Powerful Predictors of Trading Success

 

7/30/2025 - Personally, my most powerful predictor of trading success is when the trade idea lines up on multiple dimensions.  Specifically, if the pattern I am tracking (for instance, a moving average crossover on the adaptive moving average indicator) is occurring on multiple time frames *and* if the idea is confirmed by backtested historical evidence (for example, superior returns following oversold breadth conditions), the odds of success rise quite a bit.  Trading success comes from being willing and able to not trade until the lining up occurs.  In that sense, the predictor of success is selectivity and the ability to refrain from trading when the picture is mixed--and the ability to size up trades when the odds are skewed in your favor.  Not unlike poker in that respect.    

7/29/2025 - In every performance field, elite performers spend more time preparing for performance than in actual performing.  A basketball or football player spends more time in practice than in playing games.  Olympians spend more time in training than in performing their events.  Actresses and actors spend more time rehearsing their roles than performing on stage.  Elite military teams spend more time developing and practicing their missions than in actually carrying them out.  A powerful predictor of trading success is the amount of time and efforts spent preparing for actual trading.  Time in front of the screens is not necessarily preparation.  In sports as in markets, the rigor of preparation is how we earn success.            

7/27/2025 - Here are a few of the best predictors of trader success that I've found during my years of helping trading firms with their hiring.  The best candidates meet the following criteria:

*  They can describe their edge(s) in great detail.  Their descriptions include unique information that goes into their ideas and unique ways of entering/exiting trades for best reward relative to risk.

*  They can explain why their edge works.  Their reasoning is not correlational (I trade the X period crossover of the Y period average because it's worked in the past).  Their reasoning is causal.  They understand who is in the market, how those participants behave, and how to take advantage of their behavior.  Causal edges are more likely to persist.

*  They can provide specific examples of how their trading has grown/adapted/expanded over the past year.  They are always looking for new edges and broadening their coverage.  They develop many edges for different market conditions, different trading instruments, and different time frames.  This breadth of edge provides diversification, helping them adapt and succeed when markets change.

The great traders aren't just looking to trade.  They are continually building a business.

7/25/2025 - I've been working for over 20 years with traders in proprietary, hedge fund, and investment bank settings.  During that time, I've seen great success and I've seen heartbreaking failure.  The number one predictor of success is the presence of active mentoring.  By "active mentoring" I mean the opportunity to research and generate trade ideas with experienced, successful traders and the direct observation of those traders in expressing, sizing, and managing the resulting trades.  The odds of success for a developing trader are directly proportional to the opportunity to watch a mentor in real time and learn from their best practices, discuss the trade, and participate in the generation of new trade ideas.  Once the learning becomes second hand--via books, videos, etc--its effectiveness goes down tremendously.  

The best predictor of success is learning by doing and benefiting from the live role modeling of successful professionals.  This is how young athletes develop, and it's how medical students mature into capable physicians.  Trading psychology is not the best predictor of success.  Indeed, problems in trading psychology often are the result of inadequate training.  Mentoring is always live, in person, and conducted via teams.  When you become part of a successful team, you internalize the mindset and best practices of success.

Why Do I Go On Tilt?

 

7/24/2025 - A wild thought:  What if we're in different brain states when we recognize opportunity setting up in markets vs. when we are focused on markets but don't see opportunity vs. when we're not focused on markets.  What if we could monitor our brain states in real time and identify not only when we're in the zone, but also when we're seeing opportunity?  Does intuition leave a distinct brain footprint?  That's my next project--  

7/23/2025 - On the Fitbit device that I use (Muse S-Athena), there is an exercise on the app in which the goal is to keep an owl in flight.  If blood flow is going to the brain's frontal cortex, the owl rises in elevation and flies faster.  If blood flow is moving away from the frontal cortex (our center of thought/reasoning/decision making), the owl lands and stops flying.  Before we ever experience tilt, our blood flow moves away from our thinking centers and toward our flight/fight regions.  The goal of the exercises on the device is to be able to sustain longer and longer periods of flight for the owl--and to be able to return the owl to flight after it has landed.  This measures our cognitive endurance, and it measures our capacity for recovery.  If we train the brain for endurance and recovery, we become able to prevent tilt mode before it ever hijacks our actions.

The problem with tilt is not an excess of emotion.  The problem is a lack of brain fitness:  poor cognitive endurance and poor capacity for recovery.  This is a game changer for trading psychology.

7/22/2025 - The cognitive technique below is quite promising in intercepting the frustration that leads to tilt trading.  A different, behavioral, approach involves learning to keep oneself calm and focused with visualization and deep breathing.  (I am finding brain training devices helpful for this).  Once we have mastered that skill and can get ourselves in the zone on demand (which takes practice), we can then engage in our focused relaxation while we vividly imagine frustrating trading situations that could put us on tilt.  We begin with mildly challenging situations and gradually visualize more frustrating ones.  We don't proceed to a more frustrating visualization until we can keep ourselves fully relaxed while imagining the less challenging one.

Once we can keep ourselves calm in imagination mode, we then start trading with small size/risk and employ the focused breathing in real time when challenging situations occur.  When we can trade small size/risk successfully without tilt and handle drawdowns and unexpected events without losing our concentration, we gradually step up our sizing/risk-taking.  

What this does is literally train mind and body to respond to losses and unexpected trading events in a mode that keeps us grounded in planned trading, not a reactive mode.  This takes practice, but once you have the skill, you have it for a lifetime of successful trading--and you can apply it to other challenging areas of life.  

7/21/2025 - How can we prevent tilt from happening in the first place?  In this post, I'll describe a cognitive approach; in the next, I'll outline a behavioral method.  The cognitive approach links tilt to our self-talk.  In other words, we go on tilt not just because of what is occurring in our trading, but because of what we tell ourselves about what is occurring.  Tilt is preceded by frustration and frustration shows up as negative self-talk.  The key to preventing tilt is identifying the feelings of frustration and the frustrated self-talk *as they are occurring*.  

That takes practice in thinking about our thinking and maintaining awareness of what we're feeling.  In real time, you're aware not only of the market and what it's doing, but also in what you're thinking and feeling about what it's doing.  In my own trading, I actually talk aloud as my position is moving, evaluating what is happening.  The talking aloud enables me to hear myself and stay aware of myself.  If my talking aloud becomes at all emotional, I can catch my frustration in real time before it manifests itself as tilt.  When I find myself getting tense or talking emotionally, I can quickly return to a focused mode by breathing deeply and slowly and focusing on the trade in front of me.  

