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

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The Three Minute Trading Coach Videos

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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
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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

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Should I Join a Prop Trading Firm or Trading Community?

 

In recent weeks, I've had a number of traders reach out to me, asking about joining proprietary (prop) trading firms or joining trading communities.  Here is the essence of my response:

*  There is value in learning trading and developing trading skills and experience when you can learn from the experiences of others.  The best trading firms that I work with operate with team structures where there is a commitment to help each other and learn from each other.  Having trading partners can increase our accountability, and it can provide us with multiple role models.  Simply being online with other traders is not team trading.  Go where traders are committed to one another.

*  The best trading organizations only succeed and make money if their traders succeed and make money.  When I began my work in Chicago, the best prop firms covered basic overhead with desk fees and passed along member firm commission rates to traders.  Those firms shared profits with successful traders.  They did not succeed if traders were not profitable.  They invested in the best trading technology, because that would make the traders--and the firm--successful.     

*  You should be encouraged to make money, not simply to trade.  Other prop firms in Chicago operated as arcades, where traders traded their own capital, kept most of their profits, and paid fees for access to equipment and technology.  Some charged high commissions and made the bulk of their money by getting traders to place lots of trades.  When traders pulled back their risk taking due to uncertainty, this became a problem for management.  The interests of the firm and the traders did not always align.

*  Beware firms selling hope as their main product.  Some prop firms are not really prop firms at all, as they promise access to capital based upon tryouts that traders pay for.  The conditions of the tryouts are quite challenging, and it's not unusual for aspiring traders to engage in multiple tryouts.  Often, the interests of some of these firms are in selling tryouts, not in funding and growing successful traders.  Is there real training, real performance feedback, and real teamwork among participants?  Does the firm's growth depend upon the success of those who pass the tryouts?

*  Seek interactivity.  Online trading communities often offer education and coaching as well as sharing among community members.  This can greatly broaden the learning of developing traders.  The key question in evaluating online trading communities is the degree to which members actually form virtual teams and make teamwork a daily part of their trading processes.  If the communities succeed mostly by selling memberships and services, they cannot foster the mutual learning and development essential to our learning curves.

A quick anecdote:  Tomorrow, I'll be joining Jeff Holden from SMB Capital to help traders make use of a new technology that tracks the expected value of trades in real time.  This can be of tremendous value in sizing positions appropriately and in helping traders grow their risk-taking in responsible ways.  SMB is training the traders to take better risk/reward trades and they are investing in the technology so that the firm will succeed as the traders become more successful. 

Be selective:  The right firms and communities treat you as an investment, not as a trade--

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Two Paths to Trading Success

 

There are two very distinctive paths to trading success:

The first path is to study market action in great detail and identify patterns associated with large market moves.  When those set up, the successful trader has seen and charted so many of those examples that they can pounce on the opportunity with large size.  Also because the successful trader has observed so many explosive moves, they are sensitive to when the explosion is *not* occurring and can exit with controlled risk.  For this kind of trader, a key psychological strength is patience.  Much of success lies in not trading until the outstanding opportunity comes along.  Another important psychological strength is aggression.  The very successful trader is not just right, but recognizes when they are right and is able to go for it in size.

The second path to great market success is to trade broad rather than big.  This is the path of many successful hedge fund managers.  They search and search and research and research and look for opportunities in different markets, in different parts of the world, and in different time frames.  None of the positions are necessarily very large, but the combination of the positions makes for a sizable portfolio.  Because the opportunities are relatively uncorrelated, the trader can make large amounts of money even when some views don't play out.  The broad trader is placing so many bets with edge that consistent returns follow.

Team structures help the first path to success, as a recent video from SMB Capital indicates.  Having multiple eyes on the short-term price action of many stocks and markets increases the odds of finding the truly special opportunities.

Team structures are essential to the second path to success, because team members with different areas of expertise and experience contribute unique ideas to a broad portfolio.

You can win by trading big.  You can win by trading broad.  It's tough to win trading in isolation.

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How Gratitude Transforms Trading

 

A wealth of research finds that experiences of gratitude--feeling appreciative of what we have--are important to overall emotional and physical well-being.  Of special significance is research that gratitude impacts our brain activity over long time periods, activating the areas responsible for reasoning and problem-solving.  This fits well with research that shows how positive emotional experience helps us see the world more broadly and deeply.  

When we can turn trading mistakes and setbacks into valuable lessons for learning and growth, we can actually feel gratitude toward our challenges.  Once we're focused on our development, everything--our best trading and our worst--becomes fuel for getting better and better.  Amazingly, when we sustain that positive mind frame, we actually see more in markets.  

Negativity blinds us to trading opportunity.

Including gratitude in our daily review process by focusing on experiences that make us better is a great way of sustaining our positive trading psychology.  At moments when I feel frustrated, I look over to our bonded rescue cats, Molly and Ares, see how they have found happiness, and feel grateful for the opportunity to have given them a good life.  Frustrations melt away when we appreciate what we have.  

An optimal trading psychology is one of focus and one of positivity.  Amazingly, when we are highly focused and in a state of emotional and physical well-being, we see markets better and make more clear-headed decisions.  If trading brings us gratitude--even in challenging times--we'll be best prepared to find and exploit opportunity.

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Three Questions to Ask About Your Positive Trading Psychology

 

The book that I'm currently writing, covering the positive psychology of trading, emphasizes that how we approach trading determines how positive our trading experiences become--and that helps determine our trading success.  Too often, people pursue happiness and fulfillment by seeking trading success.  The field of positive psychology suggests the reverse:  if our trading practices and processes draw upon our strengths and what is meaningful to us, we will trade with greater focus and energy, see more in markets, and interact more effectively with peer traders.  

So much of traditional trading psychology is problem-focused, emphasizing what we need to do to avoid reactive, emotional trading; what we need to do to accept risk and handle drawdowns, etc.  The reality is that we will never achieve a peak performance state simply by shoring up weaknesses.  Three questions to ask with respect to our achievement of a positive trading psychology are:

1)  Are my trading processes well-defined, and do they consistently draw upon my personality, social, and information processing strengths?  (Do I truly understand what my strengths are and how my trading methods draw upon those?)

2)  Do I find energy and fulfillment in the processes of trading regardless of near-term P/L?

3)  Do I draw upon the strengths of others and contribute to their strengths so that I am continually learning and improving?

We achieve a peak trading psychology by making our trading an expression of our greatest talents, skills, and ideals. 

Somewhere, hidden in your best trading, is the trader you're meant to be.  

The challenge is to develop a close relationship with your best self.

Further Reading:

Mastering the Positive Psychology of Trading

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Knowing What The F** Is Going On In Markets

 

It's amazing how our trading psychology improves when we take the time to step back, review macro markets, and understand what is going on in the heads of large money managers.

Consider the recent stock market:

*  Growth-related sectors have been particularly weak.  Check out the XLK (technology) and XLY (consumer discretionary) ETFs.

*  Value-related sectors have been relatively strong, especially the ones that benefit from lower interest rates.  Check out the XLRE (real estate); XLU (utilities); and XLP (consumer staples) ETFs.

*  The bond market has been strong, which means interest rates are falling.  Check out the BND (bond) ETF.

*  The US dollar has been weak.  Check out the DXY (dollar index).

*  Commodities have been falling.  Check out the DBC (commodities) ETF and oil prices.

Macro markets do not always trade thematically.  When they do, smart traders pay attention.  You can work on your psychology 24 hours and, if you don't understand market themes, you'll eventually get run over and lose money.

Going forward, a key question to ask is whether the theme of growth slowdown and potential recession is expanding or whether there are signs that the market's "theme-ness" is reversing.  Aligning shorter-term trading with the market's bigger picture helps ensure that you're swimming with the tide, not against it.

Further Reading:

The Importance of Understanding Global Macro Themes

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Exercising Our Character, Improving Ourselves

 

It's been great spending my 70th birthday with wife Margie and daughter Devon, traveling around Colorado.  There's something about natural beauty that inspires mood and mind, turning vacation time into a time of rejuvenation.  With that new energy, I find myself tackling fresh goals and challenges.  One of the most popular TraderFeed blog posts explained the process of FIGS:  Focused, Intensive Goal Setting.  The idea is that we achieve the greatest growth by establishing a limited number of goals and then focusing on working on those on a daily basis, turning them into internalized parts of ourselves.  I've long held that the age at which we become old is the age at which we determine that our best years are behind us.  The key to staying young psychologically is always having a guiding vision that we pursue intensively, challenging and inspiring us.

A particularly powerful vision comes from visualizing the kind of person we would ideally like to be.  What personality strengths would we most like to develop?  We can view our character development much as we view our physical development:  use it or lose it.  We can also set up routines to exercise our character the way we exercise our bodies.  What one personal improvement can you make that will make you a better friend and partner, a better trader, a better human being?  How can you use each day to make that improvement?

The keyword for my character improvement goal is forbearance.  That term can mean a decision to not enforce an obligation, such as the payment of a loan.  It also means patience and an acceptance of the limitations of others.  When we become impatient with others and expect them to meet our needs, we naturally put ourselves first and can create toxic interactions.  The idea of servant leadership is that we best lead by taking care of others, accepting and addressing their needs.  One of the reasons I've enjoyed our adoption of rescue cats is that it pushes us to get outside ourselves and prioritize their development.  In doing so, we create meaningful experiences and interactions.  In building my forbearance, I'm--in a sense--adopting everyone I deal with, committing myself to furthering their lives.

There is wealth in trading, and there is wealth in our personal development.  Indeed, it's not unusual to find that pursuing personal development furthers our trading success.

What are you working on today that will make you a better version of who you already are?  

How will today provide a great exercise routine for the qualities you want to cultivate?

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The Most Important Skill in Trading Psychology

 

Coaching ourselves to trading success requires that we know our strengths and our vulnerabilities.  All of us have our triggers that are associated with the unresolved conflicts and unmet needs that we bring to trading--and to other areas of life.  Not as well recognized is that we also have positive triggers that cue us to activate our strengths.  If we don't know our positive triggers, we can't establish processes that cue our success and benefit from them.  If we can't anticipate our negative triggers, we can't intercept them before they do harm to our trading accounts.

The most important skill in trading psychology is self awareness.  If we are not mindfully self-aware, we operate on autopilot, miss opportunities to put our strengths to work, and expose ourselves to emotional triggers that can hurt us.  If we know our triggers and can actually anticipate them, we gain significant control over our trading.  

A common positive trigger is feeling in the flow of our trading, absorbed and operating in the zone.  That state of heightened focus is one that sets off our intuitive pattern recognition, allowing us to see opportunities unfolding in real time.

A common negative trigger is frustration.  When we undergo a loss and become angry and frustrated, the resulting fight/flight response leads us to trade reactively.  In that state, we cannot possibly see actual opportunity unfolding.

Taking periodic breaks during the trading day and assessing our degree of focus and frustration builds our skills at self awareness.  When we become increasingly able to identify our states in real time, we gain the option of guiding our trading actions accordingly.  If you know you're seeing the ball well, you can take a meaningful swing.  If you know you're agitated and not seeing the ball, you can step back, work on your focus, and preserve your capital.  That is huge.

At SMB Capital, a mantra is "One Good Trade".  Taken after Mike Bellafiore's book of that title, the mantra tells us to just focus on the next trade and what will make it a good one.  Notice how this is actually an exercise in self-awareness.  If we don't know what goes into a good trade--and what we need to avoid to prevent a trade from going bad--we can't recover from a loss (or build upon a gain) by making "one good trade".

Good traders know the market.  Great traders also know themselves.  

Market awareness + self awareness = consistent profitability.

Further Reading:

Strategies for Building Self Awareness

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How to Coach Yourself to Trading Success

 

Suppose we are all like Clark Kent:  an ordinary person on the outside with hidden superpowers and also a vulnerability to Kryptonite.  

Suppose you begin coaching yourself by looking, looking, looking through all your trades and all your life's successes to find your one superpower.

Suppose, in that search, you examine all your trades and all your losses to find your Kryptonite.

What if your path as a trader is to find your personal superpower and figure how it comes out in your trading?

What if your path as a trader is to find the Kryptonite that has created your life's greatest failures and figure out how that shows up in your trading?

The real enemy is viewing ourselves as average.  We are superheroes with super vulnerabilities.  Our path to success requires that we embrace both realities.  Then we can truly act as our own trading coaches.

Further Reading:

The Heroic Dimensions of Trading

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Overcoming Emotional Trading - Part Three: Eliminating Tilt Trading

 

In Part Two of this series, we took a look at the importance of focus and concentration in successful trading.  Indeed, if we are focused and "in the zone", there is no way that emotionality can disrupt our trading.  On the other hand, if we are caught up in P/L and the need to make money, every price movement will have the potential to be disruptive.  Going on tilt means that we become totally reactive in our trading rather than planned and proactive.  We act on fear, greed, and impulse and make decisions that we would never make if we were in our usual calm and focused state.  Tilt occurs when the needs we bring to trading dominate our need to understand and follow markets.  

Please review this post on a powerful technique for overcoming tilt trading.  The key to the success of this method is to train yourself to enter a state of mind and body that is incompatible with tilt.  This can be accomplished with breathing exercises, meditation, and biofeedback work.  It takes practice, but quickly pays off:  Once we can enter a calm, relaxed, focused state at will, then we can recognize in real time when we're starting to become emotional and quickly place ourselves in our focused zone.  The goal is not to eliminate emotion from trading, but to recognize it in real time and become able to shift gears when we need to.

As I noted in my talk with traders at SMB, it is the awareness of danger--the view that tilt is the enemy, not losing money on a particular trade--that allows surgeons and elite military troops to tackle dangerous missions and remove emotion from their work.  The key to eliminating tilt from our trading is to mentally rehearse situations of loss and frustration while we engage in exercises that keep us focused and slowed down.  As long as we're slowed down physically, we can't be worked up emotionally.  These exercises can be part of our daily preparation, where we reinforce the idea that losses in trading are normal and are not threats.  The real enemy is tilt and the loss of emotional control.  When we enter trading totally aware of the dangers of tilt with techniques that help us stay calm and focused, we're like the surgeon or soldier operating in a risky environment.  

A prepared mind never enters tilt.

Further Reading:

Training Your Focus

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