Monday, August 31, 2020

BRETT STEENBARGER'S TRADING PSYCHOLOGY RESOURCE CENTER



Most recent blog post - Can Artificial Intelligence Make Us Better Traders?

Most recent Forbes post - The Loud Impact Of A Quiet Ego

Most recent podcast:  Four Traits That Lead to Trading Success

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 nearly 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 services to individual traders.  I do, however, welcome questions about the ideas in this blog.  You can email me at the address on my bio and contact page.  I'm also available via Twitter (@steenbab), where I'll continue to 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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Friday, September 21, 2018

Can Artificial Intelligence Make Us Smarter Traders?

There are some who would have you believe that trading is 80+% a function of your psychology.  All you need to do is sustain your mindset and discipline and remove your emotional blocks and you, too, can find the success of Market Wizards.

As a psychologist, a psychologist who has worked full-time with traders on trading floors, a psychologist who has consulted to trading firms across different markets and strategies, and as one who has traded himself for decades, I can assure you that there is a helluva lot more to success in markets than maintaining the right psychology.

A good way to put it is that the wrong psychology can derail anyone, but the right psychology does not substitute for insight, skill, and experience.  Psychology is necessary for success in any performance field--from athletics to trading--but it is not sufficient.

One of the most powerful observations I've encountered in my work with traders and portfolio managers is that cognitive skills and development account for as much success in markets as personality variables.  Superior traders have superior information processing skills.  Show me a good trader, and I will show you someone who--in some way--processes information more effectively and uniquely than his or her less successful counterparts.

I was part of a meeting recently in which a money management firm discussed the idea of requiring programming knowledge from all new hires.  Years ago, that could never have been a topic for discussion.  Now it is a serious proposal.

It makes sense.  When I look at the traders who have been particularly successful over the past couple of years, the majority are either entirely algorithmic or manage capital with a hybrid, "man-machine" interface.  Many make discretionary decisions--aided by signals generated by the machines.

Quite simply, machines--used properly--can process more information, more quickly than we can.  They can find patterns in multidimensional space that evade our naked eyes--and they can ensure that these patterns are not merely curve-fit.

It's not that artificial intelligence (AI) necessarily succeeds by giving us better trades.  It is valuable in giving us more hypotheses to consider in framing trade ideas.  It identifies patterns that have set up in the most recent past so that we can make an informed judgment as to the potential for those patterns continuing into the immediate future.  It vastly expands our cognitive bandwidth.  For that reason, AI can help us more quickly adjust to shifting patterns in the instruments and markets that we trade.

On Saturday, October 20th, I'll be in San Diego with the folks at Trade Ideas and several experienced market participants to discuss the potential for partnering with machines for better trading.  We'll take a look at trading processes, as well as trading psychology, and how those can make the most of increased information bandwidth.  The automobile greatly expanded our travel capacity relative to the horse-and-buggy.  So, too, in the machine age, can we greatly enhance our decision making with a superior flow of supporting information.

Further Reading:  


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Tuesday, September 18, 2018

The Power of Quiet Trading

Think of your mind as a finely calibrated instrument that can detect subtle patterns in markets--and in ourselves.  In order for this wonderful instrument to function properly, it requires no interference whatsoever.  If you place electrodes on a person's head to detect brain waves, the slightest movement of the head can throw the readings off.  Similarly, when our minds encounter interference, they no longer can read the subtle cues of conversations--or the subtle patterns of price behavior.

Perhaps the greatest trading psychology flaw one can have is the tendency to experience quiet as emptiness.  Instead of experiencing quiet as peace, people can experience it as boredom or as a void.  So they rush to fill their voids with self-chatter and aimless action.  Just watch how quickly we turn to our cell phones when a quiet moment occurs.  All that activity trains us in a sense: it trains us to be unable to make full use of our finely calibrated instrument.

The most recent Forbes post examines research relevant to the quieting of our minds.  One line of research reaches an astounding conclusion:  that it is in the quieting of our egos that we gain access to our greatest strengths.  I encourage you to check out the post and the research links.  If this line of thought is correct, then all the trading patterns/setups and all the self-help techniques designed to instill discipline and remove our blocks are of limited value.  If we are not in the right (flow) state to detect subtle patterns, we quite literally will end up trading noise.

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Thursday, September 13, 2018

The Right Way to Trade With Confidence

Here's an idea I've been discussing with a few of the traders at SMB who are increasing their confidence--and their size--in many of their trades:

When you have *real* confidence in your trading, you're not threatened by the possibility of being wrong.  All of us are fallible, and if we are secure with who we are, we can accept that.  True confidence means we have the inner strength to deal with setbacks as well as successes.

When we have big confidence in a trade, that is when we want to double down on our planning for the possibility of being wrong.  Too often, traders become confident in an idea and stop looking and planning for alternate possibilities.  We want to use confidence to trigger our awareness of fallibility, so that we are aggressive in the trade AND aggressive in planning an exit if the trade doesn't work out.

The holy grail is to have conviction *and* open-mindedness.  We can size up a trade at the same time that we intensively review our exit strategy.  Aggressive and nimble...just like the sniper.

