Friday, April 23, 2021

Know Your Cognitive Strengths


How do you best process information?

Have you ever taken the time to understand what your cognitive strengths are?

How consistently do you play to your information processing strengths in your trading?

When you study your best learning, when you study your best trades, you can uncover your best information processing.

I'm currently writing a new book.  To write each chapter, I read multiple books at the same time on the topic I want to cover.  From the many authors I read, a few common themes will jump out, particular topics will hit me.  Those are the ones that I then write about.  My greatest information processing strength is synthesizing lots of information and finding common threads.

During my best trading, I'm looking at multiple sources of information, multiple time frames, and multiple markets and waiting for patterns to stand out.  Those are the ones I trade.  My worst trading comes when I analyze one or two things rather than synthesize many things.

So many traders assert that they need to trade their personalities.  In reality, they need to trade their brains.

Further Reading:


Friday, April 16, 2021

When Doing Less Is More

A wise portfolio manager recently forwarded this article to me.  The gist of its message is that we often look to improve our lives--and our processes--by adding to them.  We operate on the implicit premise that more is better, so that when we seek change, we gravitate toward doing more things.

In my recent Forbes article, I take a look at the topic of fasting.  I view fasting broadly, not only as refraining from eating.  Anytime we seek to eliminate events and elements that are a regular part of our lives, we conduct a kind of fast.  Thus, getting away from emails and cell phones is a form of fasting.  Meditation and the quieting of our self-talk is also a fast.  

The William Penn quote suggests that fasting may provide some of the benefits of sleep, a kind of refreshment of the spirit.  Sleep itself is a kind of fast, a refrain from activity.  Without sleep, coherent and effective activity becomes impossible.  Similarly, if all we do is "process" and the repetition of routine, we may be efficient but will we ever achieve refreshment?  Many of life's most meaningful activities, from honeymoons to vacations to special celebrations, occur outside life's routines.

The surest way to kill the love, romance, and specialness of a relationship is to make it routine.  For the same reasons, that is how we destroy the passion of living our own lives.  To function effectively in the world, we need routines.  To function optimally, we need to operate outside of routine.  Doing less can provide us with more.

The developing trader needs more process, more routine, to overcome the emotions involved in trading and the resulting impulsivity.  The experienced trader needs quality time away from process and routine to overcome staleness and continually approach markets with fresh eyes and creative thought.

If you were to go on a process fast in your trading, what would you eliminate and what would that free you up to do?

Further Reading:


Sunday, April 11, 2021

Thinking Through A Traders' Happy Hour

Prior to the pandemic, I hosted occasional craft beer happy hour sessions with traders from various backgrounds and firms.  I have always found that such gatherings are helpful in multiple ways, socially and professionally.  Smart, motivated people love to share ideas and learn from one another.  That creates a rich environment for personal and professional development.  And good food and drink doesn't hurt!  Indeed, the research in positive psychology suggests that we learn best when we are in positive mind states and when we process information in multiple ways.

What if the best way to learn trading is not through webinars, classes, conferences, videos, and podcasts, but live, while having fun?  What if the best way to develop as a trader is not by listening to self-anointed gurus, but by learning together from shared experience?  What if Zoom meetings are not meant for talks and PowerPoint presentations, but for creating happy hours and fun, interactive learning experiences in our own homes?

Not a bad legacy from the pandemic!

Stay tuned--



Further Reading:


Sunday, April 04, 2021

What Is Market Breadth Telling Us?

A few weeks back, I posted re: market sentiment and noted that sellers were notably unable to push the market lower.  That situation led to a nice rise to new highs in SPY/ES.  Now we see a very different situation.  On Thursday, we broke the 4000 level in SPX, but interestingly, we had 334 stocks registering fresh monthly highs and 75 making new monthly lows.  Compare that with over 1000 stocks making new monthly highs in mid-March.  In early February, we had over 1100 stocks hitting new 3-month highs.  That fell to 939 in mid-March and hit a level of 171 on Thursday.  (Data from  In other words, the recent market uptrend has become much more selective.  If we look at small cap stocks recently and technology shares, for example, both have failed to take out prior highs.  Indeed, overall, it's been larger cap issues rather than growth names that have performed best of late.

There is a structure to market cycles, in which the market begins with strong upside momentum and a tide that lifts most boats.  As the cycle matures, the strength becomes more selective and we can even observe pockets of the market register new short-term lows.  With the inability to rise and many traders/investors trapped on the long side, we get a move for the exits and a momentum period of decline, with many stocks making new short-term lows.  A dramatic example of this occurred early in 2020, when the market registered 751 new 3-month highs on January 17th and then hit a new index high on February 19th with 503 fresh 3-month highs.  What followed was the big decline from the COVID outbreak.

The current breadth weakness in no way predicts a similar decline for the near future.  Rather, it is a yellow caution light for the bulls.  The market is behaving as it often behaves relatively late in bull market cycles.  I am watching breadth closely to see if the bullish sentiment of hitting 4000 might be masking increasing weakness, particularly among the "reopening" and growth stocks that one would expect to be leading the way higher.

Further Reading:


Friday, April 02, 2021

How To Trade With Focus

Here is a link to the recent webinar I conducted with FuturesTrader71 and  One of the topics that came up was dealing with emotionality during trading.  Morad made the excellent point that we are most apt to respond to markets emotionally if we become too attached to the profits and losses of each trade.  If we define, refine, and follow a sound trading process, we can allow the probabilities to work themselves out in our favor without getting too wrapped up in any single trade.  

A point that I brought up is that, often, it's not emotion itself that is the problem for traders but an absence of focus.  In other words, if we're operating in the flow state--in the zone--we are absorbed in market action and understanding what markets are doing.  It's the presence of focus that provides us with emotional distance.  For example, when I am working with someone as a psychologist and intently listening to what they're saying, I'm not thinking about myself, how much money I'll make from the meeting, how I feel about what they're saying, etc.  Being in the zone naturally takes us out of our own heads and away from our own emotional reactions.

As the quote above indicates, what we focus on expands.  When we focus on something, we reinforce it.  If we focus on our shortcomings, we diminish our self esteem.  If we focus on losing money, we reinforce our insecurities.  When we focus on mastery and understanding, we expand our sense of competence.  

I mentioned in the webinar that many people try out meditation as a way of building focus, but they don't go about it the right way.  They meditate long enough to relax, not long enough to enter the zone.  This is why I like biofeedback devices that give immediate feedback as to whether or not you're in the zone.  Simply trying to dampen negative emotions doesn't work.  We need to get ourselves into a quiet, focused state and then sustain that state for increasing periods of time. 

What we focus on expands.  But if we focus on focusing--if we practice intensive focus each day--then our capacity for focus expands.  Without focus, we lose free will.  We lose our ability to determine our future.  There is little sense spending our time setting goals if we lack the focus to sustain their achievement.

Further Reading: