The Psychology of Price Action and Volume

 

11/12/2025 - The one edge I've found to be most consistent in short-term trading is using price, volume, and high-frequency data (see below) to identify when buyers have been aggressive but cannot push the market to new, relative highs and when sellers have been aggressive and cannot push the market to fresh, relative lows.  The question that is worth asking in this context is:  "Who is trapped?".  It's the covering of positions, combined with the action of momentum/trend traders, that creates big moves and market reversals.

This occurs on all time scales, and it occurs across different stocks and sectors.  A promising trading approach is to screen stocks based upon the degree to which traders have been active in one direction and can no longer sustain the trend.  When we see this occurring across stocks and sectors and especially across time frames, we often have a great reversal opportunity in the market.

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11/11/2025 - The measure of price action and volume that I have found most consistently helpful for short term trading is the NYSE TICK and its cousins, the SPX TICK, the NASDAQ TICK, and the Russell 2000 TICK.  (I track these in real time on the Sierra Chart platform).  These measures capture, many times in a single minute, how many stocks are trading on upticks versus how many are trading on downticks.  Here are a few observations:

*  When the amplitude of the TICK measure increases (higher highs/lower lows), we see a broadening of participation by the institutional players that trade entire baskets of shares.  When we see decreasing amplitude, there is reduced participation in the accompanying move.  That often occurs as moves exhaust themselves.

*  When the various TICK measures differ significantly, it means that different parts of the overall market are attracting buying/selling.  This typically occurs as part of rotational markets.

*  TICK lows that cannot make fresh price lows tend to occur in uptrends and can offer good short-term entries.  The same is true of TICK highs that cannot lead to fresh price highs.

Changes in the distribution of the TICK measures; changes in their distributions relative to one another; and changes in their ability to move price are important short-term tells for traders.

The important things in markets occur within the bars you're watching on charts.

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11/10/2025 - Such an important tell:  When the market moves higher or lower, do more or fewer stocks participate in the move--especially when the market is already overbought or oversold?  It's not at all unusual for topping markets to display fewer new highs despite rising prices and fewer new lows despite falling prices.  Last week's price action relative to breadth was a great example of this and has led to the market strength late Friday and in the premarket.  This same principle applies to global macro markets:  When one equity index is making new highs, but others are lagging, that is a very different global growth story than a situation where everything is moving higher in concert (and vice versa).  How markets move tell you who is doing the moving--and understanding that is the best path to a clear-headed psychology. 

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11/9/2025 - A number of traders have asked me lately why they are struggling in their trading.  When many traders are struggling, there's a good chance that they haven't developed psychological issues with their trading all at once.  Rather, something in markets has changed and they are struggling to adapt.

Since the end of October, the SPX has dropped almost 2%.  During that same time, the percentage of stocks above their 20-day moving averages has risen meaningfully for energy stocks, financial stocks, healthcare stocks, real estate stocks, and utilities stocks.  In other words, there has been sector rotation away from the strongest names and into the parts of the market that had been underperforming.  Just look at the last five trading days in XLK (technology) and XLC (communications), for example, compared with the past week in XLE (energy) and XLF (financials).  Airline stocks during this period of airport turmoil?  They're up on the week.

There's a very important lesson here.  When your trading performance declines, you need to do the same thing that you do when your car engine begins making loud noises.  You look under the hood.  Something has changed and needs to be addressed.  The market story is occurring across multiple charts and multiple time frames.  Becoming locked in particular charts, time frames, and views is a failure to adapt.

The best traders always approach the market with fresh eyes and often that leads to fresh ideas and trades.

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11/7/2025 - The largest market participants are very concerned with value.  When a stock or other asset moves higher or lower on elevated volume, it's generally a clear sign that institutions are revaluing that asset.  The traders I work with spend a good deal of time scanning news and talking with informed participants to see if the emerging story might have legs.  Where the beginning trader might get down because they "missed" the move, the informed trader recognizes that a breakout in volume and volatility that takes us to a new price level could be the start of opportunity.  This is particularly the case when the move on elevated volume is occurring in a specific sector ETF, such as consumer discretionary stocks (XLY).  Such moves often flag sector rotation among large money managers.  Rarely is such rotation a one-and-done phenomenon.  When institutions engage in a broad rotation, it's a sign that they're seeing strength in one part of the economy and weakness in other parts.  An oversold sector that does not show subsequent buying interest is telling a story.  A sector that moves higher on elevated volume and barely corrects is also telling a story.  As in chess, we succeed by entering the mindset of those we're playing against.  We don't want to become so focused on our own psychology that we miss what's happening on the chess board.

What To Do When Your Trading Is Successful

 

11/5/2025 - The most important thing to look for in teaming up with another successful trader in a pod is complementary strengths.  You want to be similar in personality, but different in what you're good at.  Ideally, someone you team up with is strong in areas where you are not, and you are strong in areas that they are not.  That can take different forms.  You might be strong trading one market, and they might specialize and experience success in a different market.  You might be strong trading longer time frames, and they might find success in short-term trading.  You might succeed trading stocks directionally; they might succeed trading options structures.

In such an arrangement, clicking in terms of personality makes it easy for each of you to learn from the other.  They mentor you, and you mentor them.  You share ideas, and you share learning lessons.  Each of you expands your success.

Once you can create a two-person pod, then you might think about bringing on a third and fourth person who you both like and respect and who excels in areas of trading different from what the two of you do.  That way, you continue the structure of learning from/with each other and expanding your trading.  Reviewing market opportunity at the start of each day and reviewing performance at the end of each day creates many opportunities of "each one teach one".

Great things can happen when each person is a mentor and each person is a student and you challenge/inspire one another to grow.  Trading psychology is not just about managing negative emotions and behaviors.  When you create the right team, you cultivate the right mindset.  

