Friday, March 27, 2009

Approaching Markets With an Active Mindset

When I talk with a group of traders this weekend, I'll be focusing on the importance of approaching markets with an active mindset. Successful traders don't simply turn on the computer and follow the market. Rather, they actively look for themes and patterns, drawing upon the implicit learning that comes from longstanding market immersion.

Think of a person riding an elevator with classical music playing in the background. The act of listening is passive; the music is for atmosphere only. At a symphony concert, however, a listener will actively attend to the performance, picking out motifs in the work and following their development.

A tired person in the morning will gulp their coffee, barely tasting it. The coffee expert, however, carefully prepares the coffee to maximize the flavor of the beans and the temperature of the water. Tasting the coffee is an active process, appreciating the flavors that emerge in the tasting.

With growing expertise, the trader learns to actively process market patterns as they emerge and place them into a perspective that leads to trade ideas. It is when traders become passive that they react to markets, buying simply because prices are rising or selling at the first sign of weakness.

But how can we become more active market participants, even when we're not trading?

Several readers have told me that they're using Twitter to document their thought process through the market day. They then review the tweets to better understand how they could have done a better job of recognizing and responding to market patterns. It's a unique application of Twitter, and it may be quite useful in turning passive market following into active market mastery.


Jorge said...

Dr. Steenbarger,

For those who use NinjaTrader, you can also make time-stamped journal entries in the Account Performance tab. Then, as you review your performance, you can see in parallel (or even paste in the charts next to your executions) your self-talk, rationales for the trades, etc. You can also go back in time and review how your self-talk evolves over weeks, months, etc.

Best trading,


PS: the Daily Trading Coach has already run out of copies in the UK - I had pre-ordered and I'm still in line! (not a complaint, though, I just have a feeling your last book is going to be your biggest hit).

S Benard said...

Dr. Brett,

How do you find time to write as much as you do, and still trade?

I have my own blog, but at times, have found that I miss good trades because I was writing a blog post. I've cut back on my blogging because it was sometimes distracting.

I'm curious how you manage to do it so well. You must be a miracle man!

S Benard said...

One more thing:

I use my blog to keep track of my thoughts and what affects my thinking. I use it as a personal journal. That's why I keep it private -- even my best friend and mother aren't permitted to read my blog posts.

JDMoodie said...

I started blogging about my trading and found it helped immensely... and not really just in a hindsight sort of way. I layed out the chart, plotted my trades and did a little commentary analysis which served to re-enforce the good trades and point out the bad. I found this a good overall tool. I made it public and have a few readers but that is not the goal, that is just some outside accountability for my headgame.

Then it hit me that I was starting to trade in anticipation of what I would put in my blog entry and I was tailoring some of my entries and exits to result in better profits so my blog would look good...skipping some of the more questionable trades.

It's been a fun process and one that I will keep up as I see the benefit in it and I am sure it will evolve over time. Perhaps even a few might get some benefit out of my meanderings.


Watson said...

Hi Brett,

I completely agree that using twitter like applications is beneficial during the trading day. I believe the ability to review our actual thoughts before and after the outcomes of our decisions has been reached is key to 1)altering false or illogical thought processes and 2)Increasing the flexibility of our thinking through self analysis.

I was wondering if you come perhaps review some experiences that you or others may have had where after reviewing your thought process during the day, you identified a misconception or false read that occured.

Curtis said...

Hypothesis based trading may also provide some of the motivation required for maintaining focus.

There does seem to be a level of stress or activation where learning occurs, above this learning the mind shuts down due to painful stimuli and below the level the mind is not activated.

Blue said...

I've started to post my actual trades and account positions as a way to stay focused.

I do options and don't trade during the day. I think about the market and enter orders in the evening and over weekends.

If anyone wants to follow, I'm at: Option Experiments

Brett Steenbarger, Ph.D. said...

Thanks, Jorge, for that nice idea with Ninja. There is indeed a time lag in getting books to the UK; sorry for the inconvenience--


Brett Steenbarger, Ph.D. said...

Hi S Benard,

I generally plan my blog posts before and after trading hours, so the writing doesn't take very long--


Brett Steenbarger, Ph.D. said...

Hi Watson,

Thanks for the excellent idea re: a future post topic--


Brett Steenbarger, Ph.D. said...

Excellent point, Curtis; thanks much--