BRETT STEENBARGER'S TRADING PSYCHOLOGY RESOURCE CENTER

Below are resources to help traders become their own trading coaches, improve their trading processes, and develop a positive work-life balance.  All the TraderFeed posts also contain links to valuable resources and perspectives.  

RADICAL RENEWAL - Free blog book on trading, psychology, spirituality, and leading a fulfilling life

---

The Three Minute Trading Coach Videos

---

Forbes Articles:

https://www.forbes.com/sites/brettsteenbarger/
  

My coaching work applies evidence-based psychological techniques (see my background and my book on the topic) to the improvement of productivity, quality of life, teamwork, leadership, hiring best practices, and creativity/idea generation.  An important part of the "solution-focused" approach that I write about is that we can often best grow by focusing on what we do well and how we do it--and then doing more of what works for us.  The key is to know our cognitive, interpersonal, and personality strengths and leverage those in the pursuit of performance. 

FURTHER RESOURCES

*  A Creative Way to Use TraderFeed 

*  Brett Steenbarger Bio

*  Brett's Books on Trading Psychology

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
.

The Psychology of Handling Large Drawdowns

 

12/19/24 - Yesterday's massive drop in the stock market in the wake of the Fed news taught an important trading psychology lesson.  Earlier in this post, I discussed replacing frustration with focus.  By mentally rehearsing drawdowns in a calm, focused state, we can normalize inevitable losses.  But the lesson from yesterday was different.  We want to replace uncertainty with understanding.  What happened following the Fed news?  Relative volume in stocks exploded:  the volume each time period was *much* greater than the average volume for the same period.  At the same time, the NYSE TICK completely changed its distribution of readings, consistently hitting very negative levels.  When we put these two observations together, we can appreciate that large market participants were bailing out of stocks.  Only aggressive selling of baskets of shares could account for such negative TICK and such high volume.  

Why was this happening?  Yes, investors were disappointed in the limited outlook for rate cuts, but just as important, they were locking in their gains for the year.  With only a couple of weeks left to go, money managers who are compensated on their annual returns can't afford to sit through a drawdown.  Once we see what was happening, we could entertain the idea that we would see a trend move lower:  the selling was pronounced.  Uncertainty is replaced with understanding.  We don't just trade better because we reach a better mindset; we achieve a positive psychology by understanding what is happening in markets and turning fear into opportunity.  

12/18/24 - A TraderFeed reader asks a question about fear of losing money and how it's affecting his trading.  A great book on this topic is Best Loser Wins by Tom Hougaard.  He explains how planning for (inevitable) losses normalizes them in our experience and gives us control over the downside.  Another good book in this regard is Mastering the Mental Game of Trading by Steven Goldstein.  He highlights the importance of "letting go" of the outcomes of trades and instead focusing on the processes of sound trading.  When we set stop losses, we can mentally rehearse them while we're in a calm, focused state and literally train ourselves to take the emotion out of drawdowns.  This exposure method can be practiced as part of our daily routines, making losses expected and thus less threatening.  

Every successful trader is passionate about making money and even more passionate about protecting their money.  When you read the interviews of the great traders in Market Wizards, you find that many of them started their careers with a passion to make money, then lost significant capital, and only then recognized the importance of managing their losses and taking the right bets.  

Recently, I've received a number of emails asking me about how to handle large drawdowns.  Of course, the answer is to limit drawdowns in the first place:  with prudent stop losses, by keeping bet sizes reasonable to weather inevitable losing streaks.  But if you have already gone through a large loss, how do you move forward as a trader?

Here are three steps you need to take:

1)  Treat financial losses as emotional losses - If you've drawn down significantly, a piece of your dream has flown out the window.  Lose 20% of your capital, and you need to make 25% on the remainder simply to break even.  Lose 50% and now you need to double the remaining capital just to get back to even.  A big loss of money is like a big loss of a relationship.  Research in psychology tells us that the best way to get through those painful losses is to give ourselves time to express our emotions and seek social/emotional support.  We heal more quickly when we go through a grieving process and especially when we are in the company of people who understand us and care about us.  Put trading aside temporarily and make time for healing.

2)  Let yourself feel the suck - It's tempting to want to put losses out of our minds and get back to normal.  But that doesn't help us learn from the losses.  It is the pain of drawdown that gets you to hit bottom and find the determination to never let that happen again.  The only way the drawdown will be worthwhile is if it transforms you.  The only way it will transform you is if the pain of the loss is so great that you will return to markets a new person, dedicated to managing P/L and making risk-taking sustainable.  Hitting bottom can be the first step in rising up.  The losses will only be worthwhile if they're an investment in making you better.

3)  Return slowly - Small capital, small bets:  crawl, walk, run.  You're learning a whole new game of money management and risk control.  Your first priority when you return to trading is to trade with consistency and to follow prudent rules for sizing positions and limiting losses per trade.  In my own trading, I want to make sure that I can easily handle five consecutive losing trades.  I know that, if I trade regularly and actively, such a losing streak will eventually occur due to pure chance.  Start small, get consistent, slowly grow the risk taking, get consistent at the new level of risk, then bump up again, etc.  When you hit a pothole in your trading due to changing markets, hold risk levels down until you figure out the new market patterns.  

The first step in winning the game is staying in the game.  

Losses are only a total loss if they don't make us better.

*

Further Reading:

Three Best Practices for Dealing With Drawdowns

The One Question to Ask When You're in Drawdown

.            

Three Challenging Questions For Traders

 

12/12/24 - All good work on improving ourselves increases our capacity to sustain work on ourselves.  Just as in a gym, our workouts build our ability to sustain work:  when we grow our trading, we grow ourselves, and that is growth of our free will:  our capacity to grow.

12/11/24 - Here is a formula for making positive changes going into the new year:  Think big, implement small.  What that means is that it's important to have a vision and mission that inspires and energizes you, but it's equally important to implement that vision with concrete activities, goals, and plans every single day.  Add one positive action to your routine each day that implements your big picture vision.  Incorporate that new action every single day in the same way for a month and then add another positive action in the same way.  Step by step, you move toward your ideal.  Change requires inspiration; change requires consistency.  What you do shapes your mindset.  Each day, be a little more of the person you're ultimately meant to be.

As we get to the end of the year and you review your performance, here are three tough questions to ask yourself (and answer!):

1)  If a basketball or football team prepared for its next opponent with the intensity and thoroughness that I bring to my daily preparation for trading, how well would they do?

2)  If I entered an elevator and saw a famous venture capitalist riding with me, what pitch would I make for my trading business and how likely would it be that he/she would invest in my trading?

3)  What have I been truly successful at prior to my trading career and how, specifically, do I leverage that talent in my current trading to achieve positive and unique returns?

Mindset will never, by itself, make you a successful trader.  What you do to pursue your distinctive trading success  empowers your mindset.

Further Reading:

Three Questions to Ask About Your Positive Trading Psychology

.  

Our Losses Are Our Lessons

 

12/6/24 - This video from SMB is one of the best I've watched in quite a while.  It highlights the psychology of winning:  how traders responded to a big trading day.  How we respond to losing makes us good; how we respond to winning can make us great.  It's important to be happy with success; it's equally important to not be satisfied with success.

12/4/24 - Yes, our losses can be lessons that guide our improvement, but our wins are also our windows on what we do well.  Yesterday I had a good trade, selling morning inability to move higher in ES and covering when the selling pressure, as measured in NYSE TICK, could not push stocks lower.  It wasn't a big trade in the size of the move, but it was a window onto what I do well in reading the market.  What was particularly encouraging was that I didn't let my bigger picture view (see below) interfere with the proper management of the trade.  Our wins are windows onto our distinctive talents and skills...when I trade well, I clear my mind and listen to the market the way I listen to a person I'm helping as a psychologist.  Very important lesson:  we're successful in markets when we're doing what makes us successful in other areas of life.    