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11/4/2025 - Moving from individual, isolated trading to trading with one or more dedicated traders in a "pod" is an important path toward our growth as traders.  At some point in a successful trader's development, adding size--doing more of the same thing--is not a formula for success.  That would be like being a business that has one profitable product and just keeps making more and more of it.

Eventually successful traders get to the point where getting bigger means getting broader.  By doing more and different things with an edge, the individual trader becomes a portfolio.  The diversification of strategies and styles ensures that there can be success across different market environments.  

When we trade with others in a pod, we learn from them and that sparks our ability to get bigger by getting broader.  As the pod grows, we connect with more mentors--and we also mentor more peers.  That expands our market mastery, and it also cements our learning.

A true measure of success is the ability to sustain profitability across different market conditions.  That can only happen if our trading is as diverse and flexible as markets are.  In teaching others and learning from them, collaboration makes everyone better.

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11/3/2025 - Once your trading is profitable, the single most important thing you can do is seek out other profitable traders, network with them, and share ideas and experiences.  This is the first stage of teamwork.  At every successful professional trading firm where I work, trading is conducted in teams.  The sharing of ideas and mutual mentoring accelerates everyone's development and supports their trading.  The trading events you attend and the traders you follow on social media are opportunities to reach out to other participants and network.  It may take a while, but finding just one or two others willing to share ideas and experiences is a great start toward accelerated growth.  

Ultimately, when you find those like-minded colleagues, you'll want to consider creating a formal trading pod, where you become a small group with its own processes and mutual learning.  There is no reason learning and development have to be undertaken in isolation.  Once you've been successful on your own, your growth has only just begun.  The key is to team up with others who are similar enough in values and personality but different enough in markets and strategies traded that you can learn from one another.

The step from individual, isolated trader to pod member is often the most promising step in building a sustainable trading business.  Learning with others accelerates everyone's development.

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11/2/2025 - Very often, there is an intermediate phase of development in which some of your trading is successful and some is not.  This is not at all necessarily because of changes in our trading psychology.  Rather, markets change in their direction, volatility, and correlation to other markets, ensuring that any given approach will work some of the time and not at other times.

If your trading has been profitable, but marked with losing periods, the best practice is to isolate those losing periods and see what might make them different than the winning periods.  It's possible that the losing periods were periods of greater distraction in your personal life; it's also possible that the losing periods were choppier or more volatile than the winning periods.  Reverse engineering periods of loss is the first step in figuring out how to adapt.  

The other helpful exercise is to reverse engineer the greatest winning periods and see what you might have been doing differently and what markets were doing at that time.  Often, this review will tell you when you're in your sweet spot, enabling you to grow your risk-taking.  For example, my recent trading reviews showed that when I began by identifying markets that were stretched on a short-term basis and then identifying how their movement lined up with their behavior on the longer time frame, I was often successful in figuring out how the shorter and longer perspectives lined up.  If I started with the big picture and (prematurely) developed a directional opinion, that was when I did my worst trading.

Learning from your successes fuels your positive psychology and provides the confidence to size up your trades.  As I emphasized in my book, the goal is to turn your best practices into sustainable processes.

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10/31/2025 - The previous set of posts outlined steps we can take when our trading inflicts significant losses, both financially and emotionally.  There is much more to trading psychology, however, than minimizing losses.  Indeed, most of my meetings at hedge funds deal with expanding success, not coping with discipline issues or losses.  The first question that arises in this context is, "How do we recognize success in trading?"  This is not as simple as adding up our P/L.  When I help teams and firms hire successful traders, here are a few things I look for right away:

*  Are returns positive over a sufficient period to cover various market conditions?  Does the trader earn significantly more than the risk-free returns of government bonds?  

*  Does the trader demonstrate good risk-adjusted returns (as measured by such indicators as Sharpe ratio)?  Is the average/median size of winning trades greater than the average/median size of losers?  Good risk-adjusted returns can be a great initial sign of a disciplined trading process.

*  Does the trader demonstrate the ability to make money in different kinds of markets and in different kinds of ways?  Such diversification tells us something about a trader's adaptability.  It's great to make money in one kind of market, but rarely is that a sustainable business.

*  Has the trader evolved in recent years?  How have they grown?  A trader who demonstrates ongoing improvement and growth is more likely to adapt to future market changes.

*  Does the trader demonstrate a positive trading psychology, finding both joy and meaning in trading and rising to challenges through innovation and teamwork?

The above are useful criteria in assessing your progress and success as a trader.  If you are firing on many of these cylinders, it is worth asking the solution-focused question:  What have I been doing right?  How have I been able to make progress as a trader?  So often, future success comes from leveraging what we do best.  More to come!

     

What To Do When Your Trading Blows Up

 

10/30/2025 - Maybe the most difficult question we have to tackle after our trading blows up is whether trading truly is meant to be our path.  We might not truly know that until we take the steps below, get proper training, undergo intensive practice that builds positive habits, and truly internalize sound trading processes.  What we find during this re-education is that the right kind of trading either interests us and gives us energy or is a drain on our mental and emotional resources.  Each of us possesses signature strengths:  abilities that capture who we are at our best and that inspire us.  Trading may not capture our greatest strengths and might even thwart them.  If we're wired to be emotionally connected with people and help them or if we're wired for physical challenge or creative, artistic expression, trading will likely frustrate who we are as people and prove to be unfulfilling even when we make money.

The goal is not to trade.

The goal is to follow your bliss, because that is the path that will open your doors in life.

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10/29/2025 - If you hope to return to trading after a traumatic blow up, the key will be to return in a new way and in a safe way.  This means beginning afresh, with training and mentoring and exploring markets and ways of trading markets that actively engage you and that fit with your interests and strengths.  Very many times, traders blow up because they put their capital at risk without the proper training and guidance.  They have not learned from mentors, so they don't possess edges in different kinds of markets.

Once you get the training and mentoring to trade in new and promising ways, it is important to begin trading in simulation mode and then with small size so that you turn good trading into habit patterns.  Only repetition and practice can accomplish that.  To repeat the point below, the idea is not to try to make yourself disciplined, but rather to make good trading so habitual, routine, and automatic that you won't need to impose discipline on yourself.

If you're trading because you need to make money right away or because you need the thrills of risk-taking, then you're likely to put yourself on yet another blow-up path.  Trading out of need is a formula for overtrading and impulsive trading.

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10/28/2025 - So what is the next step in recovering from blowing up our trading accounts?  Once we step back from trading and deal with the hurt we've created--connecting with others, taking care of ourselves--we have to come to terms with what we've done and why we blew up.  It's not coincidence that every major spiritual and religious tradition addresses the issue of repentance.  To repent is to look at what we've done, truly acknowledge the painful consequences of our actions, and vow to never repeat those mistakes.  Our emotional/impulsive/tilted trading may have hurt our relationships, our health, and of course our financial well-being.  Facing all of that and experiencing the pain and regret from our actions is a powerful motivator for change.  In essence, we hit bottom and get to the point where our priority becomes "Never again".

It is only after we come to terms with the consequences of our faulty trading and make amends to those who have been impacted by what we've done (and how we've done it) that we can even consider returning to markets.  More important than returning to trading is committing ourselves to never make the same mistakes that brought us to this point.

And how can we prevent that?  By making sure there are always things in our lives more important to us than P/L.  By making sure we have income and savings to cushion us if trading loses money.  By making sure that we have a trading process so well learned and internalized that it becomes second nature.  It is not discipline that can successfully bring us back to markets; it's the power of habit--and turning our best trading into our most automatic routines.

We can only start over if we retrain ourselves.  

More on this to come...

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10/27/2025 - Let's take a look, step by step, at how people recover from trauma.  Trauma occurs when people's lives are shaken up.  Their security is lost; their future is threatened.  Painful outcomes intrude in their day to day thoughts and feelings, disrupting mood and outlook.  Trauma is a word we associate with stress.  A traumatic stress is one that occurs when our normal lives are threatened.

It's important to understand this, because it helps us understand why the first step in trauma is to remove ourselves from the immediate situation causing us stress and placing ourselves in the most supportive, secure environment possible.  Connecting with those who care about us; re-establishing a normal routine in life; focusing on activities that are rewarding and fulfilling:  all these help us return to a state of greater security.  

When we have helped create our traumatic stress through addictive/impulsive trading, there is something else that can begin our recovery.  It is not a coincidence that the first of the twelve steps of recovery among alcoholics is "honesty".  We need to own up to our roles in creating our problems and our hitting bottom.  No excuses, no avoidance.  We take responsibility for our actions at the same time that we seek support and routine.  Ironically, that can be the hardest step in bouncing back, but also the most promising one.  Once we take responsibility for what we've done, we re-establish the sense of control that allows us to bounce back and turn things around.

More to come...

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10/26/2025 - I have received a number of emails from traders in crisis.  They have lost money, and they have lost their dreams of success.  Instead of providing fulfillment, their trading has led to pain and anguish.  A large part of this pain is due to the fact that they blame themselves for their failure.  They recognize that they have not followed their rules and they feel that they have betrayed themselves.  In reaching out, they ask the difficult question, "Should I stop trading?"

Here is where being a practicing psychologist is different from being a trading coach.  A trading coach typically tries to help you with your trading.  A trading coach is invested in you continuing your trading because that continues your work with them.  A psychologist is focused on your health and well-being and that may or may not include trading.

Suppose we replace the term "trading" with the term "drinking".  A person could say, "I've tried to have a good time drinking and I want to go out with my friends.  I've had too much to drink at times and so I set rules to limit and control my drinking, but lately I've broken all my rules.  I wrecked my car and lost my job.  Should I stop drinking entirely"?

Well, that puts our trading problem in a new light.  We can become dependent on anything that produces big highs--and that dependence can create deep lows.  Indeed, our dependence on trading can create traumatic consequences for us, as this post points out.  In the case of drinking, it's clear that we need to take two steps:  1) stop drinking; 2) get help for the traumas our drinking has created.  That first step of stopping drinking and getting help is always the hardest.  That's why people with drinking problems who have hit bottom often reach out to groups such as AA--for support as well as advice and encouragement.  Connecting with others in healthy ways replaces the drinking.

So, if we've been trading impulsively and addictively and breaking all our rules, should we continue to trade with ever more vows of "discipline"?  Of course not.  We need to give ourselves time to heal from the traumatic consequences, and we need to find others who can support us in that healing.  Only after that period of healing has occurred should we consider returning to markets in a different and healthier way.  The goal is not to trade.  The goal is to live a happy, healthy, fulfilling life.

The first step is the hardest, but it can also give you energy, because it can be the first step toward a new life.      

Finding a Trading Lesson in Each Market Day

 

10/24/2025 - The single greatest trend I have observed in my recent years of coaching work at hedge funds is the growth of teams and the expanding role of teamwork in trading performance.  Interestingly, this has also been a distinctive trend at the proprietary trading firm SMB Capital.  I recently spoke with a member of an expanded team at SMB and it was clear that his trading--and his engagement in markets--had benefited from the sharing of ideas and mutual review of performance.  Because of the learning that had occurred within the team, this trader was exploring unique and sophisticated trading opportunities.

