Wednesday, August 31, 2022

BRETT STEENBARGER'S TRADING PSYCHOLOGY RESOURCE CENTER



RADICAL RENEWAL - The new blog book on leading a fulfilling life

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Most recent blog post - A Great Trading Psychology Exercise for the Current Market

Most recent Forbes post - How We Can Be Socially Distanced, But Fully Engaged As Traders

Latest Podcasts:  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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Friday, March 27, 2020

A Great Trading Psychology Exercise For This Market

Here's a great use of your time this weekend:

Get sleep.  Get exercise.  Get sunshine.  Get connected with the people who matter to you.  Reach out to help and encourage those you care about.  Reach out to those you love and trust for help and encouragement.  Get your life--your well-being--in order.  

Then, and only then:

Review your trading from the start of this volatile downturn.  Calculate your P/L during this period.  Ask yourself the question:  Did you perform well given the opportunities (and risks) afforded by the market?

Find the one biggest mistake you've made during this period and cement a plan to identify in real time when it is occurring again, so that you can avoid going down that path.  One technique that I've found especially helpful in that regard is creating a simple checklist of all the things you do when you're not trading well, including mindset, market biases, chasing moves, etc.  Before placing any trade, you need to mentally review that checklist and make sure you can honestly check all the boxes to actively identify that you are *not* making those mistakes here and now.  That "to-don't" checklist is a tool to inject mindfulness and self-awareness in your decision-making and actions.

Then find the one thing you've done best during this period.  Find the kind of opportunity you've been best able to identify and exploit.  Examine your best trades and create a list of what you've done well on those.  Those "best practices" can feed a second, "to-do" checklist.  Just as you need to quickly, mindfully review your "to-don'ts", it's important to be aware that you are checking all the boxes of the "to-do's".  These are short checklists and should not take much time to review.  But, repeated over time, those reviews cement in your head what you need to be doing--and not doing--to succeed going forward.

I've studied past markets when we've had major, broad declines.  Those include the markets post 1929, the large bear markets of 1972-1974 and 1976-1982, as well as more recent declines that began in 2000 and 2007.  In the great, great majority of cases, even after there has been a momentum washout of declines, there has been continued volatility and sharp moves in both directions, often as part of bottoming processes.  The bottom line from those studies is that there have been great trading opportunities following those oversold times, not always great investing opportunities.  Finding the patterns that work in these volatile markets, and "playbooking" them, as Mike Bellafiore describes, is helpful in structuring your risk taking.  

We can't change the past, but we *can* learn from it.  The bulk of the opportunity set lies ahead of us.  Let's use the past to prepare for the future!

Further Reading:



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Wednesday, March 25, 2020

Finding Unique Opportunity In The Current Market

Here's a helpful pattern for developing traders looking for edges in the current market.  It's a great way of looking underneath price charts to see what is actually happening in the marketplace.

The key idea is that time of day matters.  The execution desks of the largest trading firms are most active when they have the greatest liquidity.  Liquidity has been in short supply in recent markets, with thin order books.  That means that at the times of day when large traders most need to move size, they're forced to lift offers and hit bids.  That shows up as quite high or quite low readings in the NYSE TICK, the continuous measure of the number of stocks trading on upticks minus the number trading on downticks.  When we see a very positive distribution of TICK readings during early and late session--the two periods of greatest institutional activity--we know that they are actively buying, and we can use short-term pullbacks to ride those waves.

Above we see the one-minute values of TICK for yesterday's market in the top panel, with a pink line showing the zero level and a green line tracking a 10-period moving average.  (Data from Sierra Chart).  In the bottom panel, we see the SPY ETF.  Note the very positive distribution of TICK values during early morning, even when we have a pullback.  Those pullbacks were meaningful buying opportunities for strength through the day.  (Note how pullbacks in TICK in the first 45 minutes of trading couldn't push SPY to new lows and indeed how we stayed above the open.  We saw similar inability of pullbacks to generate new lows during the 11 AM hour).

By tracking TICK during key periods during the day, we can see if buying or selling is dominating and we can determine if buyers or sellers are becoming more aggressive from minute to minute.  In relatively illiquid markets, it's more difficult for participants to hide their intentions.  That becomes a subtle source of edge for savvy traders.

