Tuesday, July 28, 2020

What Your Personality Strengths Mean For Your Trading

In this recent post, I offered a short personality assessment to help traders better understand their strengths.  The scoring of the assessment and meaning of the categories being measured were covered in this post.  I encourage you to take the quiz and score your results before reading the rest of this article, so that you can directly apply the findings to your trading.

We will call your top three strengths--the ones you identified as number 1, 2, and 3--as your "signature strengths".  These are the competencies that most fit with your self-image and capture you as you see yourself.

The next three strengths--numbers 4, 5, and 6--we call your "latent strengths".  These are areas that you draw upon but that aren't necessarily front and center in how you view yourself and in your day to day life.

As mentioned in the previous post, the remaining 12 areas that you didn't identify as your greatest strengths are not necessarily weaknesses.  They simply are less relevant to your ideal vision of who you are.

Now let's look at what these strengths might mean for your trading.  I will elaborate on these ideas in an upcoming Forbes article:

Your greatest vulnerabilities as a trader may come from overutilizing one or more of your signature strengths.  Imagine someone who developed great upper body strength in the gym and then continued to only exercise the upper body.  At some point, good development would become grotesquely unbalanced development.  Let's say, for instance, that you indicated "disciplined" to be your greatest strength.  And let's say you're so disciplined that you turn all your trading into automatic routines.  Would that make you a better trader when themes and trends in markets change?  At some point, too much discipline becomes rigidity.  Similarly, if we are overly "driven" and "competitive", might that interfere with needs at times to trade with patience and risk-prudence?

Your greatest vulnerabilities as a trader may come from not making optimal use of your strengths.  Let's say that one of your signature strengths is that you are "caring" or "helpful".  You are trading in isolation from home and experience little teamwork.  It's difficult to believe that the isolated trading environment would bring out the best of your learning, and it's easy to imagine that being in such an environment would feed frustrations that could interfere with your trading.

Your greatest growth as a trader may come from turning latent strengths into signature ones.  If we just pound away at those signature strengths, we'll eventually overutilize them as noted above.  And if an area is not at all a strength, will it really impact our trading in a meaningful way if we make that area incrementally stronger?  The "openness" strengths of loving variety, accepting others, and being intellectually curious have long been strengths of mine, but subordinated to those signature strengths included in "likeability" and "entrepreneurialism".  My greatest growth as a trader has been to expand my openness, learn new approaches to markets, and form new relationships with traders who are very different from me.  Turning latent strengths into core ones helped me approach myself--and my trading--in radically different and profitable ways.

You can learn a lot by taking the test a second time.  Here's a great exercise:  Imagine the person and trader you would ideally like to become.  Fill out the survey to describe your ideal self--that person you'd like to be as a trader.  Then take a hard look at the difference between your "real" self--who you originally described yourself to be--and your "ideal" self, who you would like to become.  Which strengths would you de-emphasize?  Which strengths would you grow?  This is a helpful way of defining goals for your personal and trading development.  Or switch it up!  Take the assessment and describe the person you were five or ten years ago.  The differences between your scores today and your scores for your past self might illuminate growth paths that you are already on--and suggest ways of extending those paths.

In my upcoming Forbes article (you can access past articles here), I'll talk more specifically about personality strengths and how those impact our trading styles and success.  The goal is to help you understand yourself as well as possible, so that you are setting the right goals and making the most of what you actually bring to markets.  We want to turn the development and leveraging of our strengths into a strength itself!

Further Reading:


Sunday, July 26, 2020

Scoring Your Personality Strengths Quiz

The last post offered a brief assessment of personality strengths that are relevant for the success of our trading.  If you haven't completed the assessment, please go back to that previous post and select the six adjectives that best describe you.  What follows is the scoring of the survey.

For that scoring, we will look at the 18 adjectives row by row (click on image above).  Count the number of selected items in the first row and that will be your conscientiousness score.  The number of items in the second row will be your emotional balance score.  The selected items in the next four rows will be your extroversion, openness, likeability, and entrepreneurialism scores, respectively.  

Here are the meanings of those categories:

*  Conscientiousness - Tendency to be precise, detail-oriented, responsible, and structured in your actions and decisions.  Conscientiousness correlates to some degree with a process orientation to trading.

*  Emotional Balance - Tendency to be even-keeled across situations, with few emotional extremes up or down and a general level-headedness.  Emotional balance correlates to some degree with risk prudence and an interest in solid risk-adjusted returns.