12/2/24 - Here's a great real time example of how a process orientation to trading can also provide a positive trading psychology:  My breadth research, tracking the percentage of all NYSE stocks over various moving averages since 2006, shows that over 75% of stocks are trading above their short, medium, and longer-term moving averages.  When this has happened in the past, returns 10-20 days out have been subnormal.  I then examined the historical periods most similar to the current one in terms of breadth and volatility and two periods stood out:  early 2018 and early 2007.  Both led to intermediate-term corrections, but not outright bear markets.  Such research provides hypotheses grounded in history--not absolute conclusions.  Now, however, the hunt is on.  I will be looking for evidence to see if the historical pattern is playing out in real time or if this time is truly different.  Either way, there could be a good trade out there and, either way, the hunt for opportunity will keep me in an opportunity-focused mindset.  Good quantitative analysis feeds the brain, but also nurtures a positive trading psychology. 

I'm pleased to announce that the manuscript for my next trading psychology book, tentatively titled Positive Trading Psychology, has been completed and sent to the publisher.  It represents an important paradigm shift, taking trading psychology beyond the usual focus on the challenges facing market noobs and instead identifying the best practices of successful traders.  In the new year, TraderFeed will track my own trading and ways in which I'm applying the lessons of positive psychology.  

To maintain our optimal mindset, every trading day must be a win--either in terms of P/L, in terms of ideas generated and opportunities created, or in terms of lessons learned and applied going forward.  Nothing is more important in your daily and weekly reviews than identifying what you've done that will make you better going forward.  We achieve our best performance when we are enthusiastic about what we are doing.  The best traders are the ones that are always learning, always growing, always trying new things, always adapting to changing markets, always discovering new opportunities.

We can't make money every day, but every day we can be entrepreneurs building our trading businesses.  A growth mindset fuels our trading growth.  When we surround ourselves with other trading entrepreneurs, enthusiasm becomes contagious and we find ourselves with the energy to focus harder and longer, dig deeper, and work harder to exploit opportunities.  

Further Reading:

Mastering the Positive Psychology of Trading

.

Mentoring: The Key to Developing as a Trader

 

11/24/24:  When I first learned trading, the single most effective learning strategy I found was printing out charts of the market I was trading (S&P futures) on different time frames, charts of other stock indexes on those time frames, and a core set of indicators (RSI, NYSE TICK, VWAP lines, etc) on those time frames.  Every day, I identified the "trade of the day" and studied how it set up on the different time frames and how it set up on the various indicators.  I also studied how to best enter the trade, where to set a stop, when/where to take profits/add to the position, etc.  I literally did this for the better part of a year before going live with meaningful size.  By that time, the patterns were ingrained in my mind and a natural part of how I viewed the market.  I didn't fully appreciate it at the time, but I was also training myself to maintain an opportunity mindset and a positive psychology.  We can train ourselves to think big.    

11/21/24:  Here are two keys to successfully mentoring ourselves:

1) Process market activity and trading ideas in multiple ways in great detail:  talk them aloud, write them down, chart them, discuss them with others and listen to their reactions.  What we process many times in many ways, we are much more likely to internalize.  We mentor ourselves by guiding our own processes of preview, performance, and review.

2) Put energy and enthusiasm into the learning process: highlight the details that point to opportunity, focus on identifying and learning from what we've done well, treat mistakes as fuel for growth and learning.  The most positive development occurs in a positive mindset.

===    

I'm in the process of finishing my next book, tentatively titled Positive Trading Psychology.  The last chapter has been the most fun to write, because I've learned the most in writing it.  Nine mentors who work at SMB Capital submitted their best mentoring practices to be included in the text.  Even though I've worked with all of these mentors/traders personally, I found their ideas to be eye-opening.  Here are a few important lessons for developing traders that will be covered in detail in the book:

1) Seek Training, Not Just Education - Education is necessary for professional development and elite performance, but it is not sufficient.  Medical students begin their studies in the classroom, learning anatomy, physiology, etc, but they learn the practice of medicine by observing and helping senior students, interns, residents, and attending physicians.  Coursework and webinars cannot substitute for real-time experience under the guidance of a mentor.  The mantra in medical education is "see one, do one, teach one".  We develop expertise by observing masters at work, by tackling performance under supervision and guidance, and finally by cementing our skills by teaching others.