Further Reading:


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Monday, March 23, 2020

The Most Powerful Psychological Strategy For Uncertain Times

There is a great deal going on right now that we cannot control:  the spread of the virus, the uncertainty of health, the uncertainty of markets.  This is the first time ever where traders calling me are spending more time discussing their personal challenges and the challenges of their families than discussing markets.

Here is the strategy I'm finding most effective for staying emotionally grounded and constructively focused:  Reaching out and helping others.

The underlying principle is this:  We cannot feel helpless if we're actively helping.  The antidote to uncertainty is to take on projects with certain rewards.

I recently went shopping at a department store and was surprised to find more of the things I needed on the shelves than I expected.  I asked the checkout clerk if I could quickly run to my car and get extra bags and she said of course.  She seemed quite upbeat and happy, which was nice to see.  When I came home to unpack my bags, I discovered to my surprise that she had slipped into my bag an extra four-pack of toilet paper.  It was a little thing, but it meant a lot--and I expressed my appreciation.

Similarly, I've noticed how traders are making more use of teamwork than ever before, particularly now that many are trading from home.  They are using the teams not just to share ideas through the day, but to actively help each other review performance, set goals, and stay on track with those goals.  It reminds me of the Navy SEALs and their ethic of leaving no one behind.  It's tough to feel sorry for ourselves when we're reaching out to others.  Who can you make sure isn't left behind:  in your circle of friends, in your family, in your neighborhood? 

In my own work, I've opened my calendar to early morning and evening calls, as well as calls on weekends.  I have resumed doing talks (online!) for trading communities and trading firms.  Social distance does not have to mean social isolation!  Some of the best helping I've been doing is simply letting people know what is working in this new environment:  what is working in trading and what is working in people's personal lives.  There's a lot to be said for just staying constructively focused!  

It's a psychological reality:  In giving, we become wealthy.  Who can you reach out to and create a buddy system to reach that next level of trading success?  Who might benefit from your ideas and what you're doing that is proving successful?  Stay safe, stay well, but stay engaged.  Challenges can overwhelm us, or they can bring out the best in us--

Further Reading:

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Friday, March 20, 2020

Making the Most of These Challenging Times

Here are some important ideas I'm sharing with the traders I'm meeting with (in virtual mode!):

*  I see where California is going into stay at home mode, and I expect other states to follow.  This, on top of shortages at grocery stores and fears regarding health, is proving stressful for traders and their families.  This recent Forbes article outlines very specific strategies I'm seeing traders engage in to make the most of this period of "social distancing".  It especially addresses the issue of how to stay in a peak performance mindset even when we're dealing with unique stresses and changes in our work routines.

*  I am working with traders who are doing incredibly well in these volatile markets.  Videos from SMB are outlining some of what these traders are doing.  A key has been staying short-term and nimble, seeing opportunity on both sides of the market and not getting locked into opinions, and taking profits opportunistically.  Trading "move to move" and following the shifts in buying and selling on an intraday basis has been quite useful.

*  I am hopeful about efforts being made to develop a drug to control coronavirus symptoms and efforts to develop a vaccine.  The people I speak with who are far more on top of the science of the virus than I will ever be suggest that these efforts could take a while and, indeed, we're not doing enough to separate people and prevent mass viral spread.  The fight against the virus could be a longer-term warlike endeavor, with ongoing social impacts and impacts on markets.  Particularly if illness is widespread and helps further disrupt supply chains, being prepared by having medications, food, and supplies on hand will be super important.  This is an issue of prudent preparation, not "hoarding".  Please take the time to read this.

*  What to watch:  The excellent SentimenTrader service notes that the RSI for corporate bonds is at an all-time low.  (See HYG).  That means we're pricing in an increasing set of odds of defaults and possible bankruptcies.  Note that the same dynamic is hitting municipal bonds (MUB).  People I speak with are keeping their eyes on these markets for signs that things are improving or getting worse.

*  Twitter has been an amazing resource during this time, both for following markets and for following informed commentary and research on the virus.  I am retweeting articles and comments that I find particularly enlightening.  I do not watch television networks or follow politicized commentary.  Not helpful at this time.

Stay safe and stay together even when we're not physically together!!

