10/23/2025 - The common view of trading psychology misses an important reality. Yes, our emotional and cognitive states impact our decision making. Equally important, however, is that our decision making style impacts our cognitive and emotional states. All of us have strengths and weaknesses in terms of information processing. Some of us process information best if we focus on a limited number of things and go into depth in those, seeing what others miss. Others benefit from a broad vision and finding patterns and themes that pull things together. When we are processing information in line with our strengths, we find the experience meaningful and interesting. When we attempt to make sense of things outside of our strengths, we typically struggle and experience frustration. It's not just we lose money if we are in the wrong mindset; it's that we experience negative mindsets if we're doing the wrong things (i.e., if we're operating outside of our strengths).
Yesterday's trade began choppy and range-bound and evolved into a downtrend. Getting out of the weeds and seeing what was happening across sectors was key to perceiving and benefiting from the market shift. It was the frustration of being in the weeds that prodded me to step back, look at the larger picture, and align myself with my best thinking. We work on our psychology by refining our trading. This is an important trading lesson.
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10/22/2025 - The idea of finding a trading lesson in each market day is to become better and better at recognizing and acting upon opportunity and better and better at sizing and managing risk. That way, every day yields something we can improve and/or something we did well that we can build upon. Suppose, at the same time, we find a trading psychology lesson in each day that we trade: something we can take away with respect to how we approach our trading. For instance, with yesterday's lower volume and volatility, I had to adjust expectations in setting take-profit levels. On Monday, those expectations were lofty; on Tuesday, I had to focus on near-term levels that I thought could be hit on the move-to-move basis. One of my Tuesday trades hit my target but didn't get filled. I adjusted my expectations but not enough. Flexibility in how we approach the day's opportunity set is an essential element of trading psychology for the active trader.
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10/21/2025 - Note how the early trading of the market today differed greatly from the early market action on Monday. Sector performance was mixed; advance/decline numbers were not extended in either direction; TICK numbers were similarly constrained. Unlike Monday, when holding positions to ride the trend paid out, today's trading rewarded nimble trading move-to-move. Remember, the opposite of a trending market is not necessarily a randomly choppy market. There are short-term cycles that show up when trends are not dominating. The move-to-move trades exploit these cycles. It's a great example of how our trading must change as market environments change; a valuable market lesson.
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One new practice I'm following in my journaling is to identify a single, valuable trading lesson each day based upon what I experienced and learned. The idea is to ensure that each session is a learning opportunity that can be carried forward to improve performance. Yesterday's lesson was that, when we see unusually strong NYSE TICK, advance-decline stats, and sector performance from the earliest minutes of trading, we want to be prepared to trade a trend day by holding positions and taking advantage of short-term pullbacks. Identifying the kind of market we're in provides us with a valuable game plan for the trading day.
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