2)  Learn From Multiple Mentors - We begin by copying a master; we develop our own styles by absorbing the skills of multiple masters.  Copying the master brings us to a level of competence.  Synthesizing the learning from multiple mentors develops our own styles and brings us to a level of mastery.  Teaching others cements our learning and transforms mastery into expertise.  Too often, traders seek answers in a single video, podcast, or course.  Expertise comes from finding and cementing our answers, not by mimicking others.  There are no short cuts in the development of elite performance.

3)  The Best Learning Instills Optimal Trading Psychology - A mentor is not just someone who teaches you where to buy and sell.  An effective mentor models how to think about and pursue opportunity: how to blend risk prudence and reward maximization.  In teaching trading process, mentors inevitably model trading mindset.  We most effectively learn trading psychology in our pursuit of sound trading.  Great mentoring builds a positive trading psychology, as it establishes a sense of understanding and mastery.  We internalize optimal trading psychology when we ground ourselves in optimal trading process.

Most of all, the SMB mentors have taught me that the best teachers are always learning from their students.  The effective mentor-student relationship creates teamwork.  Mentors learn from the research and practice of their students just as the students learn from the instruction and guidance of mentors.  Great mentoring forms great teamwork, making everyone better--

Further Reading:

Three Questions to Ask About Any Market

.      

Becoming Solution-Focused in Our Trading

 

Added Note:  11/18/24:  Quite a few of the senior traders/mentors at SMB Capital are contributing best practices to my upcoming book.  What has become clear is that they don't just teach setups and risk management; they actually do those things with the developing traders on the trading floor.  One mentor described forming joint accounts with the developing traders, so that learning occurs in real time, with real money on the line for both teacher and student.  Notice how this is powerfully different from simply teaching trading techniques in live or online classes.  We learn trading solutions by seeing them applied--again and again--in real time with immediate feedback.  How we learn trading shapes our trading psychology.  

Additional Note:  11/13/24:  We can't be solution-focused in our trading if we're living our lives in problem-focused mode.  A solution-focused life means that we identify--every single day--what specific things we're doing to bring us energy, fulfillment, and success.  Working on our trading is fruitless if we're not working on ourselves.  Here's an article with links to assess our overall well-being and improve our positive psychology.  The goal is to maximize our happiness, life satisfaction, energy, and relationships.  If we are living full and fulfilling lives, we can readily handle the ups and downs of markets and trading performance.

===    

We give energy to what we focus on.

If we focus on negative outcomes, we energize our worries and fears.

If we focus on problems, we fuel our sense of being broken.

What is in your trading journal?  What is in your thoughts after a losing trade?

That is what you are energizing.

This is why it is so very important to focus on your best trading and learn from your successes.

When your trading problems are *not* occurring, that is often when you are doing something right.

Once you focus on what you're doing right, you become solution-focused.

Success follows when we identify our solutions and turn them into habits.

Suppose you identified one thing each day that you did well in your trading and made it a goal to repeat and extend the next day?

What we focus on each day compounds and becomes our reality.

No solution-focused trader has ever gone on tilt.

When we are solution-focused, we grow the best within us.

Further Reading:

Solution-Focused Trading

Keys to Solution-Focused Trading

.

Trading Without Drama

 

Added comment (11/7/24):  In a video just posted, Jeff Holden and I teach a class for the SMB Training Program and address how to avoid trading on tilt.  Tilt always has a trigger.  If we rehearse trigger situations while placing ourselves in states of optimal focus, we defuse our negative triggers.  If we rehearse our A+ setups while placing ourselves in states of optimal focus, we create positive triggers.    

Additional note below:

What if we're looking for the wrong thing in our trading?

What if we're looking for "catalysts" and "breakouts" and bursts of volume and volatility, because that's where the action can be found?

What if, instead, we filtered our search for instruments that were trading in the most stable manner, following relatively unchanging trends and cycles?  