*  Extroversion - Tendency to be people-oriented, active, and oriented to doing.  Extroversion correlates to some degree with risk appetite.

*  Openness - Tendency to like novelty, including new ideas, new ways of doing things, and new activities.  Openness correlates to some degree with creativity and an interest in idea generation.

*  Likeability - Tendency to get along with others and respond to others with emotional intelligence and sensitivity.  Likeability correlates to some degree with an interest in and capacity for teamwork and networking.

*  Entrepreneurialism - Tendency to be goal-oriented, persistent, and focused on the attainment of outcomes.  Entrepreneurialism correlates to some degree with leadership and the creation of trading businesses.

The first five categories are derived from the "big five" personality traits identified in psychological research.  The category of entrepreneurialism has been studied separately and appears to be not a direct function of the big five.

Which categories have the most items in your top six?  Which ones have the least?

Please note that if none of your six top strengths fell into a particular category, it doesn't make that category a weakness.  What we're focusing on is identifying where you see your greatest strengths, particularly your top three.

The next three that you selected are not your top strengths, but you clearly see them as assets.  We can refer to these as latent strengths, as opposed to the signature strengths (your top three).  It is the blending of our strengths that creates sweet spots in our performance.  It is a failure to draw upon our strengths--or sometimes a tendency to overutilize them--that creates performance difficulties.  We will explore how to best use the information from the assessment in the next post.

Meanwhile, here is an additional exercise that can broaden the assessment:  Have a close friend, colleague, or romantic partner rate your top six strengths on the quiz.  See how their ratings are similar and different from yours.  Might it be possible that you have strengths that you don't fully appreciate?  Very often, what we see as our top strengths are not what others see as our greatest assets.  There is real information in such discrepancies.

Can we truly expect to make the most of our trading if we're not making the most of who we are?  And can we make the most of who we are if we don't understand who we are at our best?

Further Reading:


Saturday, July 25, 2020

Take A Personality Strengths Quiz!

Below are 18 adjectives.  Please select the six that best describe you, where number one is the adjective most like you, number 2 is next most like you, etc.  

Disciplined Organized Diligent
Calm Competent Prudent
Friendly Energetic Outgoing
Intellectually Curious Loves Variety Accepts Others
Cooperative Caring Helpful
Achievement Oriented Competitive Driven

Save your results.  In the next post, I will go into detail about what your choices tell you about your personality strengths and what those mean for your trading. 

Please refer to the previous post regarding the role of strengths in our trading (and life) performance.   

I'll post the key to the questionnaire later this weekend, and we can explore how our best trading comes from the best inside us!

Further Reading:


Wednesday, July 22, 2020

Why Are Your Strengths Important To Your Trading?

Our strengths reflect what we do well:  they are the essence of us at our best.

Engaging our strengths is naturally enjoyable and fulfilling, giving us energy and fueling our performance.

We are most likely to pour ourselves into our work and relationships and find success if our work and relationships actively engage our strengths.

One source of failure, in trading and in all of life, occurs when we fail to recognize and play to our strengths.

Another source of failure occurs when we overutilize strengths and become one-sided and rigid.

An important source of personal and trading growth comes from building our latent strengths:  those capabilities we haven't fully developed.

Tracking our successes and failures can teach us a great deal about our strengths and how we need to deploy those.

The techniques that are most effective in building our strengths are different from those used by psychologists to correct weaknesses.

In coming posts and webinars, I will be helping traders identify their core and latent strengths and figure out how to best make use of those in their trading.  

Let's grow.  


Further Reading:


Monday, July 20, 2020

Controlled Aggression: Trading Like A Sniper

When I wrote the book on developing trader performance, one group that I studied intensively was military snipers.  (See this post for an overview of how good trading is like good sniper technique).  Good trading is all about the integration of aggressiveness and self-control.  The sniper is concerned, not only with the kill shot, but doing so in a way that will not be detected.  That means that the sniper must only act when reward is high relative to risk.

In practice, that means that the sniper does not simply start firing when the high-value target first appears.  The sniper waits, slows his breathing, and looks for the ideal opportunity for a lethal head shot or an unobstructed shot at center mass.  Then it's a single pull of the trigger and a quick move to another location before the enemy can figure out where the shot came from.  It's all about controlled aggression and the patience, selectivity, and self-control that leads up to the ideal shot.

