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:

https://www.forbes.com/sites/brettsteenbarger/
  

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

*  A Creative Way to Use TraderFeed 

*  Brett Steenbarger Bio

*  Brett's Books on Trading Psychology

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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What Goes Into An A+ Trading Opportunity?

 

Over the years, I've been struck by how many top performing discretionary traders don't have win percentages of much over 50%.  Most of their trades are relatively small winners and relatively small losers.  They are *very* good at risk management and so they have very few large losers.  But they are also good at recognizing their best opportunities--what we might call their A+ trades--and making the most of these.  In his book One Good Trade, Mike Bellafiore of SMB Capital stresses that, "Consistently profitable traders obsess about making One Good Trade and not money.  Your job is to make One Good Trade and then One Good Trade and then One Good Trade" (p. 31).

From this perspective, One Good Trade includes losing trades that one manages well.  One Good Trade also refers to profitable trades that follow one's trading rules.  If my above observation is correct, however, trading success also requires awareness of One Great Trade:  one's A+ opportunity.  It's the relatively few big winning trades that account for the difference between most good traders and the great ones.  It's the (all too rare) combination of disciplined risk management and aggressive pursuit of special opportunities that define the great trader.

Having met with many traders over the years, I can confidently say that the great majority don't know--in detail--what goes into One Great Trade.  They might have a sense for good opportunities, which they might call A trades, but they haven't truly studied their A+ trades:  those few trades in a month or year that account for a large share of total profitability.  What goes into an A+ trading opportunity?  If you don't study those One Great Trade occasions in detail, replaying them and analyzing them intensively, how can you find the conviction to pursue them with aggressiveness?

I've been studying my own A+ trades and opportunities and will share them in an update to this post.  But my unique opportunities are unlikely to be yours.  Anything great cannot be copied from someone else, whether it's a painting, musical work, or writing.  The odds are good that your A+ opportunities are hiding in plain sight.  They are among your standout winners, even though you may not have fully exploited their potential.  Much of the time, we become so immersed in solving trading problems and controlling trading emotions that we never fully study our trading strengths.

One Good Trade keeps you in the game and can make you consistently profitable.  If you can identify One Great Trade, you'll have a template for success that you can build upon.

More to come.

Further Reading:

Finding Our Greatness

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Trading as Warfare

 

1/29/2025 - How can we do a better job of integrating our trading tactics into a broader trading strategy?  In the book that will be coming out later this year, Positive Trading Psychology, I collaborate with Jeff Holden at SMB Capital to identify best mentoring practices used in the SMB teams.  As research for the book, I sat in on Jeff's mentoring sessions with developing traders and saw first hand how he integrated strategy and tactics.  The sessions began with looking at the broad market indexes and by focusing on longer (multi-week and multiday) perspectives.  This view included overseas equity indexes as well as the U.S. stock market.  This provided a big picture of whether money was flowing into or out of stocks globally and whether money was rotating to some countries from others.  The chart review then proceeded to sectors within the U.S. stock market on different time frames again to see if money was flowing in or out of the market or whether funds were rotating capital to some sectors and out of others.  Finally, the review focused on the individual stocks "in play" within these strongest and weakest sectors and the tactics for participating in their moves.  By the end of the review session, traders had a good sense for what they were trading, why they were trading it, and how they would trade it.

A number of these traders came up with questions during the session and many posed their questions to me in the chat area of the Zoom and later in emails.  Almost all of these questions pertained to how they could improve what they traded and how they traded it.  Very, very, very few questions were about emotional overreactions to the day's trade and destructive patterns of trading.  The reason for this was that the time spent in systematic preparation--understanding what the market, sectors, and stocks were doing; formulating a strategy for what to trade; and elaborating tactics for implementing the strategy--kept them grounded and focused.  Solid preparation reduced uncertainty and nurtured a sense of understanding and mastery.

Trading is like warfare.  If you stick troops into the field without a clear mission and tactics, they will panic at the first skirmish.  The best trading psychology emerges from the best preparation:  clearly elaborated strategies and tactics and ongoing practice and review.  

