest in trading is one that we're eager to share with others, fueling rewarding teamwork.  That fuels us--and our growth--when times are tough in markets.  I can not only survive during drawdown, but thrive, because it's not simply about how markets pay me out here and now.

Transactional relationships are about me; intrinsic relationships are about thee.  Often, we fail in trading because we make it about us.  Transactional relationships in markets are as fragile as they are in our personal lives.  No amount of time spent on working on mindset or setups can help us if we're trading to fill voids in our lives.

Further Reading:

Taking the Ego Out of Trading

How Our Bodies Become Our Souls

Radical Renewal:  The Spirituality of Trading

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Sunday, May 15, 2022

Listening as a Core Trading Skill

 
Last week, we took a look at the challenge of trading markets that are ever-changing.  What that means in practice is that good trading begins with open-minded observation.  Are we seeing a continuation of previous market behavior, or are we seeing a change?  Markets trade thematically.  Sometimes the theme is risk-on and everything is trading higher.  Other times, we trade in a risk-off fashion, with pretty much everything declining.  Most of the time, the themes are expressed in relative terms, with certain asset classes stronger, others weaker; certain sectors of the market strong, others weaker.  Before we put our hard-earned money to work, we want to identify themes that are in play for the market.  That means that we don't blindly predict what we think will happen, but instead listen carefully to the market's communications and detect what *is* happening.

If you want to get on the floor with your partner and dance, you don't just start dancing.  You wait for the music to begin and adapt your dancing to what is being played.  

If you want to help a person in need, you don't just start giving advice.  You listen to what is going on in their life and adapt your response accordingly.  

As this post emphasizes, silence and a quiet, open mind are crucial skills of trading psychology.  Good trading requires emotional intelligence, not just cognitive complexity.  Every day, the market talks to us, and it is up to us to read the themes and make our decisions accordingly.  

The active trader who begins the day with preformed ideas--and who scouts for every possible "setup" that could confirm the ideas--is like the person you talk with at a party who is figuring out what they want to say before you've finished speaking.  Conviction makes convicts:  we become imprisoned by our expectations.  If markets are ever-changing, then we must be ever-open to change.

An important part of trading process, too often ignored by developing traders, is the maintenance of an open mind and the ability to quickly spot themes and shifts in themes.  Looking at chart patterns in a single asset misses the thematic nature of movement across markets.  First we find the themes; then we find the specific "setups" that provide us with a good risk/reward trade.  Once we place and manage the trade, we return to open-minded mode to detect further changes or trends.

Good trading does not replace negative self-talk with positive self-talk.  It replaces all self-talk with listening.

Further Reading:

Trading With Clarity

Relative Volume and Other Indicators I Find Helpful

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