Reading:

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Tuesday, March 17, 2020

A Pattern That Has Been Worth Tracking In This Market

I recently posted on the topic of finding trade ideas by tracking shifts in the psychology of the market itself.  There are two sets of indicators that I utilize for this purpose.  The first is the TICK indicator, which is a moment to moment measure of how many stocks are trading on upticks versus downticks.  By watching the distribution of TICK values over time, we can determine whether buyers or sellers have been dominant in the market.  

The second measure is the Delta measure that takes each transaction in a particular instrument, such as the ES futures, and identifies whether those transactions are occurring at the market's bid price at the time or at the offer price.  Again, we're gauging the sentiment of market participants and how that shifts over time.

The pattern that has been quite helpful in the recent, higher volatility market is one in which there is persistent buying or selling (upticks or downticks dominate; volume at offer or at bid dominates), but that activity no longer moves the market significantly higher or lower.  So why is this important?

In the current market, volatility is so high that even professional money managers at hedge funds have to size down and reduce their holding periods.  Quite simply, in a market with daily ranges around 8%, these managers do not have a mandate to lose that much at all, not to mention in a single day.  High volume and high volatility makes daytraders of many of us.  When the ranges are so wide, no one can take the heat of adverse moves over a multiday period.

So what that means is that when buyers cannot move the market higher or sellers cannot push price to new sustained lows, those buyers and sellers are going to have to cover their positions--and they'll have to do it quickly, given the violence of moves we've been seeing.  It's that "trapped volume" that creates the sellers and buyers for the reversal moves.  The greater the trapped volume, the greater the subsequent move in the other direction.

What we see above is a chart of late yesterday's trade in the Russell 2000 ETF, IWM (bottom panel; one minute bars).  (Chart created in Sierra Charts).  Above the Russell is a TICK measure specific to the Russell 2000 stocks.  I've drawn a 10-period moving average through the TICK bars (green line) and a red horizontal line at the zero level, so that you can readily see when we have net buying (green line above the zero line) and net selling pressure (green line below the zero line).  Notice how we have net buying late in the day, but are not able to make and sustain fresh price highs in IWM.  That alerts me to the potential that we could have some trapped longs in the overnight and next day's trade.

This, of course, is just a hypothesis, albeit one supported with data.  If we see price action going forward in which buying cannot take out the prior day's high, that would support the hypothesis and could help us frame a winning trade.

Two points are important here:  1)  the psychology/sentiment of the marketplace matters and sets up valuable trade ideas; 2) some of the best trade ideas come from following data that few others track.  It is very difficult to achieve distinctive results by looking at the same things as everyone else.

Further Reading:


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Monday, March 16, 2020

The Real Tough Questions About This Market

The last post asked an important question:  Are we seeing a nasty correction or part of a larger bear market?  This post asks a very tough question:  Are we seeing the opening phases of something worse than a nasty recession?

As a psychologist working with traders and investors, my job is to ask the tough questions that, in our desire for comfort, we may not be asking ourselves.  The goal is not to convince anyone and certainly not to frighten them.  Rather, the objective is to encourage open-minded awareness of ourselves and the world around us.  Whatever decisions we make, we want to do so with open eyes.  As I've noted in the past, my role is not just to comfort the afflicted, but also afflict the comfortable.  Unquestioned answers and assumptions are part of our (sometimes false) comfort.

Prior to the Great Depression in 1929, financial markets experienced many "panics", indeed every 20-30 years or so.  With the strengthening of the banking system, including the role of central banks in economies, we have been without a "panic" for a record number of years.  Yes, there have been shocks like in 1987 and major recessions as in 2008, but nothing like a depression that not only wipes out investor wealth, but impacts the entire social structure through shortages, unemployment, and day-to-day insecurity.  My grandparents lived through the Great Depression, and it affected their outlook and behavior for the rest of their lives.

Recently, we're starting to see hints of such impact with the coronavirus pandemic.  Falling markets--even in the face of coordinated central bank action--are certainly part of it, as are reports of overrun supermarkets and hospitals.  Recently, I'm hearing more about concern for failing markets, as speculation about complete market shutdowns increase.  Businesses--from restaurants and bars to cruise lines, hotels, airlines, entertainment venues, and schools--are in shutdown mode, almost certainly creating a quick shock to the economy through unemployment.  In a short time, we've gone from complacency (It's just another flu) to the hoarding of food and supplies.

