Monday, November 23, 2020

BRETT STEENBARGER'S TRADING PSYCHOLOGY RESOURCE CENTER


Contact For Trading Firms and Media:  steenbab at aol dot com

My Twitter Feed:  @steenbab

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:


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.  Trading firms, teams, and portfolio managers interested in performance coaching and help with hiring processes can email me at steenbab at aol dot com.  Please note that my work is limited to trading and investment firms, so I cannot provide online advice or coaching services to individual, independent traders


FURTHER RESOURCES




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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Sunday, November 22, 2020

Finding Unique Edges In Your Trading

 
One enduring observation I've made in years of trading and working with traders is that no one achieves distinctive results in markets without approaching trading in a distinctive manner.  The great traders are either looking at something different from the herd or they're looking at the same thing in a very different manner.  Another way of saying this is that, over time, intellectual independence and creativity win and conformity and stasis lose.  Come to think of it, that 's true in any entrepreneurial activity.

So here's a great frame for your next trading review:

1)  Am I trading something different from the majority of others around me, or am I in the same stocks, the same ideas, the same themes, etc.?

2)  Am I trading differently from the majority of others around me, or do I express my views in the same vehicles, the same strategies?

Don't get me wrong.  You might make money trading the hot stocks or consensus themes of the moment.  You just won't be building a business for the long term.

Every great business devotes significant resources to research and development.  Even if they're selling lots of products today, they are investing in the products that will win tomorrow.  That's true of car companies; that's true of pharmaceutical firms; it's true of restaurant chains.  Success is a combination on working rigorously in implementing today's edge while searching for and developing the opportunities for tomorrow.

So here's another great frame for your next trading review:

1)  How deep is your research and development pipeline?  What new edges in trading are you pursuing?

2)  How much progress have you made on your R&D goals in the past month?  What will make you a new/different trader by the end of 2021?

Listen up:  The enemy of great trading is not emotionality, going on tilt, or failing at the "mental game".  The enemy of sustained successful trading is mediocrity.

One trader I worked with traded breakout patterns, but the time series he looked at consisted of the relative relationships among stocks and stock sectors.  In other words, he would buy upside breakouts in the relative strength of one thing versus another thing.  Moreover, he would find options structures for capturing his relative views that gave him unusually good reward relative to risk.  He was consistently profitable, not by playing the game better than his peers, but by finding a different game that played to his strengths.

In my next Three Minute Trading Coach video, I'll describe one of the edges I pursue in the stock market and what makes it distinctive.  (Spoiler alert:  It's currently giving a signal).  

Life is too short to be mediocre.  Whatever you embrace as a career or as a romantic partner or as a lifestyle, make it an expression of your unique strengths, your distinctive interests and skills.  There are no prizes for "me too".

Further Resources:




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Sunday, November 15, 2020

Three Essentials For Your Trading Reviews

 
On Wednesday (11/18/20), Mike Bellafiore of SMB Capital and I will hold a trading review meeting with SMB trader Max Ganik as part of the Money Show program.  (Free registration here).  Max has come a long way in his short trading career, so it will be an interesting opportunity to see how a successful developing trader reviews his trading--and how he makes use of mentoring and coaching to make best use of his reviews.

There are three elements that I find essential in my own trading reviews:

1)  Did I have a sound trade idea? - I make a firm distinction between the idea that I am trading and the actual trade that expresses that idea.  For example, I have talked about how I view markets as expressions of linear, trending movements and multiple cyclical elements.  A big part of the ideas I generate consist of locating dominant cycles within trends and then buying cycle lows during rising markets and selling cycle highs in falling markets.  (See here and here for examples).  What makes a good trade idea in my trading is the lining up of directional and cyclical elements across time frames.  For other traders, a sound trade idea may come from fundamental analysis or from insight into an event that is likely to be a market catalyst.  In my review, I ask myself whether the idea I traded was sound or whether I allowed extraneous influences to bias my view.  If, indeed, I was biased, then eliminating that bias becomes a very explicit goal for the next trading session by requiring myself to verbalize the idea and rationale for the idea prior to placing trades based upon the idea.

2)  Did I trade the idea well? - It's not enough to have a good idea to succeed in markets.  We need to translate that idea into a sound risk/reward proposition.  Because the presence of cycles and trends occurs at all time frames, I can zoom in to very short-term price action and use shorter-term cycles to locate good places to enter longer-term trends.  I also monitor relative volume in real time to obtain a sense for how far the market might move during the course of a day.  (In SPY, for example, daily volume and trading range has been running a correlation of about .80).  How much volume we're doing today relative to recent days provides me with an estimate of price targets that we are likely to hit.  The shorter-term cycles also tell me levels that we should not break if the trend indeed continues as I expect.  My sizing of the position is designed to make that downside tolerable.  A portion of the position will be taken as relatively quick profits if the short-term cycles are extended in my favor; a smaller portion of the position will be left to run to the daily price target if volume continues to be supportive.  If I identify a rotational market, I may express my trade idea by buying the strongest sector of the market or selling the weakest one.  All these elements are part of reviews that note where I could make improvements in the implementation of my ideas--and those improvements become part of goals for the next trading day.