As a rule, I find it very helpful to have my stop loss orders entered into the book in advance.  That way, I don't have to worry about emotionality interfering with my trading plan when a trade doesn't work out.  When our trading decisions are mapped out in advance and entered in the order book, our trading can be planned and not reactive.

  

7/20/2025 - Reacting to market action is necessary for the management of risk and reward.  Overreacting to market action is a function of the unmet needs we bring to trading.  We can overcome emotional trading by turning our best trading practices into trading routines:  repetition brings familiarity, and we don't overreact to something that is routine.  If we *need* to be right--if we *need* to make money to feel successful as a person--then we will overreact to loss.

The key to overcoming tilt is to anchor our self-assessment in longer-term improvement, not in immediate P/L.  And how do we do this?  By first trading in simulation mode, where there is no money at risk at all.  That trains us to make the right decisions in real time and turn that decision-making into habit patterns.  Only once we've internalized those habits do we begin taking small risk and rehearse making the right decisions.  When we're consistent and profitable at the small level, we bump up the risk-taking gradually, in small increments.  The idea is to build the right habits and learn to enjoy the process over the proceeds.  Small, steady improvement based on consistency is what helps us internalize great trading.  What is familiar and routine cannot shake us up.  There is no overwhelming frustration if we're focused on doing the right things.  

When we take the ego out of each trade and just focus on doing the right things, there can be no tilt. 

The Psychology of Finding and Trading Edges in the Market

 

7/18/2025 - Essential to trading edges is our trade execution.  There are different execution rules and strategies for different kinds of markets.  Treat all markets the same and you'll get suboptimal results, become frustrated, and then blame your problems on "trading psychology".  Key consideration:  Is the current market trending; is it cycling; or is it cycling within a directional trend?  Very often, there are short-term cycles even within strong trends that offer great risk/reward entries and effective spots to take profits.  Amazing how our psychology improves once our market understanding improves-- 

7/17/2025 - Yesterday taught an important lesson in the market.  Stories about the possible firing of the Fed Reserve Chair created sudden volatility and large price swings in the overall market.  I was in the middle of a decently sized position in the stock index futures market when the news hit.  The position was based upon a well-researched idea, and the idea was working out--until it stopped working out.  I waited for the next bounce, took modest profits, and waited out the storm.  The important lesson is that the idea is not the trade.  The idea informs your position, but the management of the position involves tracking price, volume, and the here and now risk and reward.  It's important to find and trade edges in the market, but that's only the first step in sustaining profitability.

7/15/2025 - In my first book, The Psychology of Trading, I described my college experience with playing pinball machines.  What I found is that each machine had a particular quirk that could be exploited to consistently score points.  For example, on one machine, if you let the ball come down the chute and hit the left flipper (without using the flipper), the ball would bounce to the right flipper, where it could be sent back through the chute for points.  Rinse and repeat.  I consistently won free games exploiting this quirk and I quickly learned to experiment and find quirks on other machines.

The stock market is not a pinball machine.  It is a collection of different machines.  The quirks of one stock or one type of market differ from others.  The key is to be willing to experiment and experiment and lose and lose until you figure out the quirk/edge of the current type of market.  Very often, as with the pinball machine, the quirk comes from a non-obvious way of playing the game--and consistently exploiting that edge.  Success comes from doing something unique very well and very consistently.  As in poker, the need to keep playing the game under all conditions eliminates all edge.         

7/13/2025 - Traders are typically looking for probabilistic edges in the markets and instruments they trade.  They look to put the odds in their favor.  

One of the greatest mistakes beginning traders make is to assume that an edge can be derived from a single source:  a chart or indicator pattern, an earnings release, a breaking news event, etc.  This fails to identify--and understand--the context in which the opportunity is occurring.  Here are some of the most powerful edges I have encountered with the traders I've worked with:

*  A move occurs across multiple time frames, as in the case of a short-term breakout that is also a breakout on a longer-term basis or a failure of overbought conditions across time periods.  The broad context of the shorter-term move often defines the opportunity of that move.  When time frames line up, meaningful movements often occur;

*  A move occurs multidimensionally.  Some of my charts have time on the X-axis; others feature bars that represent fixed units of volume.  The most promising opportunities show up across the different charts as well as across time frames.  For instance, the moving average crossovers that I track via Ehlers' adaptive moving average measure sometimes occur on the volume-based charts as well as the time-based charts, capturing shifts in momentum in a multidimensional fashion.  I have found these opportunities to be especially promising.  Similarly, simultaneous signals from multiple indicators/systems tracking opportunities in different ways are worthy of attention.

*  A move occurs across related markets.  If a move can be detected across the broad range of sector ETFs, there's a good chance that this represents a momentum move of the entire market and broad based participation of institutions.  Similarly, if a move is occurring across such asset classes as stocks, bonds, and the dollar, the odds are good that something is occurring across macro markets that is attracting the interest of large investors.  Such broad-based participation often signals an evolving trend.

What this means in terms of trading psychology is that one must be focused on many time frames and many markets and charts to identify the most promising opportunities.  The great enemy of performance in this dynamic situation is distractibility.  It's the ability to see many patterns across many time frames and instruments that enables the trader to capture the best opportunities.  This is why it is vital to work on our capacity for focus when markets become busy.  It is also why traders often perform best in team settings, where there are multiple sets of eyes on multiple markets and time frames.  

Opportunity occurs as patterns of patterns.

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Our Trading Psychology Is Shaped By The Questions We Ask

 

7/9/2025 - One vital question for those who are early in the process of learning how to trade:

* Are you actually getting mentoring, or are you only getting information and instruction?  Because trading is a performance activity, teaching is not the same as training.  Can you imagine someone pretending to teach you football by emailing you diagrammed plays and showing you clips from games?  Would that really teach you how to play the sport and what to do in specific situations?  Mentoring means directly observing the performance of an accomplished professional and being able to ask questions about that performance and--eventually--trying the performance on one's own with direct supervision and feedback.  The saying in medical school is "see one, do one, teach one".  The way junior analysts learn trading on a hedge fund team is by seeing the actual, live trading of the portfolio manager and reviewing what was done and why, as well as what could have been done differently.  If you're not watching your mentor trade live, you're not getting mentoring.  You're getting instruction.  No one ever learned to perform on stage or perform on a basketball or tennis court in a classroom or through videos.  True mentors mentor through live performance and supervise your live performance.    