1/27/2025 - In the overnight weakness in the US stock market, we can see a reversal of recent strength.  This highlights yet another aspect of strategy and tactics in trading:  the need to be flexible.  Intelligence is not infallible in warfare and in trading and often it can be murky or incomplete.  Notice that, in the days leading up to this decline, the SP 500 made a new high, but many averages--and many sector indexes within the SPX--stayed well below their highs.  When we see the vast majority of stocks and sectors moving higher or lower, we can anticipate a degree of momentum/trend.  When we see breadth waning on an upmove or downmove, that is when we're particularly at risk of reversal.  That means that we must have the flexibility to assess new market information, determine whether it's a game-changer, and respond with fresh tactics and perhaps with a revised strategy.  We put effort into generating our ideas; equal effort is needed to update those ideas as fresh data come into view--  

In warfare, you assess the enemy's strengths and weaknesses and you develop a strategy for exploiting the vulnerabilities and avoiding the strengths.  That strategy is implemented with a variety of tactics, from ground assault to air and sea attacks; from spycraft to guerilla warfare to coordinated amphibious actions.  Similarly, a football team will assess their own strengths and weaknesses and the strengths and weaknesses of the opponent and will develop a game plan--a strategy for victory.  That strategy will be carried out tactically through specific plays and defenses designed to maximize the team's strengths and exploit the opponent's vulnerabilities.  Tactics are what put strategy into action.  Strategies without carefully designed tactics are at best good intentions.  Tactics without underlying strategy are uncoordinated--and often incoherent--action.

In trading markets, strategy defines bigger picture opportunity.  Tactics implement the strategy on a here-and-now basis.  Many of the psychological challenges of short-term traders occur because they operate tactically, without an underlying strategy.

Here's a simple example.  I have created a daily database of the percentage of NYSE stocks trading above their various moving averages, from 3-day MA all the way up to 200-day MA.  Each day, this produces a momentum curve, a measure of how breadth has behaved over short, medium, and longer terms. The database goes back to 2006, so I can see how breadth behaves in various market conditions.  (These data can be found on the Market Charts site).  

This is another way in which trading is like warfare.  Superior intelligence--more and better information--fuels superior strategies and tactics.

Across the entire database, if we divide the percentage of stocks trading above their 3-day MAs into quartiles (roughly 1150 days for each of the four groups), we find something interesting.  Over the next few days, average returns following the strongest breadth quartiles have been significantly weaker than after the weakest breadth quartiles.  In other words, on average, three-day periods of broad strength lead to short-term underperformance; three-day periods of broad weakness lead to short-term outperformance.  We see mean reversion tendencies over the short term.  The exception to this rule occurs when there is a breadth thrust:  very high levels of breadth momentum.  Then we see strength leading to more strength; weakness yielding further weakness.

The day trader who is unaware of such patterns may see a bullish or bearish setup, but can easily be run over by the mean reversion and momentum tendencies playing out over a multiday period.  That leads to frustration, which can further impair trading.  The cause of the frustration, however, is not a psychological conflict or weakness; the cause is due to pursuing tactics in the absence of strategy.  The same problems affect investors, who trade "catalysts", only to lose sight of multi-week patterns playing out in market breadth.  

Trading is like warfare.  The difference is that the trader is both a general and a soldier:  one who frames strategy and one who implements it.  There is always a bigger picture that defines edge and a more immediate picture that guides the execution of the tactics that exploit that edge.  Confidence comes from well-grounded strategies, implemented skillfully.    . 

What If You Could Only Trade Once Per Day?

 

1/23/2025 - On Monday, January 27th at 4:30 PM ET, Agnieszka Wood and I will conduct a free hour long "ask me anything" (AMA) session.  One thing that will make the session unique is that Agnieszka and I will approach questions from different, complementary angles:  how our mindset can improve our trading and how improved trading practices can fuel our mindset.  Should be a great opportunity to pick up best practices all the way around!  One thing I'll discuss is how bigger picture thinking can improve our short term trading and how honing short term trading skills can help us get the most out of our higher time frame views.  Registration will be limited; hope to see you soon!

1/22/2025 - We can approach trading from a bottom-up perspective (watching for real time shifts in buying/selling pressure) as a scalper or from a top-down perspective (watching for backtested patterns and catalysts over longer time horizons) as a swing trader or active investor.  One approach is grounded in the talent of fast thinking and acting and pattern recognition.  The other approach is grounded in the talent of analysis and bigger picture thinking.  Success comes from knowing where your greatest talent lies and then developing the skills to apply that talent consistently.  Many seeming psychological challenges of trading stem from the fact that we're not utilizing our greatest talents--

Suppose you could only trade once per day, but at any time of the day?

With only one bullet to fire, you would have to make sure the opportunity was outstanding.  

What information would you gather to identify the one good daily trade?  Knowing this constraint, you'd have to study, study, study the best trades that could have been placed each day and generate a creative plan for exploiting the single best opportunity. 

How would you size the daily trade?  What would you need to see to add to your position?  What would you need to see to take profits?  What would stop you out of the daily trade?