At the hedge fund level, teams have become the mechanism for learning, training, and promotion.  As they've grown, teams have tackled new markets and new strategies.  They share ideas and information daily and thus are able to see a greater range of risks and rewards than individual traders.  I predict this will become a dominant trend among those individual traders as well.  They will network with one another and create their own trading pods.  This will keep individual traders actively engaged and also tap into their positive motivations to learn and help others.  Connecting traders and helping them form their own pods is an important mission for trading communities going forward, as communities become teams of teams.  

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10/23/2025 - The common view of trading psychology misses an important reality.  Yes, our emotional and cognitive states impact our decision making.  Equally important, however, is that our decision making style impacts our cognitive and emotional states.  All of us have strengths and weaknesses in terms of information processing.  Some of us process information best if we focus on a limited number of things and go into depth in those, seeing what others miss.  Others benefit from a broad vision and finding patterns and themes that pull things together.  When we are processing information in line with our strengths, we find the experience meaningful and interesting.  When we attempt to make sense of things outside of our strengths, we typically struggle and experience frustration.  It's not just we lose money if we are in the wrong mindset; it's that we experience negative mindsets if we're doing the wrong things (i.e., if we're operating outside of our strengths).  

Yesterday's trade began choppy and range-bound and evolved into a downtrend.  Getting out of the weeds and seeing what was happening across sectors was key to perceiving and benefiting from the market shift.  It was the frustration of being in the weeds that prodded me to step back, look at the larger picture, and align myself with my best thinking.  We work on our psychology by refining our trading.  This is an important trading lesson.

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10/22/2025 - The idea of finding a trading lesson in each market day is to become better and better at recognizing and acting upon opportunity and better and better at sizing and managing risk.  That way, every day yields something we can improve and/or something we did well that we can build upon.  Suppose, at the same time, we find a trading psychology lesson in each day that we trade:  something we can take away with respect to how we approach our trading.  For instance, with yesterday's lower volume and volatility, I had to adjust expectations in setting take-profit levels.  On Monday, those expectations were lofty; on Tuesday, I had to focus on near-term levels that I thought could be hit on the move-to-move basis.  One of my Tuesday trades hit my target but didn't get filled.  I adjusted my expectations but not enough.  Flexibility in how we approach the day's opportunity set is an essential element of trading psychology for the active trader.

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10/21/2025 - Note how the early trading of the market today differed greatly from the early market action on Monday.  Sector performance was mixed; advance/decline numbers were not extended in either direction; TICK numbers were similarly constrained.  Unlike Monday, when holding positions to ride the trend paid out, today's trading rewarded nimble trading move-to-move.  Remember, the opposite of a trending market is not necessarily a randomly choppy market.  There are short-term cycles that show up when trends are not dominating.  The move-to-move trades exploit these cycles.  It's a great example of how our trading must change as market environments change; a valuable market lesson. 

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10/21/2025 - Growth as a trader is a continuous process of starting over, but always from a higher starting point.  As markets change and as our understandings of markets evolve, we become new traders who are experienced traders.  During this most recent vacation period, I've remade my research databases to highlight trading patterns based on market and sector breadth and now am integrating that information into my market views.  Yesterday was a rewarding day in which old understandings of trend days in markets joined together with backtested historical patterns of sector and market breadth to reveal opportunity early in the trading session.  

One new practice I'm following in my journaling is to identify a single, valuable trading lesson each day based upon what I experienced and learned.  The idea is to ensure that each session is a learning opportunity that can be carried forward to improve performance.  Yesterday's lesson was that, when we see unusually strong NYSE TICK, advance-decline stats, and sector performance from the earliest minutes of trading, we want to be prepared to trade a trend day by holding positions and taking advantage of short-term pullbacks.  Identifying the kind of market we're in provides us with a valuable game plan for the trading day.

   

Focusing on Opportunity

 

10/13/2025 - TraderFeed will be on vacation while I ramp up my research platform and apply it to these markets.  I look forward to sharing insights and experiences.  

Friday's market was a dramatic reminder that relying on visual inspection of chart patterns and technical indicators for trading has its limitations.  Once important news comes out, market participation changes (volume, volatility) and the patterns that had shown up in previous trading can no longer be counted upon.  For example, previous oversold levels that could be counted upon for bounces now might simply lead to further downside.  

The key takeaway is that *who* is in the market defines the nature of trading opportunity.  When volume and volatility expand due to increased institutional participation, only historical analysis of similar periods can provide insight into trading opportunity.

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10/10/2025 - One thing I've been able to appreciate from my breadth-based research is that opportunity is not distributed evenly in the market.  There are periods in which backtests show little to no edge going forward, and there are periods when the backtests show a very distinct historical bias toward directional moves.  These periods of opportunity are generally ones in which multiple backtests of market behavior conducted over different time frames line up--and those then line up with current price action.  An example would be a market that shows a bullish edge from 3-5 days out and also for 20+ days out.  Intraday, there is selling that cannot push prices to a fresh low, so that we get short-term oversold readings at higher price lows.  

These opportunities are not common, but they are unusually promising and profitable.  Sizing all positions equally (i.e., taking the same risk in great opportunity markets and modest opportunity ones) is inefficient.  Invariably, when I come across a very successful trader, I find someone able to:  a) significantly size up researched high opportunity trades and b) effectively manage the downside risk of these trades.  A meaningful percentage of their weekly and monthly profits comes from a relatively small percentage of their trades.

The key to this success is the ability to *objectively* define the very high opportunity opportunities and patiently wait for these to appear.  Despite the large opportunity, the successful trader maintains the ability to manage risk effectively even when trading very large size.  This is the essence of trading like a sniper, with controlled aggression.