A sniper who "overshoots", like a trader who overtrades, is not one with a long career.  It's not enough to wait for the "setup" to occur.  You want to wait that extra few seconds to see price confirming your idea before you fire.  You want the lethal shot.  That means you don't try to catch exact tops and bottoms:  you hold your fire until you have *reason* to believe a top or bottom has been put into place.  

A good sniper does not feel confident or anxious; a good sniper does not feel excitement or fear.  

A good sniper feels a bit of recoil.  

That's controlled aggression.

Further Reading:


Saturday, July 18, 2020

A Few Big Ideas For The Weekend

Here are a few thoughts and links for the weekend:

*  The thoughts, emotions, and behaviors that we repeat in our day-to-day lives are those that will inevitably dominate our trading.  Our trading psychology will never be better than the psychology of our daily lives.

*  Successful people--and successful traders--face limitations and restrictions creatively, by finding new ways to thrive in their new environments:  How we make working from home work for us.

*  Amazing things happen when team becomes a verb--something we do--and not just a noun: The workplace (and teamwork) of the future will be a flexible one.

*  If the Fed indeed targets an *average* inflation rate of 2%, then it will tolerate periods of even higher inflation without tightening policy.  Stocks, commodities, bonds:  could we be relatively early in the process of fueling asset inflation?  

*  Greatness is the sum of small improvements, rigorously and continually implemented: The goal is consistency, not just profitability.

Very big picture thinking from Ray Dalio re: historical cycles and what they mean for the U.S. and the U.S. dollar.

*  Achievement is a twin function of 1) pushing ourselves to do better and 2) being pulled by a vision of what is possible.  The first gives us our direction; the second provides our energy.

Have a great weekend--


Monday, July 13, 2020

How Trading Reviews Build Your Trading Psychology

Trading psychology is a strange field.  We find people offering coaching who show no evidence whatsoever of playing the game or even knowing much about the game.  Can you imagine a swimming coach who works on people's mindsets, but knows nothing about diving technique or how to hit the right water depth in a breaststroke?  How about a golf coach that counsels people about staying calm, but hasn't the first clue about which clubs to use on different holes, how to adjust stance and swing, etc.?


The truth is that, especially for developing traders, a bad psychology typically results from bad trading.  Learning to trade well and working on trading technique is great for the mindset.  

The latest Three Minute Trading Coach video takes a look at traders' review processes and how we can review opportunities that set up in markets.  In that video, I describe one of the patterns I have found most effective in my recent trading.

If you click the charts above (top chart is for Friday's market; bottom chart is for today's), you can see the patterns I review and study.  The pattern occurs in the broad market (ES futures or SPY).  The top panel shows price action and the yellow arrows highlight short-term oversold conditions that are occurring at higher price lows.  The panel below tracks the proportion of volume traded at the market offer price minus the volume traded at the bid, so that we can see buying and selling pressure come in and out of the market.  The arrows on that panel show selling pressure waning, even as the market bottoms.  The panels at the bottom are different ways of capturing short-term overbought and oversold conditions through moving averages of bid/offer volume, RSI, etc.  (Charts created in Sierra Chart).

Viewing and re-viewing these patterns cements them in our mind.  In that way, Friday's review acted as a heads up for trading today's early strength.  As the video emphasizes, the purpose of review is training in pattern recognition.  With enough exposure, we become able to see patterns unfold in real time and perceive solid risk/reward opportunities.

Allow me to add one additional element to the charts and video.  Reviewing optimal execution of the patterns is just as important as reviewing the patterns themselves.  The key to consistent trading is not just finding good ideas, but finding ways to trade them that offers solid reward relative to risk taken.  I don't try to capture exact bottoms of the pattern above.  Rather, I wait to see selling pressure wane and then I want to see buyers start to assert themselves.  The idea is to ride that initial wave of buying and lean against the low for superior risk/reward.  Especially for active traders, the proper execution of the pattern is as important to work on as the recognition of the pattern.  

Just like swimming.  Just like golf.  Working on great execution is key to winning and key to a winning mindset.

Further Resources:


Friday, July 10, 2020

Letting The Market Reveal Its Psychology

I recently posted one of my favorite trading patterns in the broad market that reveals the psychology of market participants.  Here is another favorite trading practice:

I let the opening minutes in the market go by without making any trades.  I'm watching the flows in the NY day session and getting a sense for how the market is moving.  Specifically, I'm looking at:

1)  Breadth and Market Sector Behavior - Is everything going up or down on extreme breadth, or are we seeing a mixed market with rotation among sectors?  The former gets me thinking about a trend day; the latter has me thinking about trading relative strength or weakness with the sectors that are strongest or weakest.  The advance-decline line can also be helpful in this regard.