If you only traded once per day, what do you think your win percentage would be?  How do you think your profitability trading once per day would compare to your current profitability?

What would be your greatest psychological challenge if you only traded once per day?  Knowing that you're limited to one trade, what constructive activities would you engage in while the one good trade was setting up?

What if anything more than one best trade per day makes minimal money on average?  What if all your time and effort watching screens and trading in and out of the market does not add significant value to your trading?  To your life?

This will be an experiment I pursue in 2025.  Discoveries come from asking new, different, and difficult questions.

Further Reading:

Expanding Our Trading By Imposing Constraints

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How to Achieve Quiet Confidence in Our Trading

 

1/15/25 - Understanding markets is not just about the big picture macroeconomic trends impacting price action.  It's also about identifying the kind of markets we're in:  trending/momentum; cycling/mean reverting; or a combination of the two, where cyclical moves occur within trends.  The kind of market we're in determines the kinds of trading strategies we employ.  Much frustration and loss in trading occur when we impose our strategies on the market, rather than trade the conditions we see.  I find that I'm best able to trade market cycles by constructing charts based on volume, not time, and by tracking crosses of adaptive moving averages (moving averages that automatically adjust their parameters based upon identified cyclicality).  Very promising trades occur when moving averages are behaving similarly on shorter, medium, and longer time scales.  When cycles line up, the result is a sense of understanding that fuels our confidence in trading.      

1/14/25 - The below post suggests that our optimal frame of mind when trading is not positive or negative, but focused and open-minded.  As a psychologist, when I meet a new person in counseling, my first step is to connect with them and listen, listen, listen.  If I stay open-minded and keep listening, the themes in what they are telling me will jump out at me.  I don't try to intervene in the person's life until I have a clear thematic understanding of what they are going through.  Similarly, I want to connect with the market I'm trading and listen, listen, listen to all going on within and around my market.  That requires a focused, quiet mind--and most of all a curious, interested mind.  We achieve quiet confidence when we achieve understanding and we achieve understanding by listening and listening for the themes connecting markets and time frames.  Our optimal mindset is curious, interested, and focused.  If we spend too much time looking for trades, we stop listening to markets and that leads to frustration.  How we approach markets shapes our trading psychology, not just the reverse.  

By transforming our trading, we can transform our trading psychology.

So much effort goes into trying to predict what markets will do next.  Confidence, however, comes from understanding.  When we understand what is going on in markets, the right trades come to us.

In a recent video for SMB Capital, I explained how the perspectives of active investors--such as those managing capital at hedge funds--can benefit short-term traders.  This is because portfolio managers don't just look for trades:  they identify themes that connect a variety of markets.  A good example of this can be found in my recent post, which tracks recent moves in the U.S. dollar, U.S. interest rates, the U.S. and overseas stock markets, and commodities.  There are themes underlying these moves (such as the potential impact of tariffs), which show up as relative strength in certain stock market sectors (such as the growth areas of technology) and relative weakness in other sectors (such as interest-rate sensitive shares).  When we can step back and see the themes connecting movements among markets, it becomes easier to participate in significant market developments, such as the weakness in stock and bond prices on Friday.

Much of what we call "overtrading" occurs when we don't step back and achieve understanding and instead react to every market move that catches our eye.  There can be no quiet confidence when we overtrade and when we are more interested in finding trades than in understanding market behavior.  An experienced psychologist knows that people don't have dozens of problems; they typically have just one or two issues that show up in dozens of areas of life.  Once we can step back and see the themes connecting our life challenges, we open the door to responding to old challenges in new, constructive ways.  So it is in trading.  When we stand back from the moment-to-moment ups and downs of markets and perceive the themes driving the trading from large institutional participants, we place ourselves in a fresh position to ride those waves.

Success in markets comes from turning themes into solid risk/reward trades.  Confidence comes from seeing a bigger picture and knowing how to turn that into short-term opportunity.

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What in the World is Going On

 

1/7/25 - Just a quick addition to the below post:  If you take a look at the popular equity ETFs in U.S. industries on the Barchart site, you can quickly see strength and weakness among sectors of the market.  Notice that yesterday was generally seen as a strong day in the market, but strength was focused on technology and communications stocks--two important areas of growth.  The value areas, such as consumer staples, were actually down on the day, as were the interest rate sensitive areas, such as utilities and real estate (see below).  Trading success hinges on quickly identifying whether we are in trending or rotational markets.  Is money flowing in or out of stocks, or is money flowing from certain areas of the market and into others?  In the rotational markets especially, what we trade is just as important as when and how we trade.  We can work on timing all we want, but if we're trading the wrong things, our returns will be suboptimal at best--

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This post will summarize what is happening across financial markets and economies--what is sometimes called the "macro" picture--and explain how that understanding can help our short-term trading. 

