Best Trading Practice: Intensifying Trading Focus

 

7/3/2025 - Idea generation--finding the opportunities worth trading and the spots when you can trade them with excellent risk/reward--is a function of analysis and synthesis.  In the analysis phase, we can screen for symbols meeting various criteria; we can review charts on different time frames; we can engage in our own research studies; we can talk with trading colleagues we respect; we can read research; etc. etc.  Analysis provides us with pieces to the market puzzle.

In synthesis, we arrange those puzzle pieces to generate actual trade ideas and develop plans for placing those trades and managing the positions.  Synthesis switches us from detailed thinking to bigger picture thinking.  It involves different kinds of pattern recognition.

When we train the brain for focus, we become able to look at more things and look at the same things in different ways.  A highly focused mind engages in deeper analysis and in more analyses.  The focused mind also is an open mind, able to more readily identify patterns in the information we've been collecting and analyzing.  

Professional traders aren't using brain training to avoid going on tilt.  They are training themselves to become better and better idea generators and traders of their ideas.

7/2/2025 - The previous post below explains why I believe real time neurofeedback (brain wave biofeedback) is a potential game changer for trading psychology.  By training ourselves for increased focus and concentration, we improve our processing of market information and gain access to our implicit knowledge (what we know, but can't necessarily verbalize).  Much of our pattern recognition occurs as a function of that implicit knowledge.  When we achieve depth of focus, we become better at detecting market opportunity.

Here is yet another revolutionary application of brain wave biofeedback:

Suppose we place ourselves in a state of intensified focus and then rehearse evidence-based psychological change strategies.  For example, we could practice cognitive therapy methods to identify our negative thought patterns and replace those with more constructive alternatives.  Or we could engage in exposure therapy by visualizing challenging market situations and our best responses to those while we're in the state of heightened focus.  

What we find is that stepping back from negative thought and behavior patterns is easier if we can shift our emotional and cognitive states and practice our desired responses in a state of focus.  When we do that, we find that we access our best processing of markets and performance by returning to the state of focus that we used during our visualizations.

This is known as state-dependent learning.  By attaching our best performance to the state of heightened concentration, we can access our best trading by returning to our focused state.  This allows us to coach ourselves in real time.

6/30/2025 - A little while back, I wrote a post on training the brain by building intentionality.  Since that time, I have been working with wearable brain-wave biofeedback (neurofeedback) devices to cultivate and sustain mindsets that enable me to trade at my best.  This is a little bit like physical training to perform best in basketball or football.  You still have to learn and practice the plays, but if you're out of shape, even the best playbooks won't lead to scores.  A missing piece in much of trading psychology is training to get into cognitive shape.

The software accompanying my device keeps score and lets me know the percentage of time I am calm and focused, my ability to bounce back from distraction, etc.  I have tried various meditative practices to increase the percentage of time I am operating in "the zone".  These practices to quiet the mind have been helpful, but have not necessarily helped me sustain a calm alpha-wave state.

A breakthrough occurred when I stopped trying to empty my mind and instead engaged in prayer during my brain training session.  Because of my Jewish tradition, prayer is familiar to me as a way of connecting to our souls and stepping back from our egos.  This is a state common to all major religions and spiritual traditions that I have found to be essential to effective trading.  In my brain training session where I accessed prayer, I filled my mind with love and appreciation and focused only on those feelings.  This was much more like a lovingkindness meditation than a meditation of inner silence.

Amazingly, in the state of emotional overflowing, I maintained a calm, focused state for 93% of the timed exercise--much higher than during any other occasion.  What kept me in the zone was not trying to rid myself of emotion, but filling myself with positive emotion.  Indeed, following the exercise, I felt unusually clearheaded and settled.  I recognized this as exactly the state I'm in when I'm trading very well.

What if we've had it wrong all this time in trading psychology?  What if the answer to improving trading is not reducing/eliminating emotion or whipping ourselves into discipline and conformity to "process"?  What if our most positive trading occurs when we are in our most positive psychology?  What if clarity comes from immersion in feelings of love and connection, not in empty quiet?  For some people, that might come from prayer.  For others, it might come from filling their hearts and minds with love for family members or connection to communities.  

Most of all, what if what we do to train ourselves to achieve clarity in markets is also what we need to do to achieve closeness in our personal relationships and a connection to our life's purpose?  It would be ironic if our most spiritual practices are what further our most material pursuits.  

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Best Trading Practice: Using Core Motivations to Change Your Life and Your Trading

 

6/29/2025 - Whatever your goals might be--in trading and in life--do a little piece of them each day, building on your progress one step at a time.  What we do regularly, we internalize.  Be the person--and trader--you wish to become in some small but consistent fashion each day.  Then tackle the next piece and the next.  The enemy of progress is not emotion, but distraction.  When we tap into our core motivations each day, we find that daily effort gives energy; it does not drain us.  How, today, are you going to be the person you wish to become?  How, this week, are you going to be the trader that you are at your best?  And most of all, how can you build the intensity of your focus to overcome distraction and stay grounded in who you are?  That will be the next set of posts--  

6/27/2025 - If our trading challenges are a function of failing to tap into our highest motivations--and not simply a matter of poor discipline and lack of emotional control--then what is the top motivation that individual traders fail to tap into?  What I see at hedge funds and true proprietary firms like SMB Capital is how individual performance is a function of team participation.  Many, many traders have extroverted personalities, which accounts for their interest in risk taking.  Trading in social isolation frustrates the extroverted personality and, indeed, fails to draw upon the strengths of social motivation.  Look at leading financial organizations, from hedge funds to investment banks to sovereign wealth funds.  All are organized in team structures.  Teamwork helps cover more markets and ideas, but teamwork also taps into motivations to help others, teach others, learn from others, and enjoy the comradery of others.  If you're not reaching your trading potential, perhaps you're playing the game the wrong way.  

6/26/2025 - Here is a  corollary to the best practice outlined below.  We often assume that our trading challenges are the result of negative thought and behavior patterns that we need to change.  Hence the common advice to work on emotional control, discipline, etc.  But what if our trading problems are the result of failing to properly engage our strengths and our core motivations?  In other words, what if the trading processes we develop don't adequately leverage what we do well and what keeps us motivated and inspired?  Frustrating our strengths can be every bit as destructive to performance as acting on weaknesses.

For example, suppose I develop a very strict, rule-based process for trading, but one of my strengths (and greatest sources of motivation) is creativity and the discovery of new opportunities.  I find myself operating outside my rule-based framework, not because I lack discipline and am too emotional, but because I need the freedom to explore and discover.  Until I find a way to incorporate creativity and idea generation into my rules-based framework, I will fall short of my potential.

I look forward to developing this--and related--ideas in my next book that will focus on the strengths of successful traders, not just the shortcomings of beginners.

6/24/2025 - Here's a life and trading lesson from our new friend Nomi, who offered a reminder of the Naomi principle. 

Nomi came to our home at two months of age, weighing only two pounds.  She was understandably frightened in her new environment and hid in the bed, at the base of the headboard.  She could not be coaxed out.

I opened a can of food that our other cats love and dipped my finger in the moist mix.  I held it near Nomi and she quickly lifted her head and came out of her hiding place.  Her fear of strangers was strong, but her drive to eat new food was stronger.  That began our petting and getting acquainted.

The principle here is that we don't change our negative behaviors through motivation or discipline.  We change our negative behaviors by drawing upon our core motivations.  We might not make a change because we want to, but if we can find a reason that speaks to us, the change follows surprisingly easily.

Helping others is one of my core motivations.  I might not be the most disciplined trader on my own, but if I'm part of a team and my teammates count on me for help and role modeling, suddenly I'm inspired to be my best self.  Nomi didn't motivate herself to open up to me; she found a motivation that made it easy to open up.

What makes you tick?  What are your core motivations that drive you, inspire you, and make your life meaningful?  If you can find a way to connect your trading to the motivation that helps you be your best, suddenly you'll be able to access your best trading.

Additional Reading:

Best Trading Practice:  Rule-Base Sizing of Trades

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Best Trading Practice: Rule-Based Sizing of Positions

 

A great deal of the success of a trade comes from what happens after the position is put on.  The best traders I've worked with have rules for managing positions, not just putting them on.  They have rules for stopping out of positions; rules for holding positions; and rules for adding to positions.  Their rules allow them to get out quickly if their ideas aren't playing out, and their rules allow them to go for it when the trade is working.  Being brave enough to start and put positions on is necessary for success, but not sufficient.  It's when we're strong enough to finish and take maximum advantage of our best trades that we achieve our true success.

For last week's trading psychology workshop, Henry mailed me his best practice and gave me permission to share it with readers.  He explained that "William O'Neil, Mark Minervini, and Lee Tanner inspired me to trade a bigger position when you are winning.  'Look for add-ons'.  First of all I try to get in with an initial buy as close to my buy point as possible...After the initial buy, my best practice is that I buy 20% extra (of my whole position) every time the stock makes a new high after a correction of minimum 5 trading days...All my buys have a stoploss of -8% below the buy price.  But every time I get stopped out, the followup buy is 10% bigger than the previous buy...I trade only by written rules".

What makes this approach effective is that it benefits from parabolic moves in the stock being traded.  Finding the right stocks that are trading with momentum is thus important.  A large part of trading success comes from the relatively few occasions when you're getting bigger and bigger in your best opportunities.  What he learned from mentors was "to trade a bigger position when you are winning" and "look for add-ons".  Success requires risk management, but also requires opportunity management.  Having rules for protecting capital and also rules for maximizing your best ideas allows for good starts and solid finishes.  Many traders fail, not because of a lack of risk discipline, but because of a lack of opportunity discipline.   

A Different Kind of Trading Psychology Workshop

 

6/19/25 - Many thanks to those who attended the workshop and especially those who contributed best practices.  Two topics that came up that I'll discuss in future posts:  1) pursuing swing trading as a way of participating in larger market moves and not needing to be glued to screens; 2) the use of new technology/AI to train our brains for better sleep, emotional control, and focus; 3) finding new trading edges by tracking data that others don't follow.  Stay tuned!  

6/17/25 - The most important issue for us to tackle is not how to trade or how to improve our trading.  The most important issue is to identify--clearly--what you are meant to be doing with your life.  What are your gifts and how can you leverage them to make for a better life and a better world?  And how does trading fit into that life vision?  More important than trading markets is investing in your life's purpose.  More on that topic during tomorrow's free trading psychology workshop.  See below for registration info - Brett

6/16/25 - What are your unique, distinctive strengths and how can you best apply them to achieve trading success?  In the free trading psychology workshop on Wednesday afternoon after the NYSE close, we'll tackle precisely that topic.  When you're aligned with who you truly are at your best, the right performance psychology naturally follows.  Instructions for signing up for the session are below; links will go out Wednesday AM.  Thanks!

6/15/25 - Below is the information for registering for the free Wednesday online workshop after the market close.  Here are three best practices I'll be sharing in the workshop: 

1)  Original research on stock market breadth and specific trading signals for trading the broad market.  This will include instructions for creating your own database and a unique exit strategy to help maximize winning trades;

2)  Three new forms of brain wave technology that can greatly assist us in maintaining an optimal trading psychology.  I believe these to be the most important game changers in trading psychology to come along in many years.

3)  How professional traders approach dangerous market conditions, as we're seeing currently because of the war situation in the Middle East.

I hope to see you after the close on Wednesday and look forward to each of us sharing best practices.       

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This coming Wednesday (June 18th) after the NYSE close (4:15 PM ET), I'll hold a trading psychology workshop online for traders looking for new ways to improve their trading.  The session will address the needs of traders who have achieved a measure of success and now who are looking to take their trading to that proverbial next level.  To sign up, send an email to steenbab at aol dot com and I'll email you a link to the session.

