Monday, June 24, 2024

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:


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




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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Great Trading Requires Leadership

 
I would like to build upon the theme of a Forbes article I wrote quite a few years ago.  Each of us has many facets to our lives:  our trading, our careers, our friendships, our romantic relationships, our families, our community activities, our hobbies, etc.  In that sense, our life is an organization, and how well we organize the parts of our lives will play an important role in how successful and fulfilling our lives will be.  

What that means is that, if our life is an organization, then we are the leaders of that organization.  All of us lead our lives, but not all of us act as the leaders of our lives.  Leadership requires the setting of goals and visions; the division and allocation of resources; the creation of inspiration and teamwork.  If you were leading a business organization the way you typically lead your life, how successful would that organization be?  How well are you setting the standards for what will make today, this week, this month successful?  Are you consistently inspiring your own best efforts?

Of course, we are also the leaders of our trading businesses.  How well are we guiding our own learning efforts and structuring our efforts at improvement?  

We are the entrepreneurs of our lives, and we are the entrepreneurs of our own trading.  Perhaps the most underappreciated part of trading psychology is our capacity to exercise leadership in our lives and in our trading.

Further Reading:

Tracking the Rhythm of the Market

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Friday, June 21, 2024

The Importance of Market Cadence

 
In my recent post, I discuss a conclusion from the writings of many trading psychologists:  that successful active trading requires an intuitive feel for market action.  My experience is that looking at relatively static chart patterns or indicator readings does not provide that market feel.  A structural view of markets can be informative, but we get a feel for how a market is moving from the flows of market activity.  It's interesting that many of the experienced traders I've been reading emphasize the value of "reading the tape".  By watching the flow of bids and offers and seeing how price responds to these, it's possible to get moment-to-moment readings of how the market is moving and whether buyers or sellers are dominant.  From this flow of information, we gain a sense for market cadence--and that provides us with a "feel" for the market we're trading.

It's not so different from carrying on a conversation with a person.  We don't just listen to the words a person speaks and their literal meanings.  We also hear their tone of voice and the cadence of their speech.  Those provide us with a feel for whether the person is excited, fearful, cautious, etc.  Consider the difference between a conversation carried out through text messages versus a live, face-to-face conversation.  The latter is far richer in meaning.  No therapist would work people solely through text messages!

It doesn't surprise me that a trading firm that has been successful in training new traders, such as SMB Capital, makes tape reading part of their curriculum.  It's that feel for when buyers or sellers are becoming more aggressive and dominant that allows us to identify solid risk/reward entries and exits for our trades.  Yes, idea generation may come from our research, reading, and conversations.  What allows us to trade these ideas well, however, is gaining a feel for real time market behavior.  When the cadence of price action shifts, we are alerted to changing dynamics among buyers and sellers and suddenly that good idea becomes a good trade.

I'm not convinced that tracking the order book is the only way to gain a sense for market cadence.  One thing I've been doing in my own trading is tracking high frequency market action by using volume bars.  If I'm trading stock index futures, for instance, I might track a chart of open/high/low/close for each 1000 contracts traded.  When the cadence picks up, I feel the volume rising in real time.  When market direction changes with the cadence, I'm alerted to a new dynamic among buyers or sellers.  Gaining a feel for the market does not magically result from being relaxed or focused.  We can meditate all we want, but if we don't understand the dynamics of price behavior, we will calmly lose money.  Our sense for markets comes from absorbing the flow of information, much as a psychologist absorbs the flow of conversation in a therapy session.  We feel markets the same way we feel music on a dance floor:  through shifts in tone and cadence.

Further Reading:

Feeling the Next Trade

Sunday, June 16, 2024

Feeling the Next Trade

 
What role does emotion play in helping you trade well?

What role does emotion play in disrupting your trading?

How does your trading process harness the intuitive feeling that comes from long exposure to markets and their patterns?

Two weeks ago I wrote about the trading psychology texts I was reading and what I was learning from those.  What I found was that reading multiple books on a given topic opened the door to unique insights.  An important theme from the books I read was that, in some ways, we are wired in ways that prevent us from succeeding at trading.  If we simply go with our natural instincts, we'll sell when things are weak, buy when they're strong, and fall prey to choppy, trendless markets.

Since then, I have scoured texts by Jason Williams, Denise Shull, Mike Bellafiore, Ari Kiev, Eve Boboch and Kathy Donnelly, and Mark Douglas--and there's more to come!

A number of these authors highlight that emotion is a common source of failed trading but point out that our feelings--our gut instincts--often help us identify opportunity.  Denise Shull makes the valuable distinction between trying to figure out what others don't know versus figuring out what people are soon going to know.  In shorter-term trading particularly, we can anticipate how the crowd will respond to various scenarios and position ourselves to take advantage of that.  A good example is seeing short-term volume expand as we move to the edge of a range, setting up a valuable breakout trade.  We often can feel the momentum of such a move long before it's obvious on a chart.

We need a process for staying connected to what others are feeling.  That is called empathy.  

The challenge is that the ability to feel what others are going to do comes from long hours of observation and experience.  It is not unlike the psychologist's ability to sense an important issue from the stream of conversation with a client.  Access to that empathic intuition requires focus and the ability to absorb ourselves in the moment.  That openminded ability can be trained.  It's when we're filled with efforts to predict the market that we're most likely to fail to identify what the market is actually doing and fall prey to the emotions of frustration, fear, and greed.  

Further Reading:

How We Can Improve Our Access To Intuition

The Role of Intuition in Trading Decisions

Trading With Emotional Intelligence - Part One, Part Two

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Tuesday, June 11, 2024

How We Become Successful

 

Success is not the result of motivation.

Success is not the result of positive thinking.

Success is not guaranteed by talent.

Success is built inductively, from the bottom up, by doing one thing after another successfully, day in and day out.  

We internalize what we consistently do.

When we do small things successfully and consistently, we internalize a sense of being successful.

When we do things greatly each day, we absorb a sense of greatness.

Small actions, planned and performed successfully and consistently:  This is how we learn to trade successfully.

Each activity in daily life, planned and performed successfully and consistently:  This is how we learn to live successfully.

We can be reactive, we can follow mindless routine, or we can act out of conscious values, goals, and plans. 

We become successful when we wire ourselves for success in our smallest activities.

All success springs from the expansion of free will and the consistent achievement of our aims.

Good trading begins with one good trade.  Profitable trading makes the one good trade consistent.  Great trading builds many one good trades across various markets.

Success is built inductively.   

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Friday, June 07, 2024

Beyond Meditation: Using Biofeedback to Change Behavior Patterns

 
Very interesting research on neurofeedback (providing people with real time biofeedback readings of brain wave activity) suggests that when people can learn to control their brain waves, they can change even very difficult behavior problems, such as alcohol abuse, traumatic stress, and attention deficits.  Evidence suggests that neurofeedback builds our self-regulation.  Newer neurofeedback devices can be worn in everday life, including sleep, allowing for ongoing monitoring of our ability to operate "in the zone".  The very portable nature of these devices allows us to use them in performance situations (like trading!) to track and work on our self control in real time.   

Big questions:  Can real time feedback during trading help us build our self-control and capacity for sound decision making under conditions of stress and uncertainty?  If neurofeedback can help us control addictive patterns of drinking and chronic problems of anxiety, might it help us directly reprogram the triggers for our worst trading behaviors?

What I find most exciting about applications of neurofeedback is that they provide us with the data that tell us how we best operate in the zone.  The strategies that work for one person may not work for others.  Neurofeedback is a real time score card for self control.  Each person, getting live data in actual performance situations, can figure out how they are most able to maximize their performance mindset.  As a recent research review of over 3000 journal articles reports, neurofeedback is an example of "personalized medicine", where people, empowered with data, can figure out what works best for them.

I see that the FDA recently approved neurofeedback for the treatment of posttraumatic stress disorder (PTSD).  If we can rewire ourselves even in conditions of trauma, surely we can rewire our reactions to financial markets!

I will be experimenting with the latest technology for use in trading and look forward to sharing my findings.  It may turn out that the most effective coaching is training in self control.  If we can discover the "personalized" strategies that uniquely maximize our performance, that could be a game changer--

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Sunday, June 02, 2024

Coaching By Immersion: Surrounding Ourselves With Insight

 

This weekend has been special.  I have immersed myself in books about trading psychology from such authors as Tom Hougaard; Andrew Aziz and Mike Baehr; Steven Goldstein; Steve and Holly Burns; Mark Minervini; Anne-Marie Baiynd; Michael Lamothe; and Jared Tendler.  Next weekend will be a fresh crew of authors that I'll immerse myself in and share in a post.

For me, the key to immersion is reading multiple books simultaneously, focusing on overlapping topics.  When you have several experienced, insightful authors all addressing the unique emotional challenges of trading, it's like sitting in on a conversation and absorbing the unique perspectives and the areas of agreement.  That immersion brings the topics to life in ways that are difficult with ordinary reading.

All this preparation for my next book has had one unexpected impact:  It has absolutely renewed my interest in trading--and in being immersed in a community of dedicated and insightful traders.  As the quote suggests, what we surround ourselves with is what we become.  Perhaps I will be my best as a trading coach (and as a trader!) if I'm immersed in markets and the daily insights and inspirations of dedicated traders.

One lesson I've learned from these authors and experienced coaches:  Success in markets requires more than changing certain behavioral tendencies or emotional patterns.  We literally have to rewire ourselves to adapt to ever-changing markets and the shifting demands of risk/reward.  I love the subtitle of Tom Hougaard's text:  "Why normal thinking never wins the trading game".  Preparing for trading in normal ways and living a normal life cannot possibly wire us for supernormal success.  Making trading successful pushes us to remake ourselves.  

That is a noble challenge.

Further Reading:

Focusing on the Quality of Your Reps

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Sunday, May 26, 2024

You Are The Entrepreneur Of Your Life

 
You are the entrepreneur of your life.

From the moment you wake up, from the start of each week, you are in startup mode.

What is your mission?  What is your life's purpose?  (If I asked you, right here and now, to write your life's mission statement, could you do that?)

What is your business plan for achieving your mission?

Who is on your team that provides practical and emotional capital for your life's venture?  Whose ventures do you support, and how do those inspire and enlighten what you do?

What role does trading play in the enterprise of your life?  What incubator helps you grow your trading in ways that grow your life?

You are the entrepreneur of your life. 

Right now, this every day, how are you innovating?

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Video:

The Psychology of Growing Your Trading Business

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Monday, May 20, 2024

Focusing on the Quality of Your Reps

 
During my recent workouts at my gym, I've noticed how much more I get out of the weight machines if I take my time going through the reps.  I have a standard circuit that I go through, beginning with legs, then upper body, then flexibility.  When I slow down my pace at each of the stations--and especially when I take my time extending my body fully through each of the exercises--I get much more out of each set of reps.  On a bench press, for example, it's what I do at the very beginning of the press and at the full extension of my arms that makes the difference.  Taking my time at the most challenging points in the exercise provides a much better workout.

In trading, the reps we put in are our reviews of markets, what we did, and what we could/should have done.  When I worked with active traders in Chicago, I was impressed by the time they spent reviewing the past day's trade bar-by-bar in replay mode.  They didn't just go over charts and whiz through their reviews.  Rather, they slowed down the review, talked out loud what they were seeing bar by bar, and rehearsed making the right decisions.  As I learned from my workouts at the gym, the quality of the reps determined what they took away.  

A review of performance, to be effective, must be a workout.

We build our trading psychology in the course of performing and engaging in deliberate practice.  We can solicit advice from others, but ultimately it's the workouts that make the winners.  Jeff Holden of SMB Capital and I have been challenging developing traders to write up their daily takeaways to cement their learning.  Similarly, experienced traders at the firm put together daily report cards of their trading and monthly reviews.  Some of the writeups are nice summaries.  Others are workouts.

The time and effort we put into our reps determine our level of fitness.  Focusing on One Good Trade is what builds good trading.

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Further Reading:

What Makes an Expert Performer

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Monday, May 13, 2024

An Effective Technique for Mastering Trading Stress

A key to understanding trading psychology is the recognition that trading is a performance activity.  Like sports or performing arts, we practice and prepare and then comes the performance event.  It's natural to have some jitters before the big moment and sometimes in the middle of performing.  That is why this form of stress is known as performance anxiety.  There are medications that can be of assistance in extreme cases of performance anxiety, such as beta blockers, but the majority of people can benefit from a simple psychological technique known as stress inoculation.

Inoculation, of course, is when we inject ourselves with a weakened form of a virus and activate our body's immune system.  This then helps us fight active viruses.  In stress inoculation, we use guided imagery and cognitive therapy to anticipate stressful events before they occur--and then to imagine ourselves coping successfully with those.  So, for instance, before a big public speaking event, I might visualize my audience and mentally rehearse the beginning of my talk.  I might follow that visualization with a scenario where audience members seem uninterested in the topic or imagined situations where I lose my place in the talk.  With each stressful situation, I walk myself through how I would handle it.  Like with medical inoculation, this arouses our psychological defenses--our coping abilities--so that we're prepared for difficult situations in real time.

This technique requires regular practice, but can be a regular part of daily preparation for active traders.  We can imagine our position going against us and getting near our stop; we can visualize not getting filled at our desired level; we can imagine negative thoughts that might intrude during the trade; etc.  During each mental scenario, we vividly imagine how--specifically--we would handle the situation.  By the time trading actually begins, we've been there and done that.  It is difficult for frustrations to get the better of us if they cannot surprise us.

In my next post, I'll share how this technique--and other stress management methods--can be integrated into our ongoing development as traders.

Further Reading:

Three Causes of Trading Stress and What to Do About Them

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Wednesday, May 08, 2024

A Powerful Framework For Improving Your Trading

 

The most recent post pointed out that our trading psychology challenges evolve as we move from being rookie traders to consistently profitable ones.  Newbies wrestle with the challenges--and inevitable frustrations--of learning markets and weathering periods of risk and reward.  Experienced traders look to build businesses and find themselves tackling new learning curves as they branch out to different markets and strategies.  The reality of a trading career is that the progression from startup trader to experienced one is not a linear path.  Because markets are ever-changing, the winning methods that we discovered at one period may lose much of their edge over time.  I've worked with experienced hedge fund managers who have had to remake themselves as their old strategies became overcrowded.  The learning curve of traders is thus more of a spiral than a straight line.  We always go back to learning, but at higher and higher levels.  

Over time, those who can't evolve become extinct.

The really, really good traders I've worked with continually try new things.  They are like business startups and incubators, innovating and uncovering what works.  I found that a good question to ask traders during the hiring process is to ask them to lay out their pipeline of new ideas.  Just as I would want to invest in a company with a large and promising pipeline, so I look to hire traders that are continually developing.

The most powerful framework for improving your trading is to imitate those innovative traders:  Try lots of new things, see what works, and then build on success.  In psychology, this is known as a "solution-focused" framework.  Over time, identify and study what you are doing when you're not having trading problems and when you're not losing money, because the odds are good that--at those times--you're doing something well.  "Do more of what works" is the motto of the solution-focused psychologist.  Whether you're a developing trader or an established one, look for opportunity, try new things to capture that opportunity, and then focus on and do more of what works.  

Quite simply, this is a formula for evolution.  If you cultivate more and more "mutations" of your trading, inevitably you'll find some that are uniquely effective.  A powerful framework for improving your trading is to discover and then do more and more of what you do well.

Further Reading:

Solution-Focused Trading