2)  Relative Volume in the Market - Are we seeing more volume than average come into the general market in opening minutes, same, or less?  Volume tells us about *who* is in the market.  Fewer institutional participants means less movement and greater likelihood of choppy or range trading; more participants leads to greater momentum in the overall market.

3)  Buying and Selling Pressure in the Market - I use the upticks versus the downticks among the stocks in the market averages to tell me how many stocks are attracting buying or selling in real time.  Especially important is the degree to which the buying or selling is capable of moving the market. 

So let's put it all together.  If you click on the chart above, you'll see the upticks versus downticks among all Russell 2000 stocks in the top panel, along with a moving average of the ticks (green line).  I've also drawn a yellow line at the zero level so that you can easily see when the short-term moving average of the ticks is above and below zero.  The bottom panel shows the price of IWM on a one-minute basis (Chart and data from Sierra Chart). 

The early action in the day, as well as recent days, suggested to me that the smaller cap stocks are showing relative weakness.  Waiting out the first minutes of opening trade, we can see more downticking among the Russell stocks than upticking.  Notice them (yellow arrows) how bounces in the Russell TICK occur at lower price highs, providing nice risk/reward opportunities to sell IWM.

Three things help me let the market reveal its psychology:

1)  Looking at all market sectors, not just the overall market or the same stocks that everyone else is trading;

2)  Waiting out the opening minutes of trade to let the market patterns come to me;

3)  Looking at data that the majority of players don't look at, such as upticks/downticks that are sector specific.

As I've stressed in the past, you become a good trader by improving your game.  You become far better when you figure out ways to play different games.

Further Reading:


Wednesday, July 08, 2020

Three Common Mistakes Traders Make With Their Trading Reviews

In a recent post, I described the process of making frequent reviews and small, steady improvements as a way of building the consistency and success of our trading.  Our trading results will never be more consistent than our trading process.  But how do we construct a good review, so that we can extract the greatest learning from our experience?  The recent Three Minute Trading Coach video kicks off that topic and emphasizes the importance of reviewing both what we trade and how we trade.

What I find is that traders commonly make three mistakes when they review their trading:

1)  They review too much - If reviews are very broad and attempt to capture all market opportunities, all the mistakes we made, and all the goals we can set, then nothing is truly prioritized.  A good review is an efficient review, targeting our greatest successes and shortcomings on the day or week and then making those the focus on our efforts at improvement.  Working on fewer goals more intensively leads to more lasting change.  If we look at everything, we internalize very little.

2)  They aren't actionable - Reviews often summarize problems and intentions.  "I traded too large, so I need to be more careful with my sizing tomorrow" might be a journal entry.  That doesn't cut it.  What, specifically will you do to be careful with your sizing?  How will you determine proper sizing?  How will you address frustration factors that might lead to poor sizing decisions.  A review should finish with a highly concrete game plan for the next day, week, etc.  A review without a plan is merely a look in the rear view mirror.  By itself, it cannot get you to your desired destination.

3)  They are throwaway - Once we conduct a review and set goals and plans, we need to then return to that review and those goals and plans after our next day or week of trading and ask ourselves, "Did I succeed with the goals I set?"  If not, we need to tweak our plans for the next time period.  If we did succeed, we need to make note of what we did so that those actions can become more consistent, more part of an automatic process.  If we don't revisit our goals and plans, we aren't truly holding ourselves accountable.

Good reviews give you fresh views.  Good reviews help you see new things in the markets you trade and in how you're trading them.  If reviews aren't providing you with insights, they probably aren't providing you with learning.

Further Resources:


Monday, July 06, 2020

Why Is Process So Important To Trading?

When I wrote my book Trading Psychology 2.0, I chose the subtitle:  From Best Practices To Best Processes.

As traders, we want to discover what we do well.  Our successes reflect our strengths, and we are most likely to succeed when we draw upon our strengths.  An excellent short-term trader, for example, may have strengths in the areas of speed and breadth of mental processing.  The ability to look at many markets or stocks and quickly perceive evolving patterns is not something everyone can do well.  When we study our successes and figure out how we are making use of our strengths at those times, we become able to define our best practices.  Best practices are what we do to increase the odds of our success.

Once we identify a number of best practices, we can unite them and create effective work processes.  For instance, an operating room at a hospital will have best practices for staffing, sanitation, prepping of patients, medications before and after surgery, specifics of surgical procedures, recovery, and lengths of stay.  The entire series of best practices comprises a process, which ensures the most consistent positive outcomes possible.  As new best practices are discovered, these are integrated into existing processes, creating ongoing quality improvement.  The entire framework is known as evidence-based medicine.

Process is important to trading because it turns inconsistent, subjective trading into  evidence-based trading.  When we discover our best practices for identifying opportunity, expressing opportunity as solid risk/reward trades, and managing positions in real time, we can unite these elements of success into a rigorous process.  In becoming process based, we find our most consistent profitability.  Do we see operating room surgeons going on tilt or over-cutting?  Of course not.  When we train ourselves in a process framework, doing the right things becomes second nature. 

Further Reading:


Sunday, July 05, 2020

How To Build Your Trading Consistency

Above you can see a recent reading from my glucose meter.  As a person with Type II diabetes, controlling my blood sugar is important to my health.  To achieve that control, I wear a sensor on my upper arm that provides real time blood sugar readings to the meter shown above.  In the beginning, wearing the sensor and using the meter, my readings were all over the place.

By taking readings frequently through the day, I gradually learned the times of day when my blood sugar tends to be highest and lowest, how foods and exercise influence my readings, and how much medication to take to stay in my target zone.  This took a lot of trial and error.  I made many mistakes with what/when I ate and many mistakes with medications in order to learn what works.  The recent meter reading shown above illustrates what is possible when we measure outcomes continually and make small, targeted improvements with frequent feedback.  

Some people with diabetes jump from diet to diet and medication to medication and never make these improvements.  They look for big changes to their readings, and so they fail to make smaller, steadier improvements.

It's the same with trading.  The successful traders try lots of things, make lots of mistakes, get daily feedback, and then make very specific, targeted improvements in what they trade, when they enter, when they add size or scale out of positions, when they stop out, etc.  Every trade gives them a "meter reading" and they learn what works and what doesn't.  Other traders look for big changes to their trading and jump from "setup" to "setup", one style of trading to another, one time frame to another.  There is nothing cumulative to their experience, and their results show that.

We can't build a building jumping from one set of blueprints to another.  Ultimately we have to decide on our structure and lay the foundation brick by brick, gaining relevant experience as we go along.  The consistency of our trading will never exceed the consistency of our learning processes.

Further Resources:


Friday, July 03, 2020

One Of My Favorite Trading Patterns

If you click on the above, you'll see a screenshot from my trading platform (Sierra Chart).  There are five measures arrayed from top to bottom:  1) ES futures, each bar represents 50,000 contracts traded and lines represent shorter and longer moving averages; 2) amount of volume for each bar that is traded at the offer price (buyers more aggressive) minus the amount of volume traded at the bid price (sellers more aggressive); 3) a 10-period moving average of volume at offer minus bid; 4) a five-period RSI for the ES futures; 5) a five-period detrended oscillator reading for the ES futures.

The idea is that, in one view, I can see:

1)  Are we overbought or oversold?  (RSI, Detrended Oscillator; Price vs. moving averages)
2)  Have we seen dominant buying or selling pressure? (Volume at offer/bid; moving average of volume at offer/bid)
3)  How much price change are we seeing in response to buying and selling pressure?  

The yellow arrows point to occasions in which we are getting short-term selling pressure and oversold levels with very modest downside price change.  These are occasions in which there is meaningful selling pressure, but it's unable to move price meaningfully lower.  These sellers are eventually trapped and help fuel the next leg higher in the uptrend.

The proportion of volume traded at offer vs. bid correlates with actual price change around +.46 over the past 10 months.  That is a significant correlation, but note that the amount of variance in price change accounted for by buyers lifting offers vs. hitting bids is only a little over 20% (.46 squared).  It's when we get decent buying and selling pressure that cannot move price significantly that we see reversal opportunities set up.  Many of the best short-term trading opportunities come from occasions in which buyers or sellers become trapped and must run for exits.  We can identify those occasions and anticipate the unwinds.

Reading the psychology of the markets is just as important as being aware of your own psychology.

Further Reading: