FIGS: Focused, Intensive Goal Setting

 

Many traders that I work with involve me in their performance reviews.  Sometimes they create weekly reviews, sometimes monthly or quarterly.  Invariably these reviews summarize what they did wrong over this period and how they could improve.  They set lots of goals, but then that's often the last I hear about those goals until the next review period!

There are three big problems with the goal-setting of many (and perhaps most) traders:

1)  Too Many Goals - By setting a large number of goals, traders have difficulties prioritizing the changes they want to make, and they find it difficult to give each of the goals proper attention.  As a result, they chronically feel as though they are falling short in achieving their goals and lose motivation.  Goals should move us forward, not discourage us!

2)  Vague Goals - A trader may set a goal of trading with greater discipline, so that they stop overtrading.  Great!  How are they going to do that?  How will they monitor performance to know that they're making progress?  A vague goal is only a good intention; it's not likely to energize or shape performance.  My experience is that vague goals get the least follow-through.

3)  Goals Lacking Vision - The best goals are tied to a vision of what is possible.  We want goals to bring out the best in us.  We want goals to excite and challenge us.  Many of the goals set by traders are prioritized to-do lists.  That turns the pursuit of goals into chores, robbing us of energy and enthusiasm.  If there's no emotion and excitement associated with our goals, we're unlikely to put forth our best efforts toward change.

In short, we don't see things as they are; we see them as *we* are.  Our moods and energy level help shape our perceptions and actions.  If we are overloaded with too many goals, vague goals, and goals not tied to an inspiring vision of the future, we are likely to lose our passion for markets and trading.  

Consider the radically different alternative of FIGS:  Focused, Intensive Goal Setting.  What if, at any given time, we worked on one goal and one goal only.  Suppose we worked on it every single day and made it the focus on each day's efforts.  And suppose we made it an emotionally intensive goal, where we actively rehearse and *feel* the consequences of not reaching the goal and the joy and benefits of making progress on the goal.  Suppose we grow--as people and as traders--by working one goal at a time in FIGS fashion, rather than by creating laundry lists of changes that are "shoulds" rather than "musts".

We see FIGS at work among people who work on their recovery from drug and alcohol dependence and addiction.  At some point, they "hit bottom" and make recovery their number one life priority.  They attend AA meetings every day, connect with a sponsor who helps them through rough patches, and work on their sobriety one day at a time.  What makes such change efforts powerful is the emotional commitment to reaching goals.  After someone has hit bottom, they *hate* their old habits and ways.  They never want to go back to the consequences they created for themselves and others.  Their goals are focused, but also intensive, because the goals aren't mere items on a list or in a journal.  The goals carry emotional intensity.

We don't change because we want to.  We change because we must:  we *need* to.  Without urgency, we don't sustain change efforts and simply relapse into old ways.  When goal setting is focused and intensive, we more readily create the conditions of urgency that help us see ourselves and others in new ways.  

FIGS starts with a simple question: What changes do you need to make?

Further Reading:

Mastering the Art of Goal Setting

How Goal Setting Helps Performance

When Goal Setting Falls Short

How Emotion Sets Our Goals in Motion

.

Finding Better Edges In Your Trading

 

I thought I would do something different with this blog and actually chronicle the development of new edges in my trading.  I'll post my successes and failures and learning lessons, with an eye toward trading psychology and also the psychology of the things I'm trading.

One lesson that I've learned from working with the traders at SMB Capital is that their success is as much about *what* they trade as *how* they trade.  Both are quite important, of course, but if one is trading directionally and the stock, index, or asset being traded simply isn't moving, there won't be a lot of opportunity.  During this recent period of "meme trading", I've also noticed that very high levels of movement are not necessarily very high opportunities for profit.  We don't just want things that move; we also need them to move in meaningful and predictable ways.

When we trade suboptimal trading vehicles, it has the same potential impact on our results as utilizing suboptimal trading methods.  Both lead to significant missed opportunities.