I'm looking forward to a different kind of trading psychology workshop.  Attendance at Wednesday's session is free of charge, but I ask that each attendee bring to the event one best practice that has helped their trading.  The best practice could be a unique approach to trading, an innovation to improve trading process and performance, or a fresh method for sourcing trade ideas.  I've mentioned in the past that a slogan at the medical school where I teach is "Each one teach one".  In Wednesday's workshop, I invite all attendees to be teachers and all to be learners, myself included!

In the session, there will be two ways to share your best practice:  1) You can bring them to the meeting and share them over the Zoom chat function or 2) You can send them to me in advance when you send your email to steenbab at aol dot com to get the link for the session.  

For those who send me best practices in advance, I'll send out an email blast  (email addresses will be private) and include all the best practices as they've been written up.  (Please let me know in your email whether you'd like your best practice to be anonymous or whether you'd like to be acknowledged by name).  This will provide a resource of best practices that can guide performance long after the session has ended.  

Whether it's by sharing during the session or by writing up and sharing ideas, let's all be teachers and learners and see if we can create a different kind of workshop--

Brett

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Understanding Your Best Trading

 

6/12/2025 - In the research I've conducted re: the personality and life history predictors of trading success, several factors consistently stand out.  One of those is the capacity for pattern recognition.  Successful traders are more curious than others and look at more things in a greater variety of ways.  This enables them to see patterns that, over time, they discover to be meaningful.

Many traders equate pattern recognition with the patterns they track on charts.  This is certainly one form of recognition, but not the type I most commonly see among hedge fund portfolio managers.  They collect a great deal of data on inflation, monetary policies around the world, behaviors of various markets, sentiment, economic growth, etc. and piece the information together to form coherent views of stocks, bonds, currencies, etc.

The identification of market cycles across different periods, as described below, is yet another form of pattern recognition.  I view this as a look from the "bottom up", since it assembles price and volume data across shorter to longer intervals.  In my own trading, I combine this with a "top down" view which looks for historical, statistical patterns in the market.  For example, in the chart above, we can see a cycle bottoming out across the various indicators described below.  At the same time, we had displayed very few stocks making fresh one- and three-month lows in the lead up to this period.  When we look historically, the absence of weakness is quite bullish, especially over a 10-20 trading day horizon.  Markets usually don't plunge until one or more sectors display deterioration.

The combination of the statistical pattern and the real time cyclical pattern produces a trading view with considerable supportive evidence.  That pattern recognition underlies our psychological confidence in our ideas--and our ability to size up positions.  I did not develop confidence in my trading by working on my psychology; I improved my psychology through better and better pattern recognition.

6/11/2025 - Above is a screenshot from yesterday's market in the micro-ES futures contract.  The previous posts in this series will explain much of what I'm tracking in real time.  The bars on the top portion of the chart represent the SPX futures, where the candles capture the high/low/close for each 15,000 contracts traded.  As a result, we're drawing relatively few bars in the overnight sessions and many more during the busier morning hours.  This helps identify market cycles.

The green and red lines going through the candlestick bars are the short-term (red) and longer-term (green) moving averages defined by the MESA Adaptive Moving Average system.  When the red line crosses above the green, it's confirming an uptrending move and vice versa.  Note that I track the identical cycle movements for shorter-term charts (2000 contracts per bar) and longer-term charts (50,000 contracts per bar).  I use the shorter-term crossovers to help trade the longer-term shifts in trend/cycle.

The vertical blue and red lines at the bottom of the chart represent the Woodies CCI trend measures, where blue is uptrending and red is downtrending.  The green and red dots above these lines represent significant buying and selling.  Together, with the adaptive moving average crossovers and across the shorter- and longer-term charts, these help visualize occasions when trends are dying out and reversing and when trending behavior is present.  It is the lining up of these patterns across shorter- and longer periods that identifies opportunities to ride the cycles and exit them.