Further Reading:


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Saturday, September 08, 2018

Six Characteristics of Successful Traders

I've seen traders succeed in very different markets, over very different time frames, and with very different strategies.  Here are common elements I've noticed among the most successful traders:

1)  Capacity for Sustained Focus - Quite simply, the successful ones process more information--and sustain the search for unique information--better than their peers.  This enables them to see what others do not;

2)  Originality and Creativity - I have never met a successful trader who traded in the ways that trading texts describe.  There is always something unique to the successful trader, and very often it's looking at unique information or looking at common information in unique ways;

3)  Learning From Mentors - There may be completely self-taught genius traders, but the best that I have met have learned from other successful traders.  Indeed, it's common for the great trader to have multiple role models and synthesize lessons from each;

4)  Emotional Resilience - Some traders bounce back from losses and setbacks better than others.  The successful ones actively learn from the setbacks--and then move on.  The less successful ones fail to learn from their experience and often fail to move on;

5)  Attention to Detail - In football, it's often the blocking and tackling that ultimately wins the game.  In basketball, it's running the plays and the defense.  Less successful traders focus exclusively on "setups" to get into trades.  Successful traders develop rules and processes for sizing and managing positions to maximize reward relative to risk.

6)  Always Working on their Game - As Merritt Black at SMB Futures recently noted, the intensity and consistency of the review process is very positively correlated with success.  Just as in sports, the successful traders review markets, review their trading.  They are studying "game film" to prepare for the next contest.  They aren't focused on getting rich; they're focused on getting better.

Quite simply, the best traders start with distinctive strengths and then cultivate those through rigorous tracking of performance and learning.  There is a winning process long before there are winning outcomes.

Further Reading:


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Wednesday, September 05, 2018

The Psychology of Trading Without the Ego

A surprising amount of poor trading comes from trading our egos, not from actually trading markets.

When we focus on predicting market moves and trading our views with conviction, trading rapidly becomes a game of the ego.

When we declare that we have a certain trading "style" and we wait for market conditions to accommodate our style, trading becomes ego-based.

When we obsessively watch screens and focus on each move of P/L, trading turns into an ego game.

We can use every technique under the sun to instill discipline and overcome emotions, but if we pursue trading through the ego, we will be vulnerable.

An analogy I've used in my books is the good dancer on a dance floor.  The good dancer doesn't just dance his or her style regardless of the music playing.  The good dancer does not start dancing ahead of the music, anticipating the next tune.  The good dancer waits for the music to start, catches the beat and tone, and dances accordingly.

In my recent trading, I've been taking ego out of the picture.  I examine a stable lookback period in the recent market and identify two things:

1)  Has there been a dominant trend over that period?
2)  Have there been one or more dominant cycles over that period?

If I can detect no clear trend or cycles, I don't trade.

If there is no trend, but a dominant cycle, I trade the hypothesis that this cycle will continue into the immediate future unless I see clear changes in market volume, volatility, news events, etc.  That has me buying prospective cycle lows and selling highs.  In that regime, I look like a value trader.

If there is a distinct trend, but no clear cycle, I use the first pullbacks/bounces in the NYSE TICK to enter and ride the trend, again unless I see clear evidence of changes in the market's trading.  In that regime, I look like a momentum investor.

If there is a distinct trend *and* one or more dominant cycles, then I am using the cycles to guide entries and exits in the direction of the trend.  In that regime, my execution is counter-trend (value), but the overall idea is trend-based (momentum).

We suffer when we expect markets to trade the way *we* want them to trade.  There are valuable tools that help us identify cycles and trends.  That enables us to enjoy the market's dance music--and profit from it.

Further Reading:


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Monday, September 03, 2018

Becoming Truly Accountable For Our Trading Account

We have trading accounts, but how truly accountable are we for those?

What percentage of us routinely keeps informative data on our trading results?

What percentage of those traders keep regular journals to turn the trading data into actual goals and plans?

What percentage of those traders then tracks their goals and plans and holds themselves accountable them going forward?

Put it this way:  If you pursued greatness in any professional sport, how likely would it be to find success if you worked as hard at that sport as you currently do at your trading?

Could it be that the majority of traders fail to find success, not because they trade the wrong "setups" and styles, but because they pursue performance in ways that could not work in any performance field?  

In an excellent post, Bry Gomez from the Caylum Trading Institute points to a study from the American Society for Training and Development (ASTD) in which the probability of reaching a goal was studied as a function of the level of accountability for that goal.  Simply formulating a goal led to a probability of success of 10%.  Having a concrete plan for reaching the goal raised the odds of attaining the goal to 50%.  Having a specific person to whom you are accountable for the goal--and a specific time set to review performance with that person--led to an achievement rate of 95%.

In other words, it's not simply about having good intentions or even having good goals.  It's about leveraging the power of human relationships to become fully accountable for achieving those goals.  Creating daily report cards of performance and sharing those with peers becomes a best practice that can greatly improve performance, as Mike Bellafiore has observed in the development of traders.