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10/8/2025 - Starting Monday, I will be taking a break from regular posting on TraderFeed to set up my breadth-based trading platform and begin trading the patterns I've been observing in my research.  What I can share is that what many traders don't look at--how money is flowing from certain sectors of the stock market to others--is associated with non-random returns over time periods most traders don't look at (20+ days out).  An edge is not something that is present or not present in the market, but something that evolves as flows shift from day to day.  Our job is to understand and follow that evolution.  A major problem in trading psychology is myopia:  we so focus on the present that we lose sight of the edges from days and weeks ago that are impacting how markets trade now.  Every trading day occurs within a context.  We lose vital information when we only look at the day and miss the larger context.

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10/7/2025 - I've been speaking with trading coach Agnieszka Wood and an active member of the Australian Technical Analysts Association about the idea of an enriched format for coaching traders that could provide greater opportunities for performance improvement.  In the medical world, it's common, when a patient enters a hospital, for multiple physicians to collaborate on their care.  Each physician has a distinct specialty and they combine their areas of expertise to create a well-rounded treatment plan.  Every patient benefits from this collaboration, and the physicians gain the opportunity to learn from one another.

Why not bring this model to the coaching of traders and create greater opportunities for change?  Traders would meet with multiple coaches in a group setting and would bring their questions and challenges to the team of coaches.  One coach, for example, might focus on how changes in the trader's psychology could help their trading.  Another coach might emphasize trading improvements that could help the trader's psychology.  Because the team coaching is conducted in a group session, it is affordable for traders and also allows traders to learn from the questions of others and the multiple responses of coaches.  It's a dynamic learning environment: active and interactive.

We create greater opportunity when we innovate--in trading and in all areas of life!

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10/6/2025 - I am getting a number of emails asking for help with trading discipline.  The traders feel that they can identify opportunity, but then violate their rules/stops/trading plans in the heat of action.  They recognize that opportunity is only opportunity if we can act upon it in a planned, disciplined manner.  They are asking for advice that will help them instill such self-control.

The key psychological principle here is that trading rules must be internalized as trading habits before we can pursue meaningful risk-taking.  In other words, we have to:  a) define the rules for our trading that reflect our best practices; b) turn those rules into checklists and step-by-step templates for action; and then c) repeat the application of these best practices again and again in practice/simulated trading and then in small-size trading until they are internalized as automatic habit patterns.

We do not gain discipline by exercising self-control; we achieve discipline by turning desired behaviors into habit patterns.  Then we can act upon opportunity consistently.

The mistake many developing traders are making is that they're trying to make money--and take meaningful risk--before they've truly internalized their best trading practices.  Until they build robust habit patterns around their best trading, they will be vulnerable when market events distract them.

Of course, the other reason for practice/simulated trading is to try things out, learn from our successes, figure out what we do best, and capture that information as best practices.  If we attempt to trade before we fully understand what goes into our successful trading, we will fall victim to impulsive decision-making.

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10/5/2025 - No amount of changing your bait, casting your fishing rod differently, and improving your mental outlook will help you catch fish if you're fishing in the wrong body of water.  Many traders experience frustration in their work, not because of any intrinsic emotional problems and not because they need to tweak their entries/exits, but because they are not focusing their trading on the areas of greatest opportunity.  If what you're trading isn't moving much, no switching of technical indicators, trading styles, or psychological exercises will help you make significant returns.

Consider the U.S. stock market this past month.  Look at returns in semiconductor stocks (SMH) over that period; then look at returns in consumer staples shares (XLP) over the same period; and then look at regional banking shares (KRE).  Participants in those markets were fishing in very different ponds.

A major source of movement in the stock market comes from rotation from one group of sectors to others, as institutions pursue investment themes.  Catching these rotations is a great way to find the best fishing ponds.  It's important to make sure we're playing the right games before we work on improving the game we're playing.  

Trading For A Living Without Living For Trading

 

10/3/2025 - Perhaps the most powerful way of ensuring that trading for a living does not become living for trading is maximizing the quality of our time and experience outside of markets.  Research in psychology is very clear that experiences of happiness/joy and meaning/fulfillment are associated with more energy, better health, and greater productivity.  The connection that is particularly relevant to trading is that, when we live lives of joy and fulfillment, our perception is literally expanded.  We become more creative and more perceptive.  Conversely, when we are more stressed, we lose the capacity to clearly perceive what is happening around us.  

What are we doing each day to bring happiness to our lives?  To do things that are meaningful?  To connect with people who matter to us?  To engage in activities that energize us?  If our trading impoverishes our lives and takes away from these four priorities, we unwittingly cultivate a mindset that removes us from opportunity.  How well we live is intimately connected with how well we trade.

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10/1/2025 - How can you trade for a living without living for trading if you're a short-term/intraday trader?  Don't you have to be glued to screens to find and exploit opportunity?

As noted below, breadth patterns can be found on all time frames, including very short-term.  For those whose greatest talents involve pattern recognition, opportunities with the NYSE TICK and related TICK measures set up frequently--particularly when upticks and downticks across stocks can no longer move price meaningfully higher/lower.  Conversely, we can monitor advances/declines for a given index in real time and see when upticks/downticks are moving the broad market.  

What I'm finding particularly promising is using the longer-term breadth information to identify historical trading edges over periods of days and then using the intraday breadth patterns to identify when those edges are playing out here and now.  That means trading short-term, while being informed regarding the market's bigger picture.  While waiting for the opportunity set to line up across time frames, the market gives us time to engage in other activities, whether they be market research or getting other things done.  We don't have to be glued to screens to keep an eye on the setting up of intraday swings.  Alternatively, I've known traders who limit their trading to patterns that set up in the morning hours and who size those aggressively.  They make their money and then the rest of the day is theirs.

When we own opportunity, markets no longer own us.

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9/30/2025 - The greatest market opportunities occur on multiple time scales:  they set up on the short-term and also on the longer-term.  When breadth patterns show up in the smaller and bigger pictures, it becomes possible to ride the activity of the market's largest participants.

First off, breadth means that multiple stocks/subsectors/sectors are participating in a move.  That can only happen when institutions are allocating capital to the asset class or to one or more themes within that asset class.  When we break breadth down sector by sector, subsector by subsector, and when we break breadth down by factor/themes (growth/value; small cap/large cap; interest rate sensitivity), we can see how funds are flowing and join in that movement.

Second, breadth occurs on multiple time scales.  We can look at the number of stocks giving longer- and shorter-term buy/sell signals on technical indicators such as moving average crossovers.  We can also look at new highs/lows over different time periods.  Breadth can even be tracked effectively intraday through measures such as TICK.  My platform (Sierra Chart) follows real time upticks vs. downticks for the overall NYSE market, but also for small cap stocks, for SPX stocks, and for Dow stocks.  This makes it possible to identify in real time whether a given move is broadly based or limited to a particular group of stocks.

When we require patterns to show up on longer time frames as well as medium and shorter ones, we trade much more selectively, but participate in the most promising opportunities.  This enables us to trade for a living without having to live to trade.  Instead of chasing moving markets, we patiently wait for markets to give us their best setups.  We can also pursue different opportunities on different time frames and in different parts of the market, giving us many ways to win.  

This is an important reason why very talented, successful hedge fund portfolio managers almost never come to me with problems of emotional trading/tilt/frustration.  They are not trying to catch each move.  They are waiting for opportunities to come to them.  I have found the Barchart, Market Charts, Stock Charts, and Sierra Chart resources to be invaluable in collating my own database to track breadth-related themes.

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9/29/2025 - Here is the project I'm working on:

I have been creating a very large database of breadth-related information for U.S. stocks.  The database goes back more than 20 years and includes daily breadth information for the overall market (NYSE, SPX) as well as breadth information for individual market sectors.  It also includes the number of stocks giving daily buy and sell signals across multiple technical indicator systems, as well as breadth data broken down by factor (growth vs value stocks; small vs. large cap stocks; etc.).  The database, when it is completed, will provide a look at forward returns from 3 to 50 days out and identify when returns are statistically significant relative to average returns.

What that means is that I have all the previous days' signals that cover the current trading day, and I have new trading signals created by yesterday's action.  That allows me to identify when forward returns are most promising due to the lining up of different signals and the lining up of signals across different time frames.  

Intraday overbought/oversold criteria are used to time entries in the larger breadth patterns.  There is no intraday trading, however; the breadth patterns are meant to capture short-term swings and longer-term moves in the indexes and stock sectors.  That provides diversification by time frame as well as by market.

Rules define stop and take-profit levels, as well as money management criteria for adding and lowering position sizes based upon the shifting of odds as markets move.  This requires checking in on the market in the morning and afternoon, but does not require ongoing tracking of minute-by-minute action.

It's early in the game, but so far the project is profitable and is showing promise in terms of identifying the parts of the market with the greatest odds of success.  The inclusion of sectors creates multiple ways to win (for example, being long one sector with good historical odds and short another with poor odds and volatility adjusting the pair to be completely market neutral).  The balance of positions--across markets and across time frames--helps smooth the P/L curve.  

The most important finding so far, however, is that this approach has taken all of the drama out of trading.  It has freed me up for my many other life priorities and yet is every bit as challenging and fulfilling as short-term trading in terms of problem-solving and the search for opportunity.  It is possible to trade for a living without living for trading.  So many of the problems identified by trading coaches are a function of the drama created by becoming attached to short-term market behavior.  For me, the best way to work on my psychology is to trade within a framework that draws upon my greatest interests and strengths.  

Life is too short for drama.

Why Do I Sabotage My Own Trading?

 

9/28/2025 - An important change method in positive psychology is the solution-focused approach.  From a solution perspective, asking the question, "Why do I sabotage my trading?" is the wrong question.  What we want to ask is, "What might I be doing right when I'm not sabotaging my trading?"  It's when our negative patterns are not occurring that we might be enacting our own solutions.  For instance, I stopped making poor, impulsive trading decisions once I dedicated a meaningful portion of my profits to causes that I believe in.  That changed my mindset.  I was trading to help others--a powerful motivation for a psychologist!  Just as I would not act on impulse while helping a client in therapy, I won't do so if my trading is designed to help those in need.  By tapping into a new and more powerful motivation, the problem ceases to exist.  

I've seen this dynamic many times among traders who trade in teams:  they become much more consistent and disciplined because their motivation to not let others down is stronger than their need for momentary P/L.  What makes team-based trading so powerful is the opportunity to share many ideas and observations, but also the opportunity to draw upon social motivations that overpower our most negative impulses.  Structuring our trading the right way is the best psychological practice!

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9/26/2025 - A powerful technique for overcoming the patterns that sabotage our trading is to actively mentally rehearse those patterns while we are training our brains to stay calm and focused.  In other words, we vividly imagine drawdown scenarios, missed opportunities, and other situations that can hijack our mindset.  While we're engaged in those visualizations, we can be connected to a brain wave biofeedback device that tells us in real time when we're in the zone and when we're not.  We keep repeating the "tilt" scenarios in our visualizations until they lose their ability to disrupt our mindsets.  Repetition normalizes experience.  When we normalize negative market outcomes, they no longer sabotage our trading.  

Indeed, using breaks from trading to renew our focus through biofeedback work makes us more resilient in our emotional responses.  Rehearsing our trading plans and rules before the start of the market day while keeping ourselves in states of focus builds a resilient performance mindset.

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9/25/2025 - One of the most frustrating issues I hear from traders is that they find themselves not following their own rules.  This creates a double sense of failure in that they miss opportunities and also feel that they have sabotaged their own success.  In my own trading, this has typically occurred when fear of loss overwhelms sound planning.  Although a trade is working out, I may see very short-term price action going against me and quickly exit the trade.  Many times, that short-term countermovement is precisely where I could be adding to my position!