One tool that I will be employing in finding superior opportunity is the Market Charts site.  Long time readers know that I have made use of the Index Indicators site to identify promising breadth patterns in the overall market.  The Market Charts site is a much expanded version of Index Indicators, tracking more indicators, multiple indicators, and a variety of stocks and ETFs.  I respect Mo's work and so view this as a worthwhile platform to begin finding fresh sources of edge.  (Please note:  I have no commercial interest in these sites; as always, I only share resources that I have found to be useful and promising).

Please note the recent blog post on innovating in our trading.  An important theme from that post is that innovation begins by asking different and better questions.  I will be looking to the Market Charts platform to first generate better hypotheses and only then to come up with superior trade ideas.  For example, might it be possible to generate long/short trades and portfolios by finding related stocks that have greater and lesser edge?  By being long the stock with good upside edge and short the stock without such an edge and weighting the pair for relative volatility, one could make money whether the overall market goes up or down, as long as the edge plays out.  In other words, does the presence of a historical edge predict *relative* performance?  

Good trade ideas come from good questions.

Much more to come!

Brett

Further Resources:

Three Minute Trading Coach:  Drama Creates Trauma

Playlist for The Three Minute Trading Coach

.

How To Innovate In Your Trading

 

Very little has been written in trading psychology about innovation.  And yet, wherever I've encountered traders and portfolio managers with longstanding track records of success, I've seen evidence of innovation.  The innovator is the one who asks really good questions, really original questions.  The innovator is the one who sees changes in market behavior and wants to figure out what that's all about and how to take advantage of it.  

When we become completely P/L focused, there's little bandwidth left for innovation.  Superior trading requires an absorption in markets; superior good idea generation requires getting away from screens and seeing a bigger picture.

On a recent trip to Nashville, I had plenty of time away from screens and started asking simple questions, but questions I hadn't asked before.  For instance, I wondered if the best predictors of what happens in a given equity market index (such as SPX) might come from stocks outside that index (such as Russell 2000) or subsets of that index (such as the Dow).  In other words, do certain groups of stocks tend to lead momentum moves, trending moves, or reversal moves in a given index?  Oddly enough, I had always looked for data generated by an index to anticipate moves in that index.  But what if that's just playing the same game as everyone else?

Early days and we'll see what the research brings, but it's promising so far.  For example, it turns out that strength in the average RSI of small cap stocks is strongly correlated with future short-term strength in the SPX, accounting for almost all of the gains in SPY for the past two years.  Who knew?

But the great psychological benefit of innovation is that it leads to curiosity and discovery and fascination.  It rekindles our interest in markets when we could otherwise be ground down by choppy trading conditions and lackluster P/L.  Finding a new edge feels like becoming a new trader all over again, with all the new enthusiasm and excitement.  Come to think of it, that's also what leads to keeping relationships new and that's what leads to keeping life fresh and interesting.  When we innovate, look at new things, try new things, and learn new things, we are reborn--and that *gives* us energy.

Further Reading:

Trading Psychology 2.0

The Role of Creative Insight in Trading Success

Creativity is the New Discipline

.

How We Sabotage Our Trading

 

Above you can see the floor of my office, where well over 30 books are in various stages of being read--simultaneously!  My technique for writing is to read and read and read different authors on a given topic and eventually something jumps out at me as an integrating idea.  It's really no different from looking at charts and market information from different time frames and suddenly picking up on a directional move in the making.  Analyzing, analyzing, analyzing: that takes focus.  The creativity comes from the synthesizing:  putting it together into a coherent picture.

One of the main topics of my reading is meditation.  It turns out that there are *many* different forms of meditation, many of which are quite unlike our common conception of the Eastern practice.  As I explain in the recent Forbes article, the most important function of meditation is to build focus and amplify our experience.  The problem is that the great majority of people who try meditation don't pursue it long enough to achieve that amplification.

The way in which we often sabotage our trading is through our automatic, negative thought patterns.  As the cognitive therapists emphasize, we typically learn negative habits of thinking, where automatic thoughts take over.  These can be self-critical thoughts, repetitive thoughts of being a victim, worry thoughts, etc.  What is not well appreciated is that such automatic thinking is meditation in reverse.  When we focus on our negative thoughts, we internalize negativity.  Ironically, we end up using our magnifying glass to accentuate the very thinking that sabotages us:  in trading, and in life.

