Friday, March 27, 2009

Four Best Practices for Maintaining Your Focus on Markets

It probably was the wisdom of the unconscious mind at work that led me to post on the topic of preparing for the market day following the post on the challenge of market engagement. After all, you're most likely to stay engaged in market action if you have prepared for a variety of scenarios and are actively searching to see which will play out.

I joked in the preparation post that it's helpful to plan your inactivity as well as your activity. As we were in the middle of choppy, range-bound trade in the morning, that preparation proved invaluable in standing back, avoiding overtrading, and waiting for opportunity. That is why mental preparation is my number one best practice toward maintaining market focus. If you rehearse what the markets might do and how you would like to respond, it's almost as if you program yourself to do the right things in the heat of the trade.

Sometimes, even when we prepare for the day's trade, we get caught in the flow and react impulsively with poorly thought out decisions. Those impulsive maneuvers can cascade unless we actively interrupt them. For that reason, taking a break from trading is my number two best practice toward sustaining focus. During a break, you shift from being the actor to being the observer. You can evaluate what you've been doing, step away from the screen, and re-engage markets with a fresh perspective. The best traders I know don't spend every minute with their noses in the screen; they know that they need to pace themselves, sustain their attention, and keep themselves in a performance zone. Taking breaks accomplish those objectives.

So what do you do during your trading break? Slowing your body by regulating your breathing--breathing deeply, slowly, and rhythmically--interrupts the effects of frustration and anxiety. Focusing your attention on a single stimulus, such as music or a picture, clears your mind and helps you shift to a different state, where you can process information more effectively. These self-regulation strategies are my third best practice for sustaining engagement with markets. Biofeedback is an excellent self-regulation strategy, as it provides direct feedback to traders about when they are in and out of "the zone". With practice, traders can return themselves to an optimal performance state even after a frustrating blowup.

Finally, we're most likely to sustain engagement when we have a purpose that we're working toward. Goal-setting is my fourth best practice for maintaining market focus. As I stress in the new book, process goals are especially helpful in this regard, because you can control *how* you trade, even if you can't always control the outcomes of specific trades. For example, you might set a goal to hold your losing trades for less time than your winners. That goal gives you a purpose for the trading day, keeping your attention even when markets turn dull.

What these four best practices tell us is that an active mindset, in which we prepare for each day, set goals, step back to re-evaluate, and take measures to sustain our concentration, is the key to staying engaged with markets. When we lack preparation, goals, breaks, and self-evaluations, markets--and the emotions they evoke--are more likely to control us. There is a reason that sports teams prepare for big games, take time outs during games, set goals with coaches, and get pulled from games for a spell to rest and talk with coaches. You can't win the game if you're not in control of your performance.


Prabhu said...

Dear Dr.Steenbarger,

It is enlightening to read through your inexhaustible "goldmine" of trading psychology articles, through which you are so graciously sharing your invaluable knowledge and experience.

Your post today begins with "It probably was the wisdom of the unconscious mind at work ...". I am a Homoeopathic physician by profession. I have trained in TM, Zen, Reiki, and Ninjutsu to an instructor's level. I trade in NSE options in India.

I personally believe that our unconsious mind has the ability to guide us accurately in anything "risky" we do in life. We may call it Clairvoyance, ESP,"gut feeling" ect.

Many times I can "feel" the next moves of the market quite accurately. Some times I use Tarot Card readings to know about the market prospects, which surprisingly are upto 90% accurate.

Some of my friends are top tech.analysts, and I use their feedback in my trading. Most often my deck of Tarot cards gives accurate gudiance when the analysts are in a dilemma.

I am scientific in my outlook, and in my practice. I feel that our unconscious mind has much undiscovered, unexplored, uncharted, and unused potential.

With the knowledge and resources at your disposal, you would be doing the world a great service by researching and publishing more about our unconscious mind, and about how a deck of Tarot cards is able to accurately predict a future event. I use the "Pythagorean Tarot" of John Opsopaus, who is a professor of Greek and Latin.(Published by Llewellyn Publications)

Your "virtual" student

S Benard said...

Dr. Brett --

I just discovered your blog within the past few days. I wish I had found it years ago so that I could take advantage of previous posts.

I've also been blogging for about 2 years, but mine is now entirely private. I started it as a diary, but when the whole world discovered it, I took it private last week so that I could feel comfortable posting my deepest thoughts and challenges in trading.

I've been a full-time trader for nearly six years. At times, it can be a tough business! The mental side of it is 90% for me! I've "discovered" many of the principles that you teach on my own, but I know I can still learn much, MUCH more from you.

I ordered a copy of your self-help book and can't wait to read it when it arrives in a few weeks! When I ordered it, they still didn't have it at Trader's Library.

I'll be looking forward to future posts and gaining from your insights! Thanks for your willingness to share!

Brett Steenbarger, Ph.D. said...

Thanks, Prabhu; much of what we typically call "the unconscious mind" can be explained as the result of implicit learning--


Brett Steenbarger, Ph.D. said...

Thanks, S Benard; I look forward to staying in touch--


John Grover said...

Dear Dr. Steenbarger,

I'm working my way through "Enhancing Trader Performance" with pleasure. Your comment today about taking breaks brings up a thought. I tend to be fairly driven and don't mind working 20 hours per day when things are going. I built my business that way.
After 25 years of business though, I had lost my will to push that hard, and lost my taste for the business eventually. With trading, I'm trying to be a little smarter, and my "breaks" consist of getting away from the screen sevral times per year for 3 weeks or more at a time...hopefully when the market is sideways :-)
And ensuring that at least Saturday of every week is spent away from screens and out in nature. This seems to actually enhance my "rage to master" as when I'm fresh the charts and data take on a new clarity and fascination. I'm lucky to have found a second career passion in life, but through experience, I hope to avoid the burnout that resulted from years of non stop intensity.


AgeKay said...

I liked that you said "you shift from being the actor to being the observer" because speculate comes from latin and means "observe". I find that trading has less to do with action and more to do with observation and then acting only when you see something that you were waiting for to see.