The cognitive techniques discussed in The Daily Trading Coach book have been especially helpful in eliminating this sabotage.  The idea behind cognitive work is that our problems occur because of how we talk to ourselves.  If we can learn to identify and challenge our negative thinking, we can distance ourselves from it and act upon our best judgement.  One variation of this work that I've written about is imagining that the things you're telling yourself are being said to you by a person you hate and who would want to see you fail.  Imagine that this enemy of yours is shouting in your ear to get out of the trade that's working for you because you might lose your profits.

What would you say to that person?  Chances are good that you would tell them to shut the f*ck up!

In other words, if someone you can't stand said to you what you're saying to you, you wouldn't buy into it.  You would clearly see that it's a sabotage.

Cognitive work helps us identify in real time how we're talking to ourselves so that we can decide whether or not to act upon it.  Many of our greatest emotional problems are because we've learned (and overlearned) negative thought patterns.  By thinking about our thinking, we can evaluate our situations more objectively and do what's right--in markets, but also in relationships and other areas of life.

I will offer more on how to change our thought processes in coming posts--  

The Power of Asking New Questions

 

9/24/2025  - On my cat site, I just described a learning lesson from our most recent family addition, Nomi Lyn.  What I suggested is that the best way to raise a kitten is very similar to the Montessori approach to education:  Expose them to lots of different materials, activities, foods, etc. and discover who they are by observing what they gravitate to and how they make use of their environment.  

But, wait.  What if we trained traders that way?  Instead of expecting them to follow a preset curriculum/guru, what if we exposed them to many markets, many ways of trading, many time frames, and many role models?  What if traders spent an extended time playing with markets in order to discover where they excelled and what spoke to them?

Could it be that much of the frustration newer traders experience in markets is because they're trying to fit a mold promoted by others rather than take the time to learn where their talents and passions truly lie?  What might a Montessori education for traders look like?  Perhaps what makes cats flourish is not so different from what nurtures our own development.

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9/23/2025 - Suppose the title of this post was "The Power of Asking Now Questions".  What questions are you meant to be asking in the here-and-now:  at each phase of the trading process?  What questions are you meant to be asking at the start, middle, and end of each day?  Each week?  The purpose of now questions is to align ourselves with our life's priorities, including our own best trading practices.  We can best view opportunities--in life and in markets--if we re-view what we've done and connect with our goals and priorities going forward.  We can't act impulsively or on habit if we're consciously asking ourselves now questions.  The greatest challenge of trading psychology is not the presence of emotion, but the absence of self-awareness.  How can we reach personal goals if we are not setting those in front of ourselves regularly?

One of my best practices is to use real time brain wave biofeedback to enter a highly focused zone and, in that state, review my priorities going forward.  By training the brain for focus and using the focused state to rehearse goals, we create a situation in which our best trading becomes anchored to our best states.  This is known as state-dependent learning.  Connecting to our now questions--and our now answers--every time we calm and focus ourselves allows us to control our trading by controlling our mental and physical states.

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9/22/2025 - Back when I was teaching full time at the medical school in Syracuse, I came across an interesting study about what distinguishes the most successful scientific researchers.  One of the conclusions was that the best investigators were great "question finders".  It wasn't just that they came up with new discoveries.  They asked better questions and those led to the discoveries.  

I believe this applies to trading success as well.  For example, a trader may have flat performance for a while and conclude that they're not trading well.  A trader better at "question finding" will view the flat performance as a mixture of good trading and not-so-good trading.  They will then drill down to the ideas they're trading, the ways in which they are expressing those ideas, the sizing of their trades; their timing in trading those ideas with entries/exits; etc. to find out what they're doing really well and what they need to improve.  

Viewing flat performance of a sector ETF or a stock index as a blend of bullish and bearish components is a similar kind of reasoning.  One trader sees a flattish stock market and sees no opportunity.  Another trader looks at sector performance and the behavior of various market factors (such as small cap/large cap; growth/value) and sees that the flat overall market masks meaningful moves in the components.  Question finding for the trader is looking beneath the surface to see what is moving most--and what is moving most reliably.  A smart trader looks for movement; a really smart trader looks for the consistency of the movement (Sharpe ratio).

The best traders ask more and better questions.

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9/21/2025 - Fresh questions can open the door to new answers and opportunities.  

No trading edge ever came from consensus thinking.

What if how sectors and subsectors rotate anticipates how broad indexes will trend?  What if some of the most important information is not just price and volume, but the price of one asset relative to another?  What if absolute value begins with relative value?

We look for direction on the chart of an asset when it's the lack of direction that alerts us to relative movement within that asset.

What if the most reliable moves occur at time frames higher than the ones we watch?

Are we trading to make money, or are we watching markets to trade?

What if our best trading comes from following multiple, independent positions over longer time frames and not from piling into short-term trades of individual positions?

What if we're focused on playing the game better when there's a better game we should be playing?

What if better trading doesn't come from better trading psychology?  What if a better psychology comes from trading what we see and understand best--and what provides the greatest opportunity?

New questions can take us to new places.

I long ago found that adopting the cat no one wants and no one is looking at provides the greatest opportunity.  Markets are not so different--

Why Successful Traders Fail

 

9/19/25 - Successful traders fail more because of stagnation than because they blow up.  They focus so much on "plan your trade and trade your plan" that they never create new, more promising plans to trade.  What creates a lasting business is thinking outside the box, observing different market relationships, and finding fresh sources of edge.  The excitement of discovery and the reward of doing new things keeps us actively engaged.  Drawdowns of P/L don't have to become emotional drawdowns if we're always exploring, always discovering.

The source of edge I'm currently working on is flat, "choppy" market conditions.  How do we make money when the market trades in a relatively narrow range?  One measure I've found helpful is what I call the momentum curve:  the percentage of stocks in the SPX that trade above their various moving averages, from 3 day to 200 day.  (I find the Market Charts and Barchart sites useful sources for this information).  This tells us when flat markets are occurring in uptrends or downtrends on higher timeframes.

A unique idea that came to me is that we can create momentum curves for each sector within the SPX universe.  Thus we look at the percentage of stocks above the different moving averages within the technology, consumer discretionary, utilities, communications, and other sectors.  What we can clearly see is that "choppy" index markets are hiding sector rotation.  During the choppy period, funds are flowing out of some sectors and into others.  Choppy markets are actually rotational markets.

It turns out that opens a variety of sources of edge.  More to come--

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9/18/25 - It is a challenge to make ourselves, and it's doubly challenging to unlearn what we've absorbed and remake ourselves.  When we fear to lose, we've lost opportunity and that is the great loss of all.  

Successful traders fail because they cannot let go of what has worked in the past to discover and develop fresh opportunity going forward.  All edges in markets have expiration dates.  Eventually they are discovered, exploited, and lose their unique value.  The successful trader is not one with an edge, but one who has developed the ability to cultivate new and different edges.

But that takes the ability to embrace uncertainty as well as the passion for learning new things.  Trading is not a journey to a destination.  It is a continuous process of evolution.  If we don't love change, change surely will leave us behind.  In developing the new, we renew ourselves.  

The Key Role of Emotions in Trading

 

9/16/2025 - Think about the mind state of the Olympic athlete or the Broadway actress or the neurosurgeon.  Above all, they are focused on what they are doing.  They are in the zone of performance, and they experience that zone to be pleasurable.  They're immersed in doing something they love.

The opposite state from being in the zone is being so focused on outcome that we can't enjoy the performance itself.  Imagine a basketball player constantly looking at the scoreboard or the actor anxiously scanning to see how the audience is responding.

When outcome becomes more important than the process of doing, we become attached to our ups and downs and lose the joy of being in the zone.  We learn most effectively when we're in the receptive zone that processes experience deeply.

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9/15/2025 - Hybrid trading is generally considered to be the use of quantitative signals and systems to support discretionary decision-making.  What I'm finding is that, for someone with short-term trading experience, hybrid trading can also be the use of discretionary pattern recognition to best enter and exit trades generated by quantitative signals.  In such trading, emotion actually supports quant trading.  When a signal starts playing out in real time, there is an "aha!" experience that says, "Now is the time!"  For example, a breadth pattern in which funds are flowing away from value and defensive stocks and toward growth shares might be significantly associated with positive market returns over the next two weeks.  When we see the market sell off on a short-term basis and then find support above its prior oversold level, our "aha!" pattern recognition alerts us to opportunity.  Emotion actually helps us get larger in the backtested trade.  The experienced trader often senses and feels when a researched opportunity is playing out, creating very positive reward relative to risk.  

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9/14/2025 - The most important emotions in trading are fulfillment and frustration.  When we tackle challenges that make use of our talents, we experience satisfaction and a sense of meaning and purpose.  When we tackle challenges either in ways that don't make use of our talents--or if we simply lack the talents necessary for success--we experience frustration.

To be sure, skill development is crucial to success and all performance challenges bring their own unique learning curves.  We don't travel those curves successfully, however, if we don't have the basic talents needed for success.  That is obvious in sports such as basketball and Olympic skiing; it's also obvious in the arts.  Traders often want to believe--and unscrupulous vendors are happy to promote--the idea that success is simply a function of learning the right skills.  Without core talents of information processing, pattern recognition, and multiple learning styles, attempts at skill-building will fall short.

When our approaches to markets fits our talents, our skill development is accelerated and that is intrinsically rewarding.  We enter the performance zone when we are aligned with our talents.  Trading can't be profitable if it's not deeply fulfilling.

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9/14/2025 - When traders reflect on emotion in trading, their first thoughts often go to impulsivity, greed, and fear.  What I've emphasized in the upcoming book is that the experience of positive emotion is necessary for trading success.  It is positive emotion that shows up as our first market alerts, as we sense opportunity before we consciously identify and make sense of it.  It is also positive emotion that pushes us to find learning lessons and inspiration even in our losing trades and days, and it's positive emotion that connects us with others so that we can all benefit from teamwork.  

The problem with overtrading and poor risk management is not just that they lose us money.  They also prevent us from the positive experience that we need to energize our trading growth.  Perhaps there is no better trading self-assessment than to ask ourselves whether our trading is giving us energy or draining us; whether our trading is inspiring us or whether it's holding us back from our development.  

If there is no positive emotional P/L to our trading, surely we will not reap the financial rewards of markets.

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9/12/2025 - There is a serious misconception among traders that sound trading is trading without emotion.  I would suggest that sound trading is trading with emotion but without attachment to emotion.  That's an important distinction.  To feel something is information.  We feel because something in life strikes us favorably or unfavorably.  If we become attached to that emotion, then it will dominate our subsequent actions.  If we can observe the emotion and treat it as information, we can use it to make better and better trading decisions.

As I noted in the previous post, my research has been identifying edges that play out over a period of many weeks.  I'll be discussing those in future posts.  As those edges play out, you can identify short-term market situations where traders are getting stopped out of positions that will ultimately play out.  You can feel the traders' panic, and you can use that emotion to enter a longer-term position with very good reward relative to risk.

A therapist feels a client's emotions, but does not become attached to those feelings.  Emotions are information, but only if we can become observers of our emotions.  Our trading problems result, not from the presence of emotion, but from the absence of focus.