1/27/2026 - Short-term trading requires short-term coaching. When I began working with traders whose average holding periods for trades was a matter of minutes, I was struck by one of their performance processes. They prepared for trading at the start of the day, tracking order flow and short-term price action across a variety of markets. They then took a midday break when markets slowed down and reviewed their morning trading and their morning P/L. They adjusted their trading (direction, what was moving best) during that break and then took a longer review period after the market closed. Often they would use the replay feature on their platform to see what they missed during the day and how they could have picked it up or traded it better.
Each day thus had three separate coaching periods. This provided more opportunities for pattern recognition and more opportunities for learning. Indeed, the morning sessions had their own stop loss levels, which preserved capital for the afternoon session. Every day was really two days. Their short-term trading was amazingly successful because they had turned performance improvement into a short-term process.
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1/26/2026 - What creates success among short-term traders is not only pattern recognition, but the ability to process many patterns quickly. One of the reasons I chose to track the mentoring process at SMB Capital for my latest book is that I wanted a better sense for how active traders gain their performance edge. What stood out is something I had observed in interacting with their best traders: the ability to look at many different trading instruments and quickly find patterns worth trading. The use of scanners greatly assisted this process, but there was also scanning being done by the trader to see how things were moving across different time frames. Their expertise came not only from knowing how to trade, but by focusing on the best things to trade. The ability to process large amounts of information quickly and identify patterns of patterns allowed them to participate in the greatest areas of opportunity.
The broaden and build model in psychology suggests that positive emotional experience helps us process more information and process that information better. A positive mindset expands our awareness and makes us better at finding opportunity. When we are in the right mindset, there is joy in preparing for trading: the process of finding opportunity is intrinsically rewarding. It is that joy that energizes our pattern recognition and helps us trade better ideas in better ways.
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1/25/2026 - As noted below, there are tremendous trading advantages to blending rapid pattern recognition skill with traditional analytical skill. The current market is a great example of this, as we've seen very bullish moves in small cap stocks and in metals (copper, silver, gold), raw materials shares (XLB) and energy stocks (XLE). That has led to considerable bullish speculation regarding the impact of the AI trade, as noted below. But sector analysis provides caution. Since 2020, when more than 85% of XLE and XLB stocks are trading above their 20-day moving averages, next 20-day returns in SPY have been subnormal. Indeed, the next 20 days in SPY have averaged a loss of -.56% (N=134), an eye-opening return during a bull market period. If I were only looking at charts and patterns, I might look for the uptrend to continue. Based on the analysis, however, I can approach this week's market with a balanced perspective and let the market show its hand.
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1/25/2026 - I'll share what I've been discussing with a number of traders in recent days, addressing their frustration over not making more money in the AI stocks and missing the moves in silver, gold, and mining shares. Note that, while this issue has psychological implications, no amount of work on psychology is going to provide answers as to asset allocation and trade selection. Rather, a proper understanding of the situation might just help the psychology!
The AI theme is alive and well, but the focus among the people I read and speak with has been toward the geopolitical competition for the raw materials that are in short supply if there is to be broad AI development. So what we're seeing (Greenland is an example) are efforts to lock in these resources and generate the power and mining needed to exploit them. That is why we're seeing recent relative strength, for example, in the XLE (energy) and XLB (materials) ETFs.
These might represent promising investment themes, but for the short-term trader the question becomes, "What price/volume action do I need to see to participate in these trends with favorable reward relative to risk?" The short-term trader can thus participate in big picture market developments by breaking trends down into component moves. A different way of saying this is that cycles occur even within strong trends, and those can offer excellent timing opportunities for the short-term trader.
A promising combination is having the perspective of an investor and the nimbleness of a trader.
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1/23/2026 - Quickly review the previous sets of posts on hidden edges in the market. All of these were over longer time frames, and all of them involved data collection and analysis. By seeing how markets have behaved historically, we can develop hypotheses about how they might behave going forward. Then we can use real time price action to gauge whether these scenarios are actually playing out. Notice that this is a highly analytical process. The hedge fund team managers who collect data and develop ideas based on the data are called analysts for a reason!
Short-term trading--particularly trading intraday--is a completely different activity. Data collection and analysis are less important and pattern recognition becomes key. For instance, if I see small cap stocks breaking out to new highs, resulting in strong market breadth, I can observe where selling in other areas of the market might pose opportunities to buy. Alternatively, if I see that the market has traded in a relatively narrow range and now breaks higher on increased volume following a similar move in small caps, I can infer that large market players are perceiving opportunity on the long side and join their move.
Where investing requires slower, deeper thinking, short-term trading involves faster, nimbler processing. This has important implications for training. The only way to build faster pattern recognition is to be exposed to many patterns many times so that you can internalize those. A major reason traders fail at daytrading is that they don't spend enough time experiencing patterns to be able to recognize those in real time. When I wrote the book The Positive Psychology of Trading, I spent time with Jeff Holden and his group of trainees at SMB Capital to see how they were learning to trade the market actively. What I saw is that he walked students through trades bar by bar, showing what was happening and what that meant. This was something the group did day after day, until they could perceive opportunity on their own.
Training in short-term trading is training in perception. Only by seeing things again and again can we recognize them in real time and take the right steps. That is true for medical students learning to make diagnoses and treatment plans, and it's true of active traders. Sound training builds a sound psychology. No amount of psychological work can substitute for understanding what is happening in markets.
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Without mentoring/coaching and structured deliberate practice, talents never find their way to skills and elite performance. In the upcoming posts, we'll take a look at the special talents and skills required by short-term trading and the ways in which these can be honed through the right kinds of learning processes.