In that case, we would trade, not what moves the most, but what moves the most coherently and consistently.  We wouldn't be predicting in the face of uncertainty; we would be identifying in the face of stability.

If we trade the opportunities that are most predictable with the least drama, how might that impact our trading psychology?

Might our trade selection shape our trading psychology?

Perhaps logic starts where drama ends--

.

Additional note - 11/5/24:  Notice something subtle.  Many traders attempt to use technical analysis tool for predictive purposes.  If we're trying to identify markets that are trading in regular, stable patterns, then the tools of technical analysis can be used to describe those patterns and help us align with those.  To the degree that the patterns indeed remain stable, that would bring some predictive benefit.  The main purpose of the technical tools, however, would be for trade idea generation, capturing the degree to which recent price action has followed stable cycles and trends (and, of course, cycles within trends).  

When I create charts where the bars are defined by volume traded, not time, this helps normalize the market's time series and makes it easier to use technical tools to identify stable patterns.  (Here's an interesting example from a few years ago; here's a relevant earlier post).  It's particularly enlightening when we can identify stable patterns over multiple time frames, aligning our ideas, an idea that Brian Shannon has emphasized in his work.

Further Reading:

A Framework for Trading and Trading Psychology

.

Overcoming Emotional Trading in Real Time

 

Update:  My medical school colleagues and I wrote a chapter for a standard reference text in psychiatry that just came out.  It covers recent research and practice in short-term approaches to changing our thinking, feeling, and acting.  An important finding is that it takes emotion to change emotion.  We are most likely to internalize changes we make if we truly feel those changes.  One key implication for the topic below:  We can most efficiently and effectively change emotion in real time by evoking the *opposite* emotion, not by trying to make ourselves emotionless.  If we're frustrated and self-critical, instead of trying to empty our minds and meditate, we can evoke memories of trading experiences that left us feeling fulfilled and grateful.  More to come! - Brett  

We read a lot about trading psychology and the need to maintain perspective, trade our plans, control our emotions, accept losses and uncertainty, and manage our risk.  This education is helpful, but it is not training.  Actual training in trading psychology would have to occur in real time, because trading challenges crop up only when we are in certain states of mind and body.  This is why Jeff Holden and I have teamed up for SMB Capital's training program to help traders coach themselves in the heat of battle.  This is going to be a multi-week collaboration, in which we integrate the discussion of markets and trades with hands-on work on our mindsets.

Here is the video from our first class.  

A major idea from the session is that, before we can change our emotional state, we need to be aware of our state.  Jeff presented a "mood meter" that enables us to place labels on what we're experiencing.  As I point out in the video, the very act of identifying what we're feeling enables us to be an observer of our experience--not one who is wrapped up in their experience.  This coming Thursday midday, we'll discuss--in the context of the market trade that morning--what to do once we observe our emotions, so that we can stay constructively engaged in our trading.  I look forward to getting a video for that session as well.

Now here's an important point that we rarely encounter.  It comes from the book I'm currently writing, which integrates positive psychology and trading psychology:

Awareness of our positive emotional states is every bit as important to our trading as awareness of our frustration and negativity.

If we are aware of the emotional signs that accompany our best trades--our feelings of understanding and confidence--that awareness helps us take larger risk when the expected value of our trades is best.  We have positive triggers for our best trading just as we have triggers that set off our worst trading.  Recognizing our positive triggers in real time enables us to make the most of the opportunities that present themselves.  This is why it's important that our "mood meters" capture the best as well as the worst of our trading experience.  

More to come!

Brett  

How To Coach Yourself To Trading Success

 

Update:  During Thursday's session, Jeff reviewed with the group the chart of emotions that described four quadrants at the intersection of two axes:  positive and negative; high and low energy.  We also discussed the very center of the chart as our state of focus.  The idea is that, when we're super focused on markets, we're not immersed in either positive or negative feelings.  At that point, it's not about us.  So the question becomes:  how do we reach and sustain that center point?  The first step is self-awareness:  simply to know what we're experiencing in the present and to be an observer of our emotional state, not immersed in what we're feeling.  An initial exercise in this direction is to write down what we're feeling when we're feeling it.  By observing ourselves, we are exercising (self) focus.  Next week we will build on this-- 

This Thursday, I will join the head of recruiting for SMB Capital, Jeff Holden, for a combined mentoring/coaching class with developing traders.  What will be unique to the session is that I will be presenting and teaching coaching skills to the traders at the same time that Jeff presents and teaches best trading practices for that day's trade.  To the best of my knowledge, this will be the first time that the skills of trading psychology are taught alongside the skills of consistently profitable trading in the context of a live market session.  Once we've held the session for SMB students, I will share the specific methods we talked about in an update to this blog post.  The goal is to go beyond coaching advice and provide specific tools for TraderFeed readers to coach themselves to trading success.  

As Coach K indicates above, the key to elite performance is hungering for excellence, not success.  We can't always win, but we can always learn and learn and practice and practice excellent ways to play the game.  Back in the mid-1970s, I had the honor of being part of the freshman basketball team at Duke.  The coach ended quite a few of the evening practice sessions with an exercise where each player had to hit 10 consecutive free throws before they could go home.  You can imagine, tired and sweaty and needing to get homework done, how the players desperately wanted to get home.  That put real pressure on their free throws.  Over the course of the season, they had practiced doing the right things at the charity stripe so often under duress that they didn't wilt when it came to clutch situations at game time.  They achieved excellence by practicing under the emotional conditions of actual performance.

Now imagine that you couldn't leave your trade station after the market close until you had traded that day's market successfully in replay mode.  Again and again, you'd replay the market and push yourself to stay in the right mindset and take the right actions.  Day after day, those reps would eventually become part of you and you'd internalize sound trading psychology at the same time that you internalized sound trading.  

Stay tuned to this blog post after Thursday morning's session with Jeff.  I'll share the methods I discussed with the developing traders and I'll highlight how you can best rehearse these methods to coach yourself effectively.  This should be fun--

Brett    

Why Can't I Improve My Trading?

 

Think of how many trading courses are out there.  Consider how many trading and trading psychology books have been written.  Trading videos, tweets, interviews, podcasts:  the amount of content related to trading success is phenomenal.  And every week we get more and more and more.  Traders I hear from read books, watch videos, take courses--and they wonder, "Why can't I improve my trading?"

To address this question, I'll offer an analogy:

I could write chapters on how to pack, wear, and deploy a parachute.  I could produce videos on proper parachute maintenance and use.  I could teach a parachute course.  Now suppose you consumed all of the content I created on how to master the parachute and then you jumped out of a helicopter with your parachute.

How would you fare?

Of course, in the military, you learn to properly pack a parachute by packing parachutes and getting first hand instruction and inspection.  You learn to deploy a parachute by being tied to a line from a height and then dropping:  first at relatively low heights, then at higher heights.  You deploy the parachute again and again during real drops that are completely safe before you tackle riskier jumps.

The reason for this is that learning is state-dependent.  We are most likely to recall information and enact skills when we are in the state that we were in during our learning.  If we learn parachuting skills when we are calm and collected in a classroom, we're unlikely to recruit those skills when we're making a leap and the adrenaline is flowing.

Traders typically learn trading techniques and get psychological coaching when they are very far from the heat of battle.  Everything they learn flies out the window when markets are moving and there's real risk and reward every moment.  

We can't learn to drive racecars by watching videos, reading books, or absorbing tweets.

We can't learn combat skills in wartime by staying safe and peaceful in a classroom.  We can't master our upheavals of trading psychology when we're quiet and comfortable outside of market hours.

The best trading education and trading psychology is processed in real-time, in the act of trading.  We learn best by acquiring and practicing skills when we're in the mental, emotional, and physical states of real performance.  Our best teacher is realistic, progressive simulation.

For trading psychology, this is a game-changing insight.  More to come--

Further Reading:

Using Your Body to Program Your Mind

Overcoming the Triggers to Poor Trading

.