This way of looking at markets may or may not be helpful for you.  It is my way of distilling a great deal of directional and cyclical behavior across multiple time frames.  What many traders see as "choppy" markets are often markets dominated by shorter-term cycles that are tradeable.  Similarly, what looks like trending markets are often markets dominated by longer-term cycles.  What is important from the perspective of trading psychology is that you find *your* way of representing and visualizing market behavior that aids your decision-making.  Many, many times traders become frustrated with markets and make poor decisions because they are locked into one time period and one type of market behavior and fail to perceive the contexts of market movements.

6/10/2025 - The foundation for cycle identification with the charts denominated in volume rather than time (see below) is the MESA Adaptive Moving Average (MAMA) system developed by John Ehlers.  This creates shorter and longer-term moving averages based upon the cyclicality of the market and then identifies crossovers between the shorter and longer-term averages.  I construct the MAMA on multiple volume-based charts, from very short-term to medium and longer-term.  When there are upside and downside crossovers at multiple intervals, that's when the cycles are lining up and it becomes possible to take a solid reward-to-risk trade.  All of this is easily constructed in the Sierra Chart platform.  I rely on the NYSE TICK measure during NYSE hours to get a more finely grained indication of buying/selling pressure to identify when short-term cycles are turning.  I outline all of this--and will present an illustration--to emphasize an important point in trading psychology:  We are most likely to work on our trading and refine our trading if we develop our own ideas based upon what makes sense to us.  Too often, traders attempt to copy others and then lack conviction to stick with their ideas.  The goal of this post is certainly not for traders to copy what I do, but to encourage traders to figure out what they need to do.         

6/9/2025 - A particular challenge for active, intraday traders is that market activity (volume/volatility) changes significantly as a function of time of day.  On average, there is much more volume and movement in US stock index futures, for example, during the New York Stock Exchange hours than overnight; there is much more volume and movement early and late in the day than at midday.  When we measure cycles in time units, we end up comparing apples and oranges.  If the underlying time series is not relatively stationary/uniform, we cannot identify cycles that are relatively uniform in frequency or magnitude.  When the X-axis of our charts represents volume, not time, each bar is a standard amount of volume traded and we draw more bars during busy periods and fewer during slow periods.  Cycles appear quicker or slower but are more uniform in composition.  When we create charts where the bars represent different volume sizes, we now can see when and how shorter-term cycles line up with longer-term ones.  The shorter-term cycles can guide execution to trade the longer-term cyclical movements.  It becomes easier to trade trends when we see these as the directional portions of longer-term cycles.  Illustrations soon to follow...       

6/8/2025 - What I've come to understand is that no amount of focusing on bad trading and trading mistakes is sufficient to create good trading.  Good trading comes from zeroing in on what you do well and what makes sense to you and then refining and refining your ways of capitalizing on those strengths.  My worst trading comes from focusing on (and chasing) trends.  My best trading comes from identifying cycles in markets and identifying when short, medium, and longer-term cycles are lining up.  Ironically, many of those trades might look like catching trends early, but those trends are simply the early phases of longer-term cycles.  It's the lining up of multiple cycles that creates the favorable reward-to-risk edge.  

Understanding those cycles not only allows for sound entries, but guides the process of holding trades.  If you're oversold across multiple periods and go long, there's little incentive to take profits when the shortest cycle turns to overbought.  Indeed, waiting for the shortest cycle to turn down while the others are still rising and far from their peaks can create opportunities to add to positions.  

The challenge of this approach to trading, which I'll be illustrating in the near future, is that until cycles align, the best trading is no trading.  The goal is to find a few meaningful "setups" and exploit them fully.  One of the most difficult forms of trading discipline can be the discipline to not trade.  That means that the disciplined trader needs the discipline of doing things other than trading during the majority of periods when cycles are not fully aligning.  When you know what to look for, your best trades come to you--and there is no need to chase random moves.