3)  Did I manage myself well? - I've learned that I need to have my life in order if I am to trade well.  That means being rested with quality sleep and energized with exercise; it also means that I have dealt with personal issues well and am not carrying frustrations and unfinished business into my trading.  Flexible focus and concentration are important to my developing and implementing sound trade ideas, which means that I need to actively work on staying calm and open-minded.  My ideal mindset when trading is similar to the ideal mindset for a surgeon.  I don't want to be fatigued or distracted, and I also don't want to be pumped up and overeager.  I've learned from hard-earned experience that using trading to get emotional needs met is a path to disaster.  For the surgeon, it's all about following the right protocol and making decisions with a clear mind.  The right mindset is process-focused, not caught up in recent or future outcomes.

Everyone's trading is different, so what goes into your three categories will be unique to your  best trading.  But if you're tracking the quality of the ideas you're generating, the quality of the ways in which you're trading those ideas, and the effectiveness of your self-management, you will have established a powerful framework for deliberate practice and self-improvement:  things your future self will thank you for!

Further Resources:










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Sunday, November 08, 2020

Grading Your Trading

 
At SMB Capital, the first week of every month includes team meetings, where traders share with the group their performance statistics, their progress on the goals they had set for the month, and their goals and plans going forward.  Reviewing the good, bad, and ugly about your trading in front of your peers is a great way of staying accountable, and it's also a powerful practice that enables every trader to learn from the experience of their teammates.  You don't need to belong to a trading firm or a team in order to benefit from this dynamic.  All you need is one or two partners that you meet online that trade similar markets and strategies to you and that show a similar dedication to learning and performance.  (A listing of trading communities and mentoring resources appears in the Appendix to my free blog book and can provide an excellent place to start in identifying potential trading partners.)

When risk manager Carlton Bryan kicks off the team meetings at SMB, what's the first thing he asks of each trader?  He asks them to give themselves a grade for the recent month's trading and then explain why they gave themselves that grade.

Why is it helpful to grade our trading?

Most of us who participate in financial markets are achievement oriented.  We seek mastery and success, as in any sport or competitive game.  When we publicly give ourselves a grade for our trading, we engage that competitive instinct.  Once we have a grade, we want to improve upon that grade, and once we get good grades in one area of trading, we look to master another.  Over time, the sequence of our grades provides a different kind of P/L:  a learning P/L.  Indeed, if we can focus on steadily improving our learning P/L, we create a powerful path toward a consistently profitable financial P/L.

Giving yourself a grade makes you face yourself:  your successes and your shortcomings.  Sharing that grade with others can create a teamwork where everyone helps everyone else improve their grades.

One trader I work with grades his trading every single day and sends that report card to me daily!  It's no surprise that he is profitable month after month, year after year.  Good traders look to improve when they fall short.  Great traders look to improve when they do well.  They learn from successes and continually find new areas to master.

Can we truly expect to improve if we don't actively keep score?

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Further Resources:





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Sunday, November 01, 2020

Using The Body As A Gateway To The Mind

 

As traders, we expect to sustain various mindsets, but what are our bodies doing?

*  We want to be focused, but we jump from screen to screen and activity to activity, not wanting to miss any information.

*  We want to be confident, but our greatest emotional expressions occur when things go wrong.

*  We want to be energized and opportunity-seeking, but we are sedentary a good portion of the day.

*  We want to generate novel ideas, but rarely do we experience novel emotional or physical states.

*  We want to be peak performers, but our exercise routines rarely challenge us in significant ways.

The great, unacknowledged challenge in trading psychology is that our bodies betray our minds:  what we internalize is much more of a function of what we do than what we say.

So we write about accomplishment, achievement, and improvement in our journals, but how we eat, how we exercise, how we recover and renew ourselves, how we access and express a wide range of emotions, and how we develop our bodies remain entirely mediocre.  Can we achieve greatness if we are not actually doing things greatly?

The most recent Forbes article draws upon research regarding dance to illustrate how the movement of our bodies can shape our mindsets.  There is a very important idea captured in that article: that the best way to shape our minds is to activate corresponding expressions of the body.    

Traders and psychologists love the idea of visualization.  If you want to be more confident and trade with greater conviction, then visualize yourself trading from the front foot.  That's all well and good, but is keeping your body sedentary and performing safe, comfortable exercises really going to help you challenge yourself?  What if you performed those visualizations while pushing your comfort zones during exercise or during radically prolonged periods of meditation?

When we pair physical activity with a desired mindset, that alignment of mind and body is what provides us with access to spirit--and spirited performance.  That provides a deeper form of anchoring, where entering physical states activates the thoughts and behaviors that define us at our best.

The bottom line is that we internalize what we do.  Who we become is not what we intend, but what we enact.

Further Resources:



Radical Renewal - Free Blog Book on the Spirituality of Trading


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Sunday, October 25, 2020

Are You Taking Enough Risk In Your Trading?

 
This is going to be a little technical, but please bear with me.  It is super important to your trading.

Imagine a variable that captures danger at one end of the spectrum and opportunity at the other.  Now imagine that life offers most of us a relatively normal distribution of dangers and opportunities, such that we mostly experience small risk and small opportunities in day-to-day life, but once in a great while encounter very large dangers and very large opportunities.  Such a normal distribution of outcomes looks like this when we plot it:


In such an idealized model, we encounter really large dangers roughly 2% of the time and really large opportunities similarly.  Over two-thirds of the time, we're dealing with modest opportunities and dangers.

Odds of 2% seem quite low, but over an annual period, we're likely to encounter a handful of really big risks and really big rewards.  On over 240 of those days, there will be no truly great opportunities or dangers.

Sounds a lot like trading, doesn't it?  

The personality trait of extroversion tends to be associated with risk-seeking.  To some degree, the trait of openness to experience also plays into risk appetite.  Think of a skier who goes after the largest mountains and steepest slopes.  That person is focused at the far right end of the continuum, seeking to capture the greatest opportunities.  Of course, in extreme sports as in trading, seeking those rare huge opportunities can also entail taking significant risks. 

The personality trait of conscientiousness is associated with risk-prudence.  The highly conscientious driver will not exceed the speed limit on highways and will only ski the safest slopes.  That person will generally never have the thrills of extreme sports, but will rarely have bone-crushing accidents.

OK, now we get to the juicy part:

Early in our development as traders, risk-prudence is paramount.  We cannot win the game unless we stay in the game.  At firms where I work, such as SMB Capital, the initial goal is not to become a hugely profitable trader.  The goal is to become a consistently profitable trader.  In skiing terms, the consistently profitable trader is one who can master small hills, then somewhat larger hills, then small mountains, etc.  It is the repetition of success--the consistency of successful experience--that builds confidence and inner security.

Imagine if we were simply risk-seeking and began our trading career by placing large bets.  Inevitably we would also encounter large losses and that would shatter our development of confidence and inner security.  (Recognize that, in trading, risk is relative to the size of our portfolios.  If I limit my daily losses to $1000, that may seem like modest risk-taking, but not if I'm trading a $10,000 account!)

The path toward becoming a highly profitable trader is first becoming a consistently profitable traderIt is consistency of process, mindset, and selection of opportunity that provides us with the emotional capital to go after larger rewards.  I cannot emphasize this too highly.

However, there is a danger that the comfort and security of being consistently profitable can lead us to never go after those larger rewards.  Think of an entrepreneur.  The successful new enterprise requires consistent profitability, but what if the entrepreneur never takes the larger risks of opening new stores, developing new products, or forming new partnerships?  The entrepreneur might end up as a profitable local businessperson, and that might be fine for them, but they will never grow the kind of business that they could eventually take public.

In becoming that consistent trader, we can so emphasize conscientiousness that we never take the greater risks that are associated with larger rewards.  In poker, it would be like being dealt three aces and still placing modest bets.  Once in a while, life--and markets--present us with those 2+ standard deviation opportunities that come along 2% of the time.  When we stand aside on those occasions, we ensure that we will never reap great rewards.

So there it is:  greatness, in any endeavor, is a distinctive blending of general risk-prudence and selective risk-seeking.  Greatness is staying in the game, adapting, and winning--and then pouncing on occasional unique opportunitiesThe mindset of consistent winning is what provides the resilience of big winning.

Now you see why I emphasize trading psychology methods that increase our access to intuition and implicit knowing.  Very, very often, it is that intuitive knowing that alerts us to the larger opportunities, those 2% of occasions when we're meant to take larger swings.  Consistent trading will not help us if we do not also cultivate consistent openness of mind.  Most of the time, the military sniper lies in the weeds and takes little to no risk.  But once in a while, the high value target appears and it's worth taking the shot that may alert the enemy.  The mindset while in the weeds is calm focus and patience, but also extreme openness to and readiness for the high value opportunity.  

So much of the challenge of trading psychology is the challenge of sniping:  blending consistency of shooting and the patience of waiting with the aggressiveness of taking the risks associated with special opportunities.  Once you have learned and mastered the patterns associated with consistently profitable trading, it's time to master the intuitive knowing that alerts us to the greatest rewards.  In my next video, I'll outline a method for cultivating and acting upon this knowing.

Further Resources:





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Sunday, October 18, 2020

Turning Your Talents Into Trading Edges

 
This is a somewhat  long academic paper about the development of confidence and talent among elite swimming champions, but it is well worth studying.  The key point made by the author is that excellence is mundane.  Greatness is not necessarily a function of unique talent or special opportunity.  We achieve excellence step by step, through intensive deliberate practice, where we perform a skill, monitor our performance, make small but steady improvements, and gradually perform at elite levels.  The example I used in my recent presentation for Traders4ACause was the meter that I use to measure my blood glucose levels through the day.  Each day I learn what contributes to high and low readings: the foods I eat, the types of exercise I do, my sleep patterns, etc.  By tweaking each of these, I've been able to stay in my target zone range well over 95% of the time.  Prior to the use of the meter, I never came close to that control. 

When I was a student in college, I would read each professor carefully to see which points were emphasized, what was written on the blackboard, what was included in handouts, etc.  This would guide me in what to study.  When I missed items on a test, I went back to my notes and figured out what I had missed and how I could have included it in my studying.  That then guided my preparation for the next test.  By the end of the course, I was unusually good at figuring out what would be on my exams:  my overall GPA was 3.87.  That wasn't because I was so much brighter than other students.  I simply learned how to play the game.

Great traders learn how to play the game, only there are many potential games to play.  Your edge doesn't come from the game itself, but from the process of mastery that allows you to win at the game.  This is why trading journals have to incorporate detailed analyses of trades and how those trades could have been conceptualized, structured, and managed better, so that you constantly refine what you do.  Many traders simply summarize their day or their feelings in a journal and wonder why they don't achieve mastery.  Mastery comes from the mundane practice of taking one skill after another and honing them until consistency is achieved.

Talent is inborn, but it develops through exercise.  What builds our trading performance is what builds us up in the gym:  the steady tackling of challenges performed the right way.  This is why there can be no trading edge without our pursuit of discomfort.  Honing performance means embracing our shortcomings and turning those into learning and development.  When that honing becomes an ongoing process, great things can happen.

Further Resources:







Trading and Spirituality - Free Blog Book
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Sunday, October 11, 2020

Making Friends With Discomfort

 
Life is a gym.

Every day is an opportunity for a workout, to make ourselves stronger, more fit.

We can exercise our relationships, our patience, our focus, our persistence, our discipline, our learning, our trading--or we can go through the motions and never build ourselves up.

A good workout on the treadmill has us breaking a sweat.

A good workout on the weight machines has us straining to finish that final set of reps.

If a workout doesn't challenge us, we don't grow.  If we don't experience discomfort, we don't change.  Indeed, if we don't use a capacity, we lose it.  

Successful people are always working out, always growing their capacities.  That means that they make friends with discomfort.

No one has ever grown by remaining in their comfort zones.

Trading success is so much more than "following your process."  Your premarket preparation, your trading activities, your reviews and goal-setting for the next day's trading--all must be workouts, not rote processes.  

Those who don't workout are quickly out of work.

Further Resources:






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Tuesday, October 06, 2020

You Are Your Own Role Model

 

Here's a great exercise:

Look at how you prepare for the trading day from the moment you wake up.  Look at how you approach your trading, how you make your decisions, how you deal with the ups and downs of P/L.  Look at how you review your trading day and how you spend your time outside of markets.  

If someone were filming you throughout all of these parts of your day, would you be proud of the film?  Would you want to show it to developing traders as a role model for how they should approach their craft?

We internalize what we do.  We are always our own role models.  If we would not be proud to display our lives to others, what does it say about what we're willing to accept for ourselves?

Think of all the qualities you associate with good trading and be those things in your day to day life.  There is so much more to preparing for success than jotting notes in a journal.

Radical Renewal:  Spirituality and Trading

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Sunday, October 04, 2020

How To Make Big Changes In Your Trading Psychology

 
Hate can be your ally in making changes.

If you get to the point of actually *hating* your trading problems, you push those problems away from you.  You don't identify with them.  You don't lazily fall into them.

If you *hate* frustration and what it does to your trading, you're not likely to mindlessly fall into a frustrated mode.

What if you visualized your trading problem as being the one thing standing between you and success, between you and a bright future?  If a person stood in the way of your fulfillment, you would hate that person and fight them with everything you had.  Suppose that was your attitude toward your overtrading, your trading on TILT, your reluctance to take signals?

You can make big changes in your trading psychology when your priority is conquering your enemy, not making money.  The P/L is the payoff; the battle is with your enemy.  

You cannot truly love your success without hating what stands in its way.

This week's Three Minute Trading Coach video provides some perspective on how we can win our battle with our enemy.   

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