How do municipalities and companies pay off their debt if money isn't coming in?  What happens to bondholders who are already battered by falling stock prices?  Suddenly we have "risk parity" in reverse--and a phenomenal loss of wealth for families and institutions.  

And how does all this unemployment, social distancing, and broad financial loss *not* affect young people for years to come, particularly if the virus--like Spanish Flu--comes back a second year in an even more virulent form?

So, yes, it's a good question to ask whether this is a nasty correction or a bear market.  It's also a worthwhile question to ask whether this is a recession in the making or something more generational in its impact.

Additional sources:





Further Reading:


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Saturday, March 14, 2020

Is This A Correction Or A Bear Market?

On Thursday of this past week, we hit a particularly oversold level in the stock market.  As the stats from Index Indicators pointed out, we had fewer than 10% of stocks in the Standard and Poor's 500 Index trading above their 3, 5, 10, 20, 50, 100, and 200-day moving averages.  In other words, the market was oversold on most every time frame that traders typically look at.  

Now here's the interesting thing:  When this happened on August 8, 2011, the market ultimately moved higher by over 9% in the next 50 trading days.  To be sure, there were volatile upmoves and downmoves over that period as the market found a base early in October and late November of that year, but the basic direction was significantly higher by the start of 2012.  In December of 2018, we similarly hit a point where the market was oversold across all the aforementioned time frames.  Fifty days later, we were up more than 23%.  That very oversold level marked the bottom of the move to the day!

On the other hand, we first hit the broadly oversold level during the 2008 bear market on October 6th, with the SPX average at 1056.89.  Before the month was up, we had dropped another 200 points and eventually did not make a price low until March 9, 2009 at 676.53.  In other words, oversold in the big bear market was followed by more oversold for quite a few months.  The value buyer in early October, 2008 was gored by the bear for another 30+%.  

So now we've hit a broad oversold level this past week and bounced sharply the next day on news of policy interventions.  Have we seen the capitulation phase of a correction or is this simply part of a waterfall in a bear market?

As I am writing this, I am receiving numerous emails from colleagues describing the start of shortages at supermarkets.  I am also hearing from parents dealing with the closings of their children's schools and colleges.  And I am hearing from small business owners, such as restaurant entrepreneurs, that business is way down.  If that continues, we can count on layoffs and real economic pain.  Small business and the service sector are important engines of the economy.  Increasingly, as Duke finance professor Campbell Harvey has noted, we're facing the likelihood of a nasty recession--and that's what rates markets are telling us.  

Historically, important bear markets have taken months to find bottoms.  This happened between late May and late October of 1962; between August and late December of 1966; between January and June of 1970; between August and December of 1974; between October of 1981 and August of 1982; between October of 1987 and October of 1988; between August of 2002 and March of 2003; and of course between October of 2008 and March of 2009. 

The virus has yet to run its course in the U.S.  We've yet to see any bond default and/or bankruptcy fallout from the recent energy spat between Russia and Saudi Arabia.  We've yet to see how well we succeed at flattening the pandemic curve and how well we succeed at providing adequate support for laid-off workers and battered sectors of the economy.  It's difficult to believe that public perception and psychology will change on a dime.  The lifestyle and economic impact of the coronavirus outbreak are likely to be with us for a while.  That is why I'm open to the bear market hypothesis and not betting my life savings on a V bottom.

Further Reading:

Friday, March 13, 2020

Dealing With Toxic People

Some of the most powerful mirrors in our lives are relationships.  When we experience ourselves through relationships over time, we absorb that experience.  What we call the "self" is continually constructed, continually shaped by our social experience.  I am not the same person that married my wife 36 years ago.  I've absorbed aspects of her values, personality, and mindset and I'm better off for that experience.

Not all relationships are positive mirrors.  Some are downright toxic.  Among those are:

*  People who want to use you for their own agendas;
*  People who reach out to you to hear about the bad things that have happened to you;
*  People who cannot share your happiness or success;
*  People who are so dependent upon you that you cannot depend upon them.