We find our potential when we make life a team sport.

Further Reading:


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Wednesday, August 29, 2018

Tapping Our Inner Resources

In this post, allow me to pose a few questions that strike me as terribly important:


  • What if the depth and breadth of our learning can be magnified many times over by maintaining optimal mindstates?
  • What if our performance--in trading and in life more broadly--could be expanded many times over by sustaining optimal well-being?
  • What if the normal human mindstate is itself pathological and suboptimal, far from the potential of joy, fulfillment, and energy that we're capable of?
  • What if the ways in which we approach each day, designed to get tasks done, are some of the very ways in which we sustain our suboptimal mindstates?
  • What if the usual ways we think about trading psychology are simply shufflings of deck chairs on the Titanic and not ways that can bring about positive transformation of learning and performance?
My most recent Forbes post expands on these questions and offers one technique for maximizing our experience--and our performance.  The important implication is that, to maximize our trading, we need to optimally develop ourselves.  Expanding our experience is like providing our brains with faster, more powerful processors.  The problem is not that we fail to live up to our dreams, but that we dream too feebly and hence never truly awaken to turn dreams into visions and realities.

In coming posts, I will address powerful strategies for expanding our selves as a gateway to making the most of what we pursue in relationships, in careers, and in markets.

Further Reading:

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Friday, August 24, 2018

A Powerful Strategy For Feeding Your Head--And Your Trading Results

Mike Bellafiore at SMB recently wrote about the value of expanding your trading network as a way to accelerate learning and performance.  When traders team up and share ideas and review performance, they turn learning into a social process, which can become enjoyable and motivating in itself.  Most importantly, teaming up increases our sources of learning.  If I take away one valuable lesson from my trading each week, that compounds impressively over the course of a year.  If I take away multiple lessons from colleagues each week, I'm now on an exponential path of growth.

I notice a promising mentoring group for day traders that has formed recently:  My Investing Club.  Another with a long history of success is Investors Underground.  Hedge fund managers have a long history of networking over dinners and drinks, sharing ideas and performance improvements.  What Mike is describing takes networking to another level, where traders become an active, ongoing part of each other's processes.  That occurs regularly on the NYC trading floor and has been an important source of learning and growth for developing traders.

I would like to suggest a deeper reason why this networking works, and it's related to the Sweller quote above.  When we team with others, we gain access to their modes of information processing.  Each of us processes information in different ways, with different strengths.  I may be excellent at processing market information analytically, but I can benefit from others who are well connected and sensitive to shifts in investor/trader sentiment.  Perhaps I'm good at pattern recognition and reading short-term market behavior.  I might benefit from another trader who is excellent at identifying bigger picture market themes.

When we network with others, we process information actively and we typically do so via multiple modalities.  That leads not only to broader learning, but a deeper processing of the material we learn.

This works because it takes advantage of an evolutionary dynamic.  We create many variations when we look at markets in multiple ways through multiple lenses.  We can look at many markets and their interconnection; we can analyze markets quantitatively; we can look for repeating patterns in markets; we can look at the same markets over varying time frames.  All of this expands the number of hypotheses we generate and sets us up to critically sift through these hypotheses, resulting in a greater likelihood of one good idea coming to mind.  By looking at more things in more ways, we activate a kind of intellectual natural selection that results in the few great ideas, the few great trades that can make our week, our month, our year.

One implication of this line of reasoning is that, as traders, we can do a much better job of networking with ourselves.  This means tapping into *our* variety of modes of processing and actively engaging market information in multiple ways:  seeing it, talking it aloud, writing it, studying it.  Networking works, because it literally feeds our brains, creating better cognitive networks.  An underappreciated source of trader failure is impoverished information processing.  In so many areas of life, feeding our heads can feed our bottom lines.

Further Reading:


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Monday, August 20, 2018

Failing With Enthusiasm

Thanks to a savvy performance/trading coach for forwarding an excellent NY Times article on "Talking About Failure".  

Talk about our failures?  For most of us, that's the *last* thing we feel like doing!

The idea makes sense, however.  Not only does talking about our failed ideas and failed trades help us put them in perspective; it also enables us to accept them, learn from them, and put them into perspective.

One exercise I strongly suggest to developing traders is the following:

On your flat or down days/weeks, reach out to other, similar traders who made money on the day/week and learn what they did and how they did it.  Let them talk about their success and see what you can take away as ideas, learning lessons, and goals going forward.  Having one or more trading "buddies" who can openly talk about mistakes and successes helps everyone cement what they did right and learn from what didn't go right.

And if you have no trading buddies?

It's worth reviewing your trading and looking for the plausible opportunities you may have missed.  In other words, if you had been trading your way, at your best, what might you have done differently?  In that situation, you are looking to the ideal trader within you to act as your "trading buddy".  By openly facing your "failure" and using it to prod your ideal trader, you turn setback into learning and opportunity.

The psychology of having flat or down periods is determined by whether you view them as setbacks and defeats versus inspirations, prods, and opportunities for growth.  Churchill had it right:  it's all about failing enthusiastically.

Further Reading:


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