We internalize what we focus on and that shapes who we become.  That can uplift us or it can sabotage us--

Further Reading:

Why We Fail To Reach Our Potential

.

Three Steps To Avoid Trading On Tilt

 

I hear many traders early in their development wrestling with issues of emotional, reactive trading.  Here are three practical steps that can help traders avoid going on "tilt":

1)  Plan Your Losses - Big expectations lead to big frustrations.  Every trade should be accompanied by a very specific idea of what would tell you you're wrong and how much you're willing to lose on the trade.  It's when losses surprise us and become too large that they're likely to create disruptions in our mindset.  Your goal should be to lose well, in the right way.  Focusing only on how much you want/need to make sets up surprise and frustration.

2)  Take Breaks - After large gains and large losses, it's easy for P/L to get in our heads.  Always take a break after a large trade, clear your head, and assess the opportunity set with fresh eyes.  It is just as important to reset after big wins as big losses.  Both can lead to taking trades for the wrong reasons.  Quick meditation exercises to increase calm and focus can be *very* helpful.

3)  Keep Trading Size Moderate And Consistent - Too much size creates unusual P/L volatility and that leads to emotional volatility.  Your goal is to be consistently profitable and then grow your size while you retain your consistency.  If you *need* to be profitable, that creates undue performance pressure and emotional distraction.  Drama = distraction.  You want no drama in your trading.

The greatest edge of all in trading is self-awareness.  Frustration happens to us all.  The goal is not to trade without emotion, but to be so aware of our emotions that we know when to step back from the screens.

---

Further Resources:

Three Minute Trading Coach:  Taking Breaks

Three Minute Trading Coach:  Taking Your Emotional Temperature

Three Minute Trading Coach:  Shifting Your Trading Psychology

.

Short-Term Trading With The NYSE TICK - Part Three

 

The first post in this series and the second post took a look at the NYSE TICK and its relationship to price action as a way of identifying:  a) whether buyers or sellers are dominating the market and b) the degree to which their buying or selling activity is actually able to move the market directionally.  A valuable short-term edge sets up when buyers or sellers cannot move the market meaningfully higher or lower and then become trapped, setting up a move in the opposite direction.  

If you click on the chart above, you'll see a different TICK statistic, the NQ TICK, which assesses buying and selling activity (upticks vs. downticks) for the NQ100 stocks.  (Friday, 5/21; chart from Sierra Chart).  The horizontal yellow line represents the zero level for the NQ TICK and the white line is a short-term moving average of the one-minute TICK values.  At the bottom of the chart, we see the QQQ ETF.  Notice the blue arrows showing areas where there is net buying among the NQ stocks that cannot move price higher.  These become candidates for selling, as buyers are trapped and have to exit their positions.  These same patterns also show up for the TICK covering the Russell 2000 stocks.

Recall that the TICK measures the short-term psychology of market participants.  A different source of edge emerges when we place the different TICK measures next to one another.  We can see if there is uniform strength or weakness across the SPX, NQ, and Russell stocks.  If so, we have a nice tell for a trending market.  Conversely, if we see that one TICK measure is noticeably stronger or weaker than the others, we have a great tell for sector rotation.  And suppose we get a significant expansion or contraction of TICK extremes across the various measures.  That's a sensitive tell for changes in market participation, which often leads to changing market conditions.

There is a world of valuable information available to traders beyond simple barcharts, trendlines, and support/resistance levels.  There is little value focusing on trading psychology if you don't have a trading edge.  Many trading edges come from understanding the psychology of the marketplace itself.

Further Reading:

One of My Favorite Trading Patterns

Understanding Tilt:  How Emotion Makes and Breaks Our Trading

.