Those are the dead plants in your life garden. 

My favorite strategy is to share some piece of joy with another person and see how they respond.  People who want the best for you will celebrate with you.  People who don't want the best for you...crickets.  No celebration.  

In a good relationship, your partner wants you to grow.  In a toxic relationship, growth is a threat.

Water your garden often.  Remove all dead plants and replant.  It's a great strategy for fulfillment in life.

Further Readings:


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Wednesday, March 11, 2020

Trading The Market's Psychology

If you were to look at a daily chart of the recent stock index market, you might be tempted to conclude that all we have are sellers, with few if any buyers.  Nothing could be further from the truth, however.  Many buyers are trying to scoop up bargains here.  So far, their buying activity has not been able to move the market meaningfully higher.  That means that bounces, while traveling quite a few points, ultimately only retrace a portion of prior declines.  That's what happens in a downtrend.  

Here and here I pointed recently to the Delta measure that tracks the amount of volume trading at the market's offer price vs. the amount trading at the bid price.  That tells us something about the market's psychology:  specifically, whether buyers or sellers are more aggressive.  When we examine the ability of this aggressive execution to actually move market prices, we can get a feel for markets where hidden, resting orders are able to absorb the aggressive activity and ultimately fuel a move the other way.  It's when aggressive buyers or sellers get trapped by such resting institutional supply/demand that we can get nice intraday moves.

Above we can see this pattern play out on a micro basis.  The chart (top region) represents the upticks vs. downticks specific to the stocks in the Standard and Poor's 500 Index.  It moves differently from the more familiar NYSE TICK.  (SP TICK data from Sierra Chart).  The above screen shot is a 15-second set of bars for SP TICK with a 10 period moving average overlaid (green line).  The horizontal red line represents the zero line where upticks and downticks among the SPX stocks are balanced.  Note the occasions when we have net buying aggressiveness (upticks) with the moving average line staying above zero.  Notice how those buying episodes are often occurring at lower price highs (pink arrows).  It's a great indication that buyers are trying to scoop up fallen prices but ultimately are unable to move the market higher and become trapped, fueling the next down move.

This pattern shows up on multiple time frames with different measures of buying and selling pressure.  It's a great way to identify the moment-to-moment psychology of the market and align your trading accordingly.  

Further Reading:

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A Useful Trading Psychology Exercise

In a helpful blog post, Michael Berkowitz expands upon the idea of making friends with your weaknesses. Many times, if you view the things you did wrong during a trading day, you'll find that the weakness is actually a misdirected strength.  In other words, when we over-utilize our strengths, they become vulnerabilities.

Being able to listen to others is an important strength that allows me to be a caring psychologist, parent, and spouse.  If I use that strength excessively and in the wrong way, I can end up being swayed by others and not listening to my own intuition.  I have made too many losing trades that way!

Similarly, I don't know of great traders who aren't greatly competitive.  But that same drive can lead them to not accept defeat and blow through stop levels, creating massive drawdowns.  Is it a lack of discipline that causes the losses or a lack of balance to the competitive strength?

Every great strength needs a great balance.  It's a very important trading psychology lesson.

A useful exercise is reviewing your worst trades during the day or week and ask yourself:  What was the strength that I drew too much upon?  And then review your best trades and identify the balancing element that enabled you to make proper use of that strength.   It is very hard to battle something we take as a weakness; indeed, the very effort reinforces the notion that we're weak.  It's much easier to activate an existing, balancing strength.

Mike Bellafiore recently linked several posts relevant to the record performance of SMB traders during the volatile month of February, noting flexible trading as one of the common ingredients of success.  What I've seen first hand is that the top performers did not hit records by focusing on their weaknesses.  One of them was drawing too much on his ambition to make money and hold positions for longer periods and so balanced that with his strength at identifying and pouncing upon shorter-term patterns.  Another found himself getting too eager and excited over the opportunity afforded by the volatility and balanced that with his ability to focus on a more limited opportunity set and draw upon his capacity for focus and patience.

In all those cases, the traders overcame their worst trading by accepting the strengths that were misdirected and balancing them with other strengths.  Note:  They had all the elements for success already; they just needed to channel them differently.

Further Reading:


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