I've begun work with new portfolio management (PM) teams at hedge funds, and I have been impressed by the unique research undertaken by each team.  One thing that makes these teams distinctive is that they first seek to understand what in the world is going on and only then do they explore trades that might provide them with good reward relative to risk to exploit this understanding.  Because they are driven by intellectual curiosity and the desire to understand, they are not following every tick in the market and they are not going on tilt, trading on FOMO, and experiencing all the common problems we hear about.  When PM teams meet with someone like me, it's to expand their understanding, improve their teamwork, and translate conviction about what's happening in the world into portfolios of trades that best leverage their distinctive strengths.

In my upcoming book, Positive Trading Psychology, I explain how a knowledge of short-term trading can help active investors achieve better reward relative to risk for their trades.  I also explain how an understanding of macroeconomic fundamentals can help short-term traders identify unique areas of opportunity and align their trades with bigger picture trends.  It is when we blend the tactical identification of opportunity (our fast-thinking, pattern recognition skills) with the deeper, strategic thinking that provides us with an understanding of market trends and patterns that we achieve the positive mindset that accompanies a sense of mastery.  Optimal trading psychology comes from understanding, and understanding comes from preparation.  Notice how the relationship among preparation, mastery, and mindset occurs in every performance field, from sports to chess to professional dance.

OK, so what is going on in the world?  Here are a few observations from macro markets, with a shoutout to Barchart.com, which provides a wealth of data (found in the following links) regarding performance across asset classes and regions of the world:

1)  The US Dollar is outperforming other currencies:  Note the uptrend in DXY since early October.  During that same period, note the relative weakness of the Japanese Yen, the Canadian Dollar, and the Australian Dollar, and the relative strength of the US Dollar to the Chinese Yuan.

2)  The yield curve has been steepening:  Remember how, not so long ago, we were talking about inverted yield curves and forecasts of recession?  No longer.  Since September, long-term fixed income prices have fallen more than medium-term fixed income prices and both have fallen more than short-term fixed income prices.  That means that interest rates are rising as we go out on the curve.  Note that high-yield bonds have performed relatively well.  We don't seem to be anticipating defaults in the fixed income world.

3)  Many commodities have weakened:  The commodity index is down since early October, with notable weakness in metals and mining, agribusiness, and the shares of raw materials companies.   

4)  US stocks have outperformed overseas averages: Note the relative underperformance of European shares since late September and, indeed, in the relative underperformance of non-US stocks in general.  Shares in China have held up better than shares in Australia, South Korea, and Brazil. 

5)  Performance among US stock sectors has been very mixed:  We've seen relative strength in NASDAQ shares and Consumer Discretionary stocks.  Growth shares have outperformed value stocks lately and small cap shares have recently underperformed the overall market.  Note the particular weakness in interest-rate sensitive sectors, such as real estate and utilities, as well as raw materials and healthcare.  We hit a peak in stocks making fresh new annual highs on November 6th and, since December 10th, the number of stocks making fresh one month lows have exceeded the number of monthly highs every single day and the number of shares registering three month lows have exceeded the number of three month highs almost every day.  Only 6.45% of real estate stocks are trading above their 20-day moving averages as of this past Friday and only 7.14% of raw materials shares.  By comparison, despite the recent correction, over 30% of technology stocks are above their 20-day averages.  

Conclusion:  The bottom line is that performance in financial markets has become narrower and narrower.  Rising long-term rates in the US, falling commodities, and weak overseas equity markets speak to the potential impacts of economic policies that seek to place America first.  The prospect of broader trade wars and diminished trade due to possible retaliatory tariffs weigh on many segments of equity markets.  Trading success has hinged on identifying the relative winners and losers in the emerging financial landscape.  Short-term traders should be alert to the patterns of relative strength and weakness.  

So far, in the big picture, strength is relatively concentrated in the US (US dollar; US stocks) and, within the US, strength is relatively concentrated in growth segments of the market.  A Goldman Sachs report observes that concentration of value among US stocks is at historic highs.  They observe that we have only seen similar levels of concentration prior to the Great Depression, at the peak of the dot-com bubble, and during the early 1970s.  Right now, themes of relative strength and weakness dominate the macro investing landscape.  It will be important to watch the segments of greatest strength to see if this period also turns out to be a bubble that bursts, perhaps as the  stagflationary result of tariff wars fueling inflation and restraining growth.

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