7/8/2025 - Here are three more questions that reflect best practices from successful traders and hedge fund managers/team members:

1)  How do you begin your trading day to ensure that you're in peak condition in terms of energy, focus, and preparation?  My experience is that the day is often won or lost based upon what the trader does before placing the first trade.

2)  How do you spend your time outside of trading to ensure that you're in a state of maximum well-being?  That means making the most of activities that are enjoyable, fulfilling, and energizing, including relationship activities and physical workouts.  For the hard-working professional, the great enemy of performance is burnout.  

3)  What research am I doing today that has the potential to open new doors of opportunity for my trading going forward?  Successful traders don't have "an edge"; they are constantly searching and re-searching new sources of edge in different instruments and market conditions.  If we're not innovating, we're going stale.

 

7/6/2025 - Successful traders, I've found, are distinguished by the questions they ask, not just by answers they've come up with.  Here are a few questions that can shape our success:

1)  What is the one lesson I can learn from the day that can make me a better person?  A better trader?  How can I apply that lesson to tomorrow?

2)  What is the market's personality right here and now and how has it been changing?  Are we becoming more or less volatile?  More or less correlated from sector to sector?  Broader or narrower in strength and weakness?  Look more closely; step back further:  what are traders/investors failing to see?

3)  If I wait patiently for great trading opportunity, how can I best learn and grow during the waiting period?  How will my learning and growing benefit my future trading?

4)  What makes my best trades different from my other trades?  How can I recognize that in real time to take greater advantage of my strengths?

5)  What makes my worst trades different from my other trades?  How can I recognize that in real time to reduce my vulnerabilities?  

Best Trading Practice: Intensifying Trading Focus

 

7/3/2025 - Idea generation--finding the opportunities worth trading and the spots when you can trade them with excellent risk/reward--is a function of analysis and synthesis.  In the analysis phase, we can screen for symbols meeting various criteria; we can review charts on different time frames; we can engage in our own research studies; we can talk with trading colleagues we respect; we can read research; etc. etc.  Analysis provides us with pieces to the market puzzle.

In synthesis, we arrange those puzzle pieces to generate actual trade ideas and develop plans for placing those trades and managing the positions.  Synthesis switches us from detailed thinking to bigger picture thinking.  It involves different kinds of pattern recognition.

When we train the brain for focus, we become able to look at more things and look at the same things in different ways.  A highly focused mind engages in deeper analysis and in more analyses.  The focused mind also is an open mind, able to more readily identify patterns in the information we've been collecting and analyzing.  

Professional traders aren't using brain training to avoid going on tilt.  They are training themselves to become better and better idea generators and traders of their ideas.

7/2/2025 - The previous post below explains why I believe real time neurofeedback (brain wave biofeedback) is a potential game changer for trading psychology.  By training ourselves for increased focus and concentration, we improve our processing of market information and gain access to our implicit knowledge (what we know, but can't necessarily verbalize).  Much of our pattern recognition occurs as a function of that implicit knowledge.  When we achieve depth of focus, we become better at detecting market opportunity.

Here is yet another revolutionary application of brain wave biofeedback:

Suppose we place ourselves in a state of intensified focus and then rehearse evidence-based psychological change strategies.  For example, we could practice cognitive therapy methods to identify our negative thought patterns and replace those with more constructive alternatives.  Or we could engage in exposure therapy by visualizing challenging market situations and our best responses to those while we're in the state of heightened focus.  

What we find is that stepping back from negative thought and behavior patterns is easier if we can shift our emotional and cognitive states and practice our desired responses in a state of focus.  When we do that, we find that we access our best processing of markets and performance by returning to the state of focus that we used during our visualizations.

This is known as state-dependent learning.  By attaching our best performance to the state of heightened concentration, we can access our best trading by returning to our focused state.  This allows us to coach ourselves in real time.

6/30/2025 - A little while back, I wrote a post on training the brain by building intentionality.  Since that time, I have been working with wearable brain-wave biofeedback (neurofeedback) devices to cultivate and sustain mindsets that enable me to trade at my best.  This is a little bit like physical training to perform best in basketball or football.  You still have to learn and practice the plays, but if you're out of shape, even the best playbooks won't lead to scores.  A missing piece in much of trading psychology is training to get into cognitive shape.

The software accompanying my device keeps score and lets me know the percentage of time I am calm and focused, my ability to bounce back from distraction, etc.  I have tried various meditative practices to increase the percentage of time I am operating in "the zone".  These practices to quiet the mind have been helpful, but have not necessarily helped me sustain a calm alpha-wave state.

A breakthrough occurred when I stopped trying to empty my mind and instead engaged in prayer during my brain training session.  Because of my Jewish tradition, prayer is familiar to me as a way of connecting to our souls and stepping back from our egos.  This is a state common to all major religions and spiritual traditions that I have found to be essential to effective trading.  In my brain training session where I accessed prayer, I filled my mind with love and appreciation and focused only on those feelings.  This was much more like a lovingkindness meditation than a meditation of inner silence.

Amazingly, in the state of emotional overflowing, I maintained a calm, focused state for 93% of the timed exercise--much higher than during any other occasion.  What kept me in the zone was not trying to rid myself of emotion, but filling myself with positive emotion.  Indeed, following the exercise, I felt unusually clearheaded and settled.  I recognized this as exactly the state I'm in when I'm trading very well.

What if we've had it wrong all this time in trading psychology?  What if the answer to improving trading is not reducing/eliminating emotion or whipping ourselves into discipline and conformity to "process"?  What if our most positive trading occurs when we are in our most positive psychology?  What if clarity comes from immersion in feelings of love and connection, not in empty quiet?  For some people, that might come from prayer.  For others, it might come from filling their hearts and minds with love for family members or connection to communities.  

Most of all, what if what we do to train ourselves to achieve clarity in markets is also what we need to do to achieve closeness in our personal relationships and a connection to our life's purpose?  It would be ironic if our most spiritual practices are what further our most material pursuits.  

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Best Trading Practice: Using Core Motivations to Change Your Life and Your Trading

 

6/29/2025 - Whatever your goals might be--in trading and in life--do a little piece of them each day, building on your progress one step at a time.  What we do regularly, we internalize.  Be the person--and trader--you wish to become in some small but consistent fashion each day.  Then tackle the next piece and the next.  The enemy of progress is not emotion, but distraction.  When we tap into our core motivations each day, we find that daily effort gives energy; it does not drain us.  How, today, are you going to be the person you wish to become?  How, this week, are you going to be the trader that you are at your best?  And most of all, how can you build the intensity of your focus to overcome distraction and stay grounded in who you are?  That will be the next set of posts--  

6/27/2025 - If our trading challenges are a function of failing to tap into our highest motivations--and not simply a matter of poor discipline and lack of emotional control--then what is the top motivation that individual traders fail to tap into?  What I see at hedge funds and true proprietary firms like SMB Capital is how individual performance is a function of team participation.  Many, many traders have extroverted personalities, which accounts for their interest in risk taking.  Trading in social isolation frustrates the extroverted personality and, indeed, fails to draw upon the strengths of social motivation.  Look at leading financial organizations, from hedge funds to investment banks to sovereign wealth funds.  All are organized in team structures.  Teamwork helps cover more markets and ideas, but teamwork also taps into motivations to help others, teach others, learn from others, and enjoy the comradery of others.  If you're not reaching your trading potential, perhaps you're playing the game the wrong way.  

6/26/2025 - Here is a  corollary to the best practice outlined below.  We often assume that our trading challenges are the result of negative thought and behavior patterns that we need to change.  Hence the common advice to work on emotional control, discipline, etc.  But what if our trading problems are the result of failing to properly engage our strengths and our core motivations?  In other words, what if the trading processes we develop don't adequately leverage what we do well and what keeps us motivated and inspired?  Frustrating our strengths can be every bit as destructive to performance as acting on weaknesses.

For example, suppose I develop a very strict, rule-based process for trading, but one of my strengths (and greatest sources of motivation) is creativity and the discovery of new opportunities.  I find myself operating outside my rule-based framework, not because I lack discipline and am too emotional, but because I need the freedom to explore and discover.  Until I find a way to incorporate creativity and idea generation into my rules-based framework, I will fall short of my potential.

I look forward to developing this--and related--ideas in my next book that will focus on the strengths of successful traders, not just the shortcomings of beginners.

6/24/2025 - Here's a life and trading lesson from our new friend Nomi, who offered a reminder of the Naomi principle. 

Nomi came to our home at two months of age, weighing only two pounds.  She was understandably frightened in her new environment and hid in the bed, at the base of the headboard.  She could not be coaxed out.

I opened a can of food that our other cats love and dipped my finger in the moist mix.  I held it near Nomi and she quickly lifted her head and came out of her hiding place.  Her fear of strangers was strong, but her drive to eat new food was stronger.  That began our petting and getting acquainted.

The principle here is that we don't change our negative behaviors through motivation or discipline.  We change our negative behaviors by drawing upon our core motivations.  We might not make a change because we want to, but if we can find a reason that speaks to us, the change follows surprisingly easily.

Helping others is one of my core motivations.  I might not be the most disciplined trader on my own, but if I'm part of a team and my teammates count on me for help and role modeling, suddenly I'm inspired to be my best self.  Nomi didn't motivate herself to open up to me; she found a motivation that made it easy to open up.

What makes you tick?  What are your core motivations that drive you, inspire you, and make your life meaningful?  If you can find a way to connect your trading to the motivation that helps you be your best, suddenly you'll be able to access your best trading.

Additional Reading:

Best Trading Practice:  Rule-Base Sizing of Trades

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Best Trading Practice: Rule-Based Sizing of Positions

 

A great deal of the success of a trade comes from what happens after the position is put on.  The best traders I've worked with have rules for managing positions, not just putting them on.  They have rules for stopping out of positions; rules for holding positions; and rules for adding to positions.  Their rules allow them to get out quickly if their ideas aren't playing out, and their rules allow them to go for it when the trade is working.  Being brave enough to start and put positions on is necessary for success, but not sufficient.  It's when we're strong enough to finish and take maximum advantage of our best trades that we achieve our true success.

For last week's trading psychology workshop, Henry mailed me his best practice and gave me permission to share it with readers.  He explained that "William O'Neil, Mark Minervini, and Lee Tanner inspired me to trade a bigger position when you are winning.  'Look for add-ons'.  First of all I try to get in with an initial buy as close to my buy point as possible...After the initial buy, my best practice is that I buy 20% extra (of my whole position) every time the stock makes a new high after a correction of minimum 5 trading days...All my buys have a stoploss of -8% below the buy price.  But every time I get stopped out, the followup buy is 10% bigger than the previous buy...I trade only by written rules".

What makes this approach effective is that it benefits from parabolic moves in the stock being traded.  Finding the right stocks that are trading with momentum is thus important.  A large part of trading success comes from the relatively few occasions when you're getting bigger and bigger in your best opportunities.  What he learned from mentors was "to trade a bigger position when you are winning" and "look for add-ons".  Success requires risk management, but also requires opportunity management.  Having rules for protecting capital and also rules for maximizing your best ideas allows for good starts and solid finishes.  Many traders fail, not because of a lack of risk discipline, but because of a lack of opportunity discipline.   

A Different Kind of Trading Psychology Workshop

 

6/19/25 - Many thanks to those who attended the workshop and especially those who contributed best practices.  Two topics that came up that I'll discuss in future posts:  1) pursuing swing trading as a way of participating in larger market moves and not needing to be glued to screens; 2) the use of new technology/AI to train our brains for better sleep, emotional control, and focus; 3) finding new trading edges by tracking data that others don't follow.  Stay tuned!  

6/17/25 - The most important issue for us to tackle is not how to trade or how to improve our trading.  The most important issue is to identify--clearly--what you are meant to be doing with your life.  What are your gifts and how can you leverage them to make for a better life and a better world?  And how does trading fit into that life vision?  More important than trading markets is investing in your life's purpose.  More on that topic during tomorrow's free trading psychology workshop.  See below for registration info - Brett

6/16/25 - What are your unique, distinctive strengths and how can you best apply them to achieve trading success?  In the free trading psychology workshop on Wednesday afternoon after the NYSE close, we'll tackle precisely that topic.  When you're aligned with who you truly are at your best, the right performance psychology naturally follows.  Instructions for signing up for the session are below; links will go out Wednesday AM.  Thanks!

6/15/25 - Below is the information for registering for the free Wednesday online workshop after the market close.  Here are three best practices I'll be sharing in the workshop: 

1)  Original research on stock market breadth and specific trading signals for trading the broad market.  This will include instructions for creating your own database and a unique exit strategy to help maximize winning trades;

2)  Three new forms of brain wave technology that can greatly assist us in maintaining an optimal trading psychology.  I believe these to be the most important game changers in trading psychology to come along in many years.

3)  How professional traders approach dangerous market conditions, as we're seeing currently because of the war situation in the Middle East.

I hope to see you after the close on Wednesday and look forward to each of us sharing best practices.       

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This coming Wednesday (June 18th) after the NYSE close (4:15 PM ET), I'll hold a trading psychology workshop online for traders looking for new ways to improve their trading.  The session will address the needs of traders who have achieved a measure of success and now who are looking to take their trading to that proverbial next level.  To sign up, send an email to steenbab at aol dot com and I'll email you a link to the session.

I'm looking forward to a different kind of trading psychology workshop.  Attendance at Wednesday's session is free of charge, but I ask that each attendee bring to the event one best practice that has helped their trading.  The best practice could be a unique approach to trading, an innovation to improve trading process and performance, or a fresh method for sourcing trade ideas.  I've mentioned in the past that a slogan at the medical school where I teach is "Each one teach one".  In Wednesday's workshop, I invite all attendees to be teachers and all to be learners, myself included!

In the session, there will be two ways to share your best practice:  1) You can bring them to the meeting and share them over the Zoom chat function or 2) You can send them to me in advance when you send your email to steenbab at aol dot com to get the link for the session.  

For those who send me best practices in advance, I'll send out an email blast  (email addresses will be private) and include all the best practices as they've been written up.  (Please let me know in your email whether you'd like your best practice to be anonymous or whether you'd like to be acknowledged by name).  This will provide a resource of best practices that can guide performance long after the session has ended.  

Whether it's by sharing during the session or by writing up and sharing ideas, let's all be teachers and learners and see if we can create a different kind of workshop--

Brett

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Understanding Your Best Trading

 

6/12/2025 - In the research I've conducted re: the personality and life history predictors of trading success, several factors consistently stand out.  One of those is the capacity for pattern recognition.  Successful traders are more curious than others and look at more things in a greater variety of ways.  This enables them to see patterns that, over time, they discover to be meaningful.

Many traders equate pattern recognition with the patterns they track on charts.  This is certainly one form of recognition, but not the type I most commonly see among hedge fund portfolio managers.  They collect a great deal of data on inflation, monetary policies around the world, behaviors of various markets, sentiment, economic growth, etc. and piece the information together to form coherent views of stocks, bonds, currencies, etc.

The identification of market cycles across different periods, as described below, is yet another form of pattern recognition.  I view this as a look from the "bottom up", since it assembles price and volume data across shorter to longer intervals.  In my own trading, I combine this with a "top down" view which looks for historical, statistical patterns in the market.  For example, in the chart above, we can see a cycle bottoming out across the various indicators described below.  At the same time, we had displayed very few stocks making fresh one- and three-month lows in the lead up to this period.  When we look historically, the absence of weakness is quite bullish, especially over a 10-20 trading day horizon.  Markets usually don't plunge until one or more sectors display deterioration.

The combination of the statistical pattern and the real time cyclical pattern produces a trading view with considerable supportive evidence.  That pattern recognition underlies our psychological confidence in our ideas--and our ability to size up positions.  I did not develop confidence in my trading by working on my psychology; I improved my psychology through better and better pattern recognition.

6/11/2025 - Above is a screenshot from yesterday's market in the micro-ES futures contract.  The previous posts in this series will explain much of what I'm tracking in real time.  The bars on the top portion of the chart represent the SPX futures, where the candles capture the high/low/close for each 15,000 contracts traded.  As a result, we're drawing relatively few bars in the overnight sessions and many more during the busier morning hours.  This helps identify market cycles.

The green and red lines going through the candlestick bars are the short-term (red) and longer-term (green) moving averages defined by the MESA Adaptive Moving Average system.  When the red line crosses above the green, it's confirming an uptrending move and vice versa.  Note that I track the identical cycle movements for shorter-term charts (2000 contracts per bar) and longer-term charts (50,000 contracts per bar).  I use the shorter-term crossovers to help trade the longer-term shifts in trend/cycle.

The vertical blue and red lines at the bottom of the chart represent the Woodies CCI trend measures, where blue is uptrending and red is downtrending.  The green and red dots above these lines represent significant buying and selling.  Together, with the adaptive moving average crossovers and across the shorter- and longer-term charts, these help visualize occasions when trends are dying out and reversing and when trending behavior is present.  It is the lining up of these patterns across shorter- and longer periods that identifies opportunities to ride the cycles and exit them.

This way of looking at markets may or may not be helpful for you.  It is my way of distilling a great deal of directional and cyclical behavior across multiple time frames.  What many traders see as "choppy" markets are often markets dominated by shorter-term cycles that are tradeable.  Similarly, what looks like trending markets are often markets dominated by longer-term cycles.  What is important from the perspective of trading psychology is that you find *your* way of representing and visualizing market behavior that aids your decision-making.  Many, many times traders become frustrated with markets and make poor decisions because they are locked into one time period and one type of market behavior and fail to perceive the contexts of market movements.

6/10/2025 - The foundation for cycle identification with the charts denominated in volume rather than time (see below) is the MESA Adaptive Moving Average (MAMA) system developed by John Ehlers.  This creates shorter and longer-term moving averages based upon the cyclicality of the market and then identifies crossovers between the shorter and longer-term averages.  I construct the MAMA on multiple volume-based charts, from very short-term to medium and longer-term.  When there are upside and downside crossovers at multiple intervals, that's when the cycles are lining up and it becomes possible to take a solid reward-to-risk trade.  All of this is easily constructed in the Sierra Chart platform.  I rely on the NYSE TICK measure during NYSE hours to get a more finely grained indication of buying/selling pressure to identify when short-term cycles are turning.  I outline all of this--and will present an illustration--to emphasize an important point in trading psychology:  We are most likely to work on our trading and refine our trading if we develop our own ideas based upon what makes sense to us.  Too often, traders attempt to copy others and then lack conviction to stick with their ideas.  The goal of this post is certainly not for traders to copy what I do, but to encourage traders to figure out what they need to do.         

6/9/2025 - A particular challenge for active, intraday traders is that market activity (volume/volatility) changes significantly as a function of time of day.  On average, there is much more volume and movement in US stock index futures, for example, during the New York Stock Exchange hours than overnight; there is much more volume and movement early and late in the day than at midday.  When we measure cycles in time units, we end up comparing apples and oranges.  If the underlying time series is not relatively stationary/uniform, we cannot identify cycles that are relatively uniform in frequency or magnitude.  When the X-axis of our charts represents volume, not time, each bar is a standard amount of volume traded and we draw more bars during busy periods and fewer during slow periods.  Cycles appear quicker or slower but are more uniform in composition.  When we create charts where the bars represent different volume sizes, we now can see when and how shorter-term cycles line up with longer-term ones.  The shorter-term cycles can guide execution to trade the longer-term cyclical movements.  It becomes easier to trade trends when we see these as the directional portions of longer-term cycles.  Illustrations soon to follow...       

6/8/2025 - What I've come to understand is that no amount of focusing on bad trading and trading mistakes is sufficient to create good trading.  Good trading comes from zeroing in on what you do well and what makes sense to you and then refining and refining your ways of capitalizing on those strengths.  My worst trading comes from focusing on (and chasing) trends.  My best trading comes from identifying cycles in markets and identifying when short, medium, and longer-term cycles are lining up.  Ironically, many of those trades might look like catching trends early, but those trends are simply the early phases of longer-term cycles.  It's the lining up of multiple cycles that creates the favorable reward-to-risk edge.  

Understanding those cycles not only allows for sound entries, but guides the process of holding trades.  If you're oversold across multiple periods and go long, there's little incentive to take profits when the shortest cycle turns to overbought.  Indeed, waiting for the shortest cycle to turn down while the others are still rising and far from their peaks can create opportunities to add to positions.  

The challenge of this approach to trading, which I'll be illustrating in the near future, is that until cycles align, the best trading is no trading.  The goal is to find a few meaningful "setups" and exploit them fully.  One of the most difficult forms of trading discipline can be the discipline to not trade.  That means that the disciplined trader needs the discipline of doing things other than trading during the majority of periods when cycles are not fully aligning.  When you know what to look for, your best trades come to you--and there is no need to chase random moves.   

Trading Psychology Principles and Best Practices

 

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Principle #5:  Trading is a team sport.  I recently described a number of ways in which teamwork magnifies our learning and spurs our performance.  Teaming up with other dedicated traders adds layers of accountability to our decision making; it also provides us with multiple inputs for trade ideas and ways of managing risk.  Many psychological challenges of trading occur out of frustration, due to limitations of trading in isolation.  When traders are committed to helping one another, there is no room for emotionality and impulsivity.  Ultimately, however, traders who develop their own expertise within a team provide unique and valuable input to one another, supercharging decision-making processes.  It is very rare to find elite talent that develops in isolation.  In sports, in academics, in the arts:  mentoring from experts/coaches and learning from peers supercharges performance.  Who is making you better every day?  Who are you making better every day?  It's great to learn in a community, but it takes teams to build the performance that comes from commitment.  

Principle #4:  Great trading requires the ability to invest.  A member of an Olympic basketball team will work intensively (with coaching/mentoring) on every part of their game--passing, shooting, defending, rebounding, etc.--and will spend further time to work on practicing new plays and strategies tailored to the vulnerabilities of the opponent.  They invest hours and days of practice to prepare for competition.  Similarly, the best traders invest time in every part of their game, from finding the best opportunities to refining entries, sizing, exits, and the structuring of positions.  Working with a coach/mentor adds a layer of accountability to the trader's efforts and helps traders focus those efforts in the areas needing the most work.  For the professional, much more time is spent in practice, review, and making improvements than in actual performance.  The goal is not simply to win a game or make money, but to become your very best in every aspect of what you do.  The measure of a great trader is found in what they do outside market hours.  

Principle #3:  The best trading proceeds from values, not needs.  This is related to the idea that great traders have a passion for markets, not trading.  The challenge of understanding markets engages our curiosity, fueling efforts to dig deeper and dig differently.  That is what uncovers fresh edges in markets.  The best trading teams that I've worked with are just as engaged in markets when they're not trading as when themes are active and prices are moving.  In trading, as in other performance fields, success is a function of the ratio of time spent practicing and preparing for performing vs. the time actually spent in performance.  We can only sustain such intensive, deliberate effort if we find something intrinsically rewarding in preparation:  we value the process of curiosity and discovery.

This is why trading based upon needs never works.  When we need to trade--when we need P/L--markets control us.  We're no longer engaged in a performance mode.  In trading, as in our personal relationships, deficit needs are a weak foundation for longevity.  The best relationships, including our relationships with markets, are based upon positive values.  They are expressions of who we are, not vehicles for what we lack and need.

Principle #2:  Know who is on the other side of your best trades.  Many of the best short-term trading edges come from exploiting the behavioral tendencies of others in the marketplace.  What that means in practice is, not that you simply avoid emotional trading, but that you identify the emotional trading of others and take advantage of their cognitive errors and overreactions.  We had a great example on Friday, when the SPX went down on meaningful selling pressure (as measured by the number of trades hitting bids; the number of stocks trading on downticks).  Eventually the selling pressure led to a situation where buyers came in (as measured by volume lifting offers; the number of stocks trading on upticks) and price moved higher.  From that point forward, there were continued bouts of selling that could not push the market to fresh daily lows.  The bears kept selling, even as price and volume were telling them they were wrong.  That contributed to a rebound that was every bit as potentially profitable as the prior decline.  

The people on the other side of your best trades are those slow to update their views and positions.  They are trading their ideas/biases and not truly tracking market activity and its shifts.  The open-minded ability to adapt rapidly is one of the most powerful edges for short-term traders.

   

Principle #1:  The best trades come to you.  I have consistently found that, if I begin my market day with a definite idea and a desire to trade that idea, I'm likely to lose money.  If, on the other hand, I enter the day having done research but then adopting an open mind as to whether or not the market will follow its historical tendencies, I'm much more likely to place winning trades.  Really good trades are not something I bring to the market.  Really good trades emerge from being immersed in the market.  Watching and watching, listening and listening to what the market is saying leads to moments where it suddenly becomes clear what is going on.  The idea will come to me (as happened yesterday) that buyers cannot push this market higher.  That leads to a nice short trade to fade what has been happening.  

When trade ideas come from immersion in the market, we experience a quiet confidence in those ideas.  Calm clarity is a sign that an idea has come to you--that you're not simply imposing your needs, your views, your desire to trade on the market.  One of the most promising practices in trading psychology is training the brain to more consistently operate in a mode of enhanced focus.  The best trading comes, not from controlling emotions, but from building our capacity to stay in the zone.  When we wait and wait and wait and track the market and track the market over time, we are doing the very things that help train our brains.  

Success comes from active patience.  That's when the great trades come to us.     

How Teamwork Makes The Dream Work

 

5/28/2025 - What I see happening in the best training of trader talent at hedge funds is a marriage of top-down and bottom-up analyses.  Top down analyses are often historical studies of how a stock or market has behaved under a given set of circumstances.  For instance, if a company reports earnings that are significantly above consensus, how does its stock tend to behave over subsequent time periods?  Or, if interest rates make a new month-long high, how do different stock market sectors tend to behave going forward?  The top-down analyses provide a big picture of where there might be edge going forward.

The bottom-up analyses are all about shorter-term pattern recognition and how a stock or market tends to behave when price and volume meet certain criteria.  For example, if a stock trades with high relative volume and breaks above a two-day range, how does it tend to behave during the remainder of the trading session?  

The marriage of top-down and bottom-up analyses aids trading psychology because traders understand what the edge is, why it is there, and what to do about it.  That broader understanding contributes to confidence in the idea and the ability to take meaningful risk when the odds are in the trader's favor.  Great traders, like great poker player, know the hands they are playing, the odds of winning with those hands, and how to best bet those hands.

5/26/2025 - So how do teams in professional trading settings help their members trade at their best?  They do so by exchanging ideas on:  1) Why to trade (what are catalysts for buying/selling); 2) What to trade (what instruments/stocks will best exploit the reasons for taking risk); and 3) How to trade (what would provide ideal risk/reward entries; what would be opportunities to size up positions; how positions would best be structured for risk/reward).  In other words, teams don't just share ideas for entering trades.  They collaborate to get the most from those trades.  What to trade is just as important as why to trade.  How to trade is just as important as what to trade.  When teams review their trading together, they internalize lessons in making the most from their ideas.  

5/25/2025 - Below we can appreciate how teamwork helps us make the most of our talents and accelerates the development of our skills.  Teamwork also builds our trading psychology, as we are motivated to help others and serve as a role model for them.  Basic training produces soldiers ready for combat in grueling circumstances.  The right training in markets similarly produces a robust mindset in the face of uncertainty and setback.

So how can individual, independent traders gain the benefits of teamwork?  A first step in the right direction is to find a trading partner who is committed to working with you and who you are committed to helping.  A two-person team more than doubles the benefits of sound trading processes.  By performing separate research and then brainstorming findings, a trading pair can generate ideas that neither had come up with on their own.  Similarly, when reviewing performance together, the lessons learned from our partners, combined with our own lessons, can stimulate creative ideas for making trading improvements.  

Too, working as a pair improves trading psychology as each member focuses on helping the other.  That keeps everyone constructive.  The interactions tap into social motivations, keeping both members helpfully engaged.  Training programs for traders and trading communities can be great places to start the search for trading partners.  Following traders who post on social media may also lead to useful collaborations.  

Teamwork creates synergies...even when the team is two.

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I work with a number of portfolio managers at hedge funds.  Here are a few facts about them:  

*  All of them have a history of success in financial markets; that is why they are managing hundreds of millions of dollars or more.  

*  None of them discuss with me emotional, impulsive trading, FOMO, revenge trading, etc.  The issues that trouble beginning traders are largely irrelevant to experienced, profitable market participants.  Through their training, they have learned to operate by clearly defined processes.

*  All of them work in teams.  The best teams consist of members who have their own unique strengths.  When everyone on a team is better than everyone else in some area, then everyone can make everyone better and the whole is much greater than the sum of the parts.

*  The best teams work as hard on their teamwork as on their markets.  They constantly look to improve what each person looks at, how they look at it, and how they communicate.  They work as hard on team goals as individual goals.  They review team performance every bit as much as they review their own individual performance.

*  The best teams work hard on maintaining a positive, supportive culture.  They take time outside market hours to play and celebrate, as well as to meet and plan.  The best team members support one another and motivate each other.  When I have observed teams at hedge funds and prop firms like SMB, for example, I've invariably noticed that they enjoy their interactions.

Being part of a trading community is helpful, but it does not substitute for being part of a committed team that coordinates trading efforts day in and day out.  Show me a performance field where people earn their livings from stellar performance and I'll show you a field where performance is a function of teamwork.  Even the Olympic athletes succeeding in individual events train as a team and benefit from the teamwork of mentoring and coaching.

Read this carefully:  A lack of discipline in trading comes from a lack of teamwork in training.  No one becomes a disciplined, elite soldier on their own.  It takes teamwork to make our dreams work.

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The Truth About Trading Success

 

Well, my latest trading companion is doing quite well, as can be seen from her picture at her 6-week birthday.  It's amazing how personality comes out even at that early age.  There is much that we inherit that helps shape our cognitive and emotional functioning.  This shapes our talents, many of which appear surprisingly early in life, influencing our development.  We are wired so that the exercise of our talents is inherently enjoyable.  In that way, we pursue what we are good at and what speaks to us, leveraging our talents with acquired skills.

Back in 2010, I explained to a number of companies that solicited my involvement that the reason I didn't want to partner with them was that they are cheap whores.  Can you imagine promising eager young people that anyone who works hard enough (and who makes use of your exclusive services) can become a successful professional basketball players, Hollywood actors/actresses, ballet dancers, or chess masters?  The idea is absurd, because we recognize quickly that no amount of classes or coaching can substitute for raw talent.  The reason elite performance is elite is because it leverages rare talent and the mentored building of superior skills.

The worst of the worst in the trading world are the services that breathlessly promise traders a path to being successful.  They appeal to the egos of vulnerable people and their desperate need for success and then explain that failure is a function of emotional trading!  Well, the reason the trading is emotional is because the traders so desperately need to feel like successes.  They are not leveraging talents; they are needy.  They overtrade and fail to manage positions well because they are trading for ego and self-worth, not for truly professional reasons.