Short-Term Trading With The NYSE TICK - Part Two

 

In the first post in this series, we took a look at the NYSE TICK and how it measures the moment to moment sentiment in the overall market.  We also took a look at a pattern with edge, where buying pressure in the market cannot take prices higher.  Eventually, those buyers are forced out of their positions when sellers come in and that takes the market lower.  That pattern played out nicely in yesterday afternoon's market, which we see depicted above.  My cycle work was looking toppy and I tried to enter short positions in the market three times in the morning only to get stopped out with small losses.  Then I saw the TICK pattern play out in the afternoon and left the short position to run, more than making up for the losses, particularly given the overnight action.  One takeaway is that our best trades occur when the longer time frame picture and the shorter term market behavior line up.  It pays to be patient and wait for that alignment.

In the chart above, the yellow horizontal line represents the zero TICK level and the blue arrows show where net buying (where the moving average line of TICK is above zero) cannot produce price highs.  The longer that pattern plays out, on average, the more longs are trapped and end up needing to cover, creating a meaningful move to the downside, which we see play out with the very negative TICK readings late in the afternoon.  A good idea doesn't become a good trade unless we see traders trapped going the wrong way and needing to exit positions.

In the third post in this series, we'll look at the TICK in a different configuration and how it can provide upside edge.

Further Reading:

How Our Strengths Shape Our Trading Psychology

Forbes Articles on Trading and Performance Psychology

.

Short-Term Trading With The NYSE TICK - Part One

 

So much of intraday trading boils down to pattern recognition.  When you view market activity day after day, year after year, you internalize patterns that recur.  Those can provide a meaningful edge in trading.

As long-term TraderFeed readers know, one of my favorite market indicators is the NYSE TICK (shown above; $TICK on most platforms).  The TICK is updated many times per minute and captures the number of stocks in the NYSE universe trading on upticks minus the number trading on downticks at every moment.  So we can think of the TICK as a moment to moment measure of trader sentiment across the market.  It tells us what traders are actually doing in the market, which is an important clue as to the psychology of the marketplace.  Trading psychology is not just about our own psychology; it's about understanding the psychology of those we're competing with.  We can pick up tells in the market just as we can at a poker table.  

If you click on the chart above (taken from my Sierra Chart screen), a one-minute chart of the NYSE TICK (above) and SPY (below), you'll see patterns noted by the arrows.  The yellow arrows show us occasions where there is increased buying pressure that is unable to move the market to new highs.  Those buyers will be trapped and will have to exit, fueling the next downleg.  The blue arrows show the market basing and selling pressure drying up, with higher TICK lows.  This led to a nice upleg.

Knowing if buyers or sellers are dominant (do we see net positive or negative TICK) and how well the buyers and sellers can move the market is very helpful information.  We want to see who is in control of price action and who is trapped.  In upcoming posts, I'll expand upon this edge.  The key is seeing enough patterns over time that you can recognize them in real time and act upon them.  It's amazing how you don't have to worry about your own psychology when you understand the psychology of the marketplace.

Further Reading:

NYSE TICK as a useful trading tool

Cumulative TICK

.

How To Network Successfully

 

I want to thank the traders who participated in the first Traders' Virtual Happy Hour session on Sunday evening.  Over time, these efforts will get better and better at connecting traders with others to accelerate development and improve performance.  At the networking event, I presented two unique edges in the stock market and we heard about a unique approach to maximizing trading performance and quality of life.  We also heard about tools for evaluating where large market participants are buying or selling--a huge potential edge in the market.  Most of all, we provided a forum for traders to share what they're up to and connect to one another.

I am totally convinced that the most successful traders are those that are best at networking and learning from and with others.  When people share their successes, failures, and ideas, they accelerate their learning and become broader as well as better.

The wrong way to network is to focus on what you want to learn.

The right way to network is to focus on what you want to share.

When you share your learning, others share with you.  When you focus on your needs, you bring nothing positive to others.  For developing traders, it's easy to get caught up in what you *don't* know.  Still, it's important to identify what you've learned and what you can bring to others, because that cements your learning.

Networking is a lot like dating.  If you reach out to 10 people, 8 of those contacts will be so-so, 1 will be really promising, and 1 will be so awful that you'll have funny stories to tell the next evening at the bar.  It's all about "fail fast".  If you try reaching out to others and get butt-hurt because you don't get a response, you'll never persist and find that one in ten great opportunity to connect with someone.  If you keep meeting people, it's only a matter of time before you meet the right people.

Already I identified 13 traders who have done a special job of sharing.  I put them in touch with each other and I shared a unique idea with them.  I look forward to including you in such special lists!

Further Reading:

How To Be Great At Networking

.

Six Relevant Pieces of Trading Wisdom

 

Here are six pieces of trading wisdom that I might touch upon in Sunday evening's happy hour session:

1)  Ego is our self-talk.  Our wisdom comes when we stop talking to ourselves and let markets speak to us.

2)  In stable market conditions, we work to refine our game.  In changing market conditions, we find new games to play.

3)  Opportunity is just as much a function of what you trade as how you trade.

4)  If you trade a style that fits your personality, you'll be a one-trick pony.

5)  Greatness is never achieved in isolation.  Great performers--in athletics, visual arts, drama, medicine, music, markets--learn from others and with others.

6)  If P/L is the most important thing in our lives, markets will always control us and dominate our psychology.

More to come!

Further Reading:

Radical Renewal

.

Your Invitation to the First Virtual Happy Hour for Traders

 

How would you like an entirely new way of preparing for the trading week?  I know I would like that, so I'm creating a new approach to teamwork for independent traders.  It's a way of joining a team and benefiting from the insights of others no matter where you live or how you trade.

I encourage you to take a look at my most recent Forbes article, where I explain that the virtual environment from the past year is going to impact teamwork well after we've put the pandemic behind us.  (May that time come soon!)  The restrictions from the COVID period have led traders and trading teams to generate innovations that will be carried forward to help us work better, individually and in groups.

One thing this past year has taught me, personally as well as professionally:  isolation does not bring out the best in us.  Many traders I work with have felt isolated, lonely, bored, and burned out.  This has taken a toll on relationships, and it's made it difficult to trade with the kind of energy and enthusiasm that we need for perceiving and pouncing on fresh opportunities.  What I observe in the Forbes article is that there are very creative ways in which we can achieve teamwork, even when we are trading from home.

Last month I proposed the idea of a virtual happy hour for traders, drawing upon the success of craft beer outings that I have hosted for money managers prior to the pandemic.  The idea is to enjoy good food and drink, share ideas and experiences, and build relationships that accelerate our growth as traders.  (See also my Three Minute Trading Coach video on the topic).  The feedback was positive, so now let's give it a go!

The first virtual happy hour for traders will be at 7 PM Eastern time this coming Sunday, May 9th.  It will be a one hour event via Zoom.  I will share my observations and plans for the trading week and participants will share their ideas and learning lessons with each other.  There is no fee, there won't be any collection of email addresses for marketing, and I'm not looking to build a large community.  The happy hour is for experienced traders who are looking to take their trading to the next level and who are willing to help others do the same.  This latter point is key.  I'm only looking for people who will share best ideas and best practices.  Traders who feel a need to keep their trading ideas and methods to themselves would not be appropriate for this kind of teamwork.

And bring something fun to eat and drink!  It's a Happy Hour!!

So here's how you "register" for the event:

Send me an email to the address located at the top of the TraderFeed home page, the "Contact for Trading Firms and Media".  The email should *briefly* introduce you, your trading experience/markets/strategies, and the specific idea or strategy you would like to share with the group.  You'll be sharing your idea via the chat function of Zoom, so you should have a brief writeup of the idea ready to go and share when you come to the session.  If it looks as though there's a good fit, I'll then email you the Zoom link for the session and further details.  As noted above, I will not be collecting, selling, or using the email addresses for any kind of marketing.  I also will not be inviting people who show an interest in promoting themselves or who simply want to share generic ideas about controlling emotions, managing risk, having a positive attitude, etc.  The idea is for each participant to share one specific, unique idea or practice they have found helpful.

I'll also ask every participant to share their contact information with each other via the chat function.  That way, if you have a question about an idea proposed by a group member, you can reach out for discussion.  The sharing of contact information will promote networking and sharing of ideas beyond the happy hour.

This Traders' Happy Hour is definitely not for everyone.  It is based on a radical notion of teamwork and sharing, where we learn from each other in a fun environment.  It should be a fun experiment; thanks for your interest!

Brett

Further Reading:

Radical Renewal:  Spirituality and Trading - free blog book 

Trading Psychology 2.0 - How we can adapt to change, build on our strengths, cultivate creativity, and develop best practices

The Daily Trading Coach - A cookbook of evidence-based techniques for improving our trading psychology

.

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:

A Cognitive View of Trading Psychology

Wiring Our Brains for Trading Success

Trading Psychology 2.0

.

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:

Developing Ourselves By Doing Less

.

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--

Brett

===============

Further Reading:

A Three-Step Process For Conquering Procrastination

.

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 Barchart.com).  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:

Understanding Cycles

Reading Market Cycles

How to Trade With Focus

.

How To Trade With Focus

 

Here is a link to the recent webinar I conducted with FuturesTrader71 and Futures.io.  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:

Going From Impossible To I'm Possible

The Three Minute Trading Coach YouTube Video Channel

Radical Renewal and the Spirituality of Trading

.  

Ask The Trading And Trading Psychology Questions Top On Your Mind

 

It's been a busy few weeks, and I've largely taken a break from social media and educational programs in order to focus on my own trading.  Among the areas I've been working on are:

*  Using the trading psychology of market participants to read intraday and longer-term patterns in the stock market;

*  Refining the use of market cycles for the timing of trades;

*  Refining the use of quant studies to look for market edges;

*  Using relative performance to identify the next market themes in play.

This work was rewarded on Friday with one of my best trading days in a while.  Trading is always a work in progress and that is a big part of what keeps it fascinating and challenging!

If you click the graphic at the top of the post, you'll get the details on a webinar I'll be doing with Futures.io and Morad Askar this coming Wednesday at 4:30 PM EST.  The format of the session will be that participants can bring any trading or trading psychology question for Morad and me to answer.  Participants can ask their questions anonymously and it will be open kimono on my end.  Happy to share my latest work, as well as general ideas re: trading psychology.

The idea is provide free coaching and mentoring to developing traders and allow everyone to learn from each other's questions.  

In order to participate in the live session and ask questions, you'll need to use this link to register:  

REGISTRATION FOR THE FUTURES.IO SESSION 

Because it's a virtual session, attendance will be limited.  Hope to see you there!!

Brett

.

Tracking Sentiment And Market Impact

If you click on the chart above, you can see one thing I was tracking in the afternoon of Friday, March 12th.  (Data and chart from Sierra Chart).  In the top panel, we see the futures market for the S&) 500 Index (ES), where each bar represents 50,000 contracts traded.  The second panel shows the proportion of volume during each 50,000 contract period that was transacted at the offer price (green color) vs. the bid price (red color).  What we see with the yellow arrows is that the trend of ES continues higher, but there has been recent hitting of bids during the recent period.  In other words, sellers have been more aggressive lately, but they have been unable to push price meaningfully lower.  That has kept me long the market, with a tilt toward large cap value, which has been outperforming the NASDAQ tech names.  

Knowing the sentiment of the market through tracking which side is more aggressive and then seeing how this is impacting price action provide a helpful perspective on the market.  In this case, it has kept me in my position despite some price pullback and opens the door to my adding to the position should I see fresh lifting of offers taking price higher.

The most recent Three Minute Trading Coach video describes two ways of improving our trading that also improves our trading psychology.  The overarching point is that trading well--and grounding ourselves in market data that we have studied and reviewed so often that we have confidence in their value--is one of the best ways of improving our mindset.  If we are patient enough to wait for those occasions when we truly understand what is going on, that understanding provides us with the security to take proper risk in the idea.  Working on your trading ultimately *is* working on your head.  Understanding the psychology of other market participants is excellent grounding for your own psychology.

Further Resources:

What You Trade Is As Important As How You Trade

Synthesizing Trading Ideas

Three Minute Trading Coach YouTube Channel

.

Should High Achieving Traders Try To Live A Balanced Life?

 

A developing trader with a real passion for markets recently asked me about the psychological benefits of a "balanced life".  I'm sure he noticed, as I have, that many of the most successful traders put an unusual amount of time and effort into their work.  Is that setting them up for burnout, however, or undue stress during periods of drawdown?

It's an issue that I am intimately familiar with, as I typically wake up quite early in the morning and often work into the evening, including on weekends.  I have multiple work responsibilities--teaching in a medical school, working with traders from different firms, and helping college students who are doing overseas internships--and I have a wonderful family to keep up with.  On top of that, I'm taking several courses and writing a book.  Time is tight.  Sometimes too tight!

Do I have a balanced life?  In one sense, no, if we measure balance in terms of hours per week.  In another sense, my time spent with family, in my marriage, in learning, and at work provide real variety.  Per the quote above, I seek a balance among my passions; I don't balance time.

A large body of research in the field of positive psychology finds that we perform best, feel best, and are physically healthiest when we maximize our well-being.  Psychological well-being comes from doing things that make us happy; doing things that are meaningful to us; doing things that give us energy; and doing things that bring us closer to those that we care about.

We want to be firing on all four of those cylinders frequently every week, preferably every single day.  If we balance our passions in that way, we're most likely to broaden our sources of well-being and make ourselves as fulfilled and productive as possible.  If you're looking to balance your work life, the best place to start is maximizing non-work passions.

I've often pointed out that trading has to fit into our lives; our time can't be hostage to markets.  If all we have in life is trading, we will feel empty, stressed, and depressed when trading isn't paying off.  When we cultivate multiple passions, we always have things in our lives that keep us energized and engaged.  

What in your life sustains you outside of markets?

Further Resources:

Radical Renewal - The Spirituality of Trading

The Profound Benefits of a Purposeful Life

Techniques for Building Your Positive Psychology

The Three Minute Trading Coach YouTube Video Channel

.

Three Ways To Improve Your Trading--And Your Trading Psychology

 

Here are three things you can evaluate right here, right now to help your trading and improve your trading psychology:

1)  Look at how much heat you take on your trades relative to how much they move your way - In other words, examine each trade you place and see how far the position went against you during the life of the trade and how far it went in your favor.  This tells you if you are truly achieving good reward relative to risk in the execution of your ideas.  If you tend to undergo meaningful downside before positions work for you, how might you refine your entries?  Studying what would have been more optimal entry points will help you reduce downside during your trades and that promotes a sense of mastery.  On the other hand, if you tend to take little heat on your trades, are you sizing up positions adequately when you do enter?  Might it make sense to size the entries larger and scale out of positions as they go your way, creating more consistent and larger profitability?  That can help our psychology as well.

2)  Look at the productivity of the time you spend when you are *not* trading - There are many junctures during the trading day and week when opportunity is slim.  Do you use this time to research new ideas, update existing ones, and review performance in detail?  Or do you find yourself staring at screens, worrying about P/L or searching for trades to put on, even if those aren't necessarily in your wheelhouse?  When we are productive in our time outside of trading, we create wins every single day, and that bolsters our mindset.  Using the time unproductively reinforces a sense of self that fails to achieve.

3)  Look at what happens to your positions after you exit them - After you've exited a trade, what tends to happen to your positions?  If you took a profit, did the positions move meaningfully further in your favor?  If you took a loss, did the positions reverse and eventually prove profitable?  Many times we exit positions and leave considerable money on the table.  Might it make sense to exit positions in stages, rather than all at once?  Might it make sense to hold portions of profitable positions longer for further potential gain?  Would it make a difference to hold those portions of positions in the form of options, reducing capital at risk?  Many times we enter for sound reasons and exit for emotional reasons.  Studying and optimizing our exits gives us greater control over our risk, enhancing our sense of efficacy.

The bottom line is that some of the best ways to improve your trading psychology is to improve the mechanics of your trading.  All the positive self-talk and work on mindset cannot substitute for skill and its consistent execution.

Further Resources:

How to Transform Our Mindsets

Finding a Trading Edge - Video

Anchoring - A Technique to Improve Our Trading Consistency

.