The truth about trading success is that it only comes by leveraging what we have already been successful at, because that is where we find our talents and passions.  We cannot trade to become successful.  We can become successful at trading by drawing upon our previous successes.  But, of course, not all of life's talents translate into trading prowess.  It's interesting that most people would readily recognize that not everyone can make a living from sports performance or artistic activity.  They have trouble accepting that with respect to trading, however.

A desperate need to be successful is not a passion for an activity.  The ones with real passion and talent are just as motivated to study and understand markets as they are to trade them.  One of most important questions we face is:  What do I do superlatively well, and how can I express those talents in my relationships, in my career, in my personal pursuits?  Life's goal is to grow into the very best version of who you already are.

So we'll let little Nomi, the six-week old kitten, figure out what she loves doing and then structure her environment so that she can do lots and lots of what she loves.  As the saying goes, "If you meet the Buddha on the road, kill him!"  Our enlightenment--our path--is to be found within, not by following would-be gurus.  Your talents are your trail and will lead you to mentors who can teach you skills.  When we pursue our talents, we'll always have a positive life P/L.    

TraderFeed Takes a Vacation

 

Well, we'll be bringing a new friend into the home, beautiful Siamese girl, who is currently with her Mom (see below).  As we learned from Molly Ruth, there's much to be said for stepping back, rejuvenating, and stepping forward in a fresh mode.  During the break, I'll be finishing an added chapter to the Positive Trading Psychology book outlining cutting edge strategies for sustaining high performance.  I'll also be building out the brain training resources and applying them to daily trading practice.

And when not writing and adding to the family?  Margie and I just returned from a tour of the only Jewish synagogue designed by Frank Lloyd Wright (see below).  The integration of architectural design, American themes, and religious symbolism was truly awe inspiring.  

The theme here is to never, ever go stale.  Seek out new experiences, invest yourself in fresh opportunities, and always learn and grow.  The best vacations are those that step back in order to step forward anew.

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Training the Brain by Building Intentionality

 

4/27/2025 - Suppose you were to place yourself in a state of intensified focus/concentration as outlined below vis a vis alpha state brain training.  In this state of unusual focus and clarity, you simply absorb shorter- and longer-term charts of the overall market and the stocks that are on your radar:  those that are "in-play".  What you find is that ideas and insights come to you.  When we look at the right things in the right way, we can experience the intuition and inspiration that underpin true conviction.  We can train our brains in pattern recognition.

4/25/2025 - Every item on our daily calendar has the potential to train our brains for success.  When we intentionally push ourselves beyond our initial fatigue points, we find what philosopher William James called our "second wind" of consciousness.  We have much more in reserve than we realize we have.  This can be observed when we tackle something very meaningful and important.  Suddenly, where we might have been feeling a lack of energy, we find plenty of inspiration and drive.  If we use each daily activity to challenge our comfort zones, we find that we can exercise and develop our capacity for purpose just as we exercise and develop our bodies.    

4/23/2025 - A cornerstone of most writing/teaching/coaching on the topic of trading psychology is that emotions--and behaviors driven by emotional impulses--interfere with successful trading.  By that logic, if we can learn to control our emotions and ground ourselves in our trading plans, we are most likely to be successful.

In this post, I will explain why this is incorrect.  My forthcoming book, Positive Trading Psychology, will cover this topic in detail.

Consider:  If we possessed total free will, there would be no need for any kind of performance psychology.  We would be able to choose the right actions at the right times and optimize our performance.  Conversely, if we lacked free will altogether, there could be no work on our performance.  No animal, for instance, can purposefully work on its survival behaviors.

What makes us unique as humans is that we possess partially free will.  We have the ability to envision a future and select actions to bring us to our desired state.  We also have the ability to become distracted from our goals and live life aimlessly.  We demonstrate the capacity for intention, but we lack consistent intentionality.  In the words of Russian philosopher G. I. Gurdjieff, we live much of life "asleep".  Summarizing Gurdjieff's work, author/philosopher Colin Wilson asserts that "Western man's concept of knowledge is built on a fundamental error:  the notion that the acquisition of knowledge only requires intelligence.  It requires, in fact, a kind of action.  Consciousness needs to be put into its 'active gear'" (p. 64).

In short, we lack full intentionality because we do not consistently operate in our 'active gear'.  The challenge is not an excess of emotion, but rather a lack of training of the will.  

A common response to this issue is meditation.  If we can learn to control our bodies and our breathing, the logic goes, we will become more purposeful beings.  My work on this issue suggests that this is not necessarily the case.

For a while now, I have pursued neurofeedback training (EEG biofeedback) to learn to sustain alpha brain wave states over increasing intervals.  Using the Muse device and its app, I spend a predetermined period of time listening to the sounds of a rainforest.  When my attention wanders and I go into beta mode, the rain sounds increase.  When I focus with unusual intent and enter alpha mode, the rain slows and eventually stops.  In a sustained alpha mode, I can hear birds chirping.  The app tallies up the proportion of time spent in beta and alpha mode and also counts the bird chirps.  

Interestingly, when I engage in basic meditation work during the biofeedback session (controlling my breathing and maintaining awareness of my body), I am able to remain very still (as measured by the app).  I feel relaxed and emotionally calm.  But I do not enter the alpha state.  In other words, reducing the arousal of the body (just like reducing negative emotions) is not sufficient to maximize intentional focus.  

After a sustained period of EEG training, reduced rain, and many bird chirps, I feel unusually clear and focused.  It feels like being a detached observer of events rather than being involved in the world.  Everything seems to move more slowly.  That state is achieved, not by relaxing and being "present", but by effortfully intensifying my conscious focus to make the rain slow down and eventually cease.

Perhaps most important of all, when I'm in that detached state, my perception--of life and markets--is clearer and it's no problem whatsoever doing the right things.  Purposeful action comes naturally, not with tiring effort.

Perhaps traders fail to follow their plans for the same reason that most of us fail to consistently pursue our life's goals.  It's not that we're too emotional; it's that we operate with underdeveloped focus and intent.  An intentional life--and intentional trading--has to begin by training our brains to sustain the "active gear" of consciousness.  In a relative state of "sleep", we cannot sustain purpose.  That requires ongoing training and practice, not the usual ministrations of coaching or self-help.

Further Reading:

Beyond Meditation:  Using Biofeedback to Change Behavior Patterns

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