Unique Applications of Psychology to Markets

 

6/28/2026 - A key element in positive trading psychology is ensuring that your trading process draws upon the values and interests that bring your greatest happiness and fulfillment.  In other words, trading should be an expression of strengths that have already provided you with success, joy, and meaning.  

Here's a personal example:  What gives me the greatest well-being in life are long-term commitments to what I find meaningful:  a romantic relationship; having children; raising my rescue cats; helping people as a psychologist.  Being a significant part of the lives of others is the source of my greatest fulfillment.  

At various times in my life I've tried very active, short-term trading.  It has taken a very short time for me to realize that my passion lies elsewhere.  I enjoy discovering and making good trades, but it feels as though something is missing for me if that's all I'm doing.  

Conversely, I *love* research, finding new things, and sharing them with others.  That brought me to the academic world and is a big part of what is driving my latest market project, which is detecting patterns of breadth and market movement that accompany big trend shifts in the stock market.  That project is so interesting to me that I devote many hours each week creating and analyzing databases covering many years of market activity.  Sharing my findings with others who are equally passionate in their discovery process is tremendously fulfilling.

And applying the research to participate in big market trends is immensely gratifying.  Not because I love trading per se, but because I love discovery, sharing discoveries, and seeing discoveries validated.  It's great to be passionate about trading; also great to be passionate about investing oneself in markets and sharing those investments with others who are immersed in creative discovery.

What makes us most successful and fulfilled in markets is an expression of what makes us successful and fulfilled in life.  

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6/26/2026 - Why is it that top performing traders who lead teams or who describe their "setups" and trading style online--even walking people through their trades--can't produce the same level of success among followers that they have had?  If trading can be boiled down to rules, patterns, and setups, why can't Market Wizard levels of success be replicated?

There is a parallel phenomenon in psychology.  Leading therapists map out their therapy in workbooks and manuals so that patients can overcome their anxiety, depression, etc. using the best practices of best therapists.  The problem is that it doesn't work.  The advice is sound, the exercises are evidence-based, but there is something to live therapy that cannot be replicated in a self-help guide.

And how about simply programming the top traders' setups and letting the computer do the trading?  Or programming the computer to take the role of therapist?  Why doesn't that work as well as live performance?

So much of trading success is based on what people trade, not just how they trade it.  So much of psychotherapy's success is based upon how and when it is applied.  When there is true mentoring, a person learns to replicate not only what the mentor says, but *how* they apply it.  The expertise of the mentor is captured in how they do what they do.  A painter could verbally describe all their strokes and colors, but no one would become a world-class artist by simply listening to such descriptions.

We learn by copying the masters.  We broaden our learning by working with multiple masters.  We develop our own style when we integrate the lessons from those masters.  Trying to learn on our own from books, videos, and websites doesn't work.  If it did, we'd see many more Wizards and masters.  No "trading psychology" can correct the injuries that result from learning a performance field the wrong way.

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6/25/2026 - Professor Ed Diener, in his above quote, points to an important insight from his research:  Happiness is a process.  It is not just an emotional state that we sometimes experience; it is something that we *do*.  Happiness is actually a combination of two emotional states:  joy and fulfillment.  We are truly happy when we are immersed in what we love doing and in what is meaningful to us.  This is why relationships are such powerful vehicles for happiness: they can make us happy and they are deeply meaningful.

Many of our problems occur when we lack happiness in our lives and seek "feel good" activities as a substitute.  That is how we can end up eating and drinking too much, how we can become involved in drugs and other activities that feel good at the time, but are ultimately empty in terms of fulfillment.  What is fulfilling is what speaks to our values: what is most important to us.  It is what speaks to our souls.

Overtrading occurs when we lack fulfillment and turn to trading to fill our voids.  It is not merely a lapse of discipline.  Rather, we are missing something in our lives and are trying to make up for that by engaging in the thrills and profits of trading.  Of course, that ultimately creates losses and an even deeper sense of emptiness.  Conversely, many of the most successful traders I've known work closely with others--often in teams.  They enjoy the challenges of trading, but they also find the rewards of teamwork deeply satisfying.  For them, trading is more than exploiting setups and trade ideas.  It is a way of connecting to the aspirations of others and sharing aspirations with them.

When we read the Market Wizards interviews, it becomes clear that the happiness they find in trading is not only a place; it's a process.  They love to learn, they love to dig for opportunity, they love to learn with others and from others.  Trading, for them, is more than a feel-good activity.  It is a deep expression of who they are.

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6/24/2026 - In the Positive Trading Psychology book, I go into detail regarding the use of neurofeedback (real time feedback about our brain wave patterns) and its application to trading and trading psychology.  The key idea is that, when we learn to identify the brain wave patterns that accompany focus and good trading, as well as the patterns associated with frustration and impulsivity, we can ensure that we truly only trade when we're "in the zone".

What makes biofeedback especially helpful is that we typically see changes in our brain wave patterns *before* we are consciously aware that we're losing concentration, becoming frustrated, etc.  Once we see that our brain waves are no longer in our zone, we can step back and engage in exercises (such as meditation) that will return our focus.  That is proactive trading psychology:  working on our problem patterns before they actually occur.

I have also used real time heart rate feedback from the Fitbit watch as a way of monitoring calm vs. agitation.  Increased variability in heart rate readings is typically associated with poorer cognitive focus.  This often occurs at times of distraction and frustration, not always connected to markets.  Starting the trading session with a meditation routine can be useful in defusing such frustration.

The smartwatch also measures the quality of sleep each night, which I have found to be correlated with my ability to sustain focus.  These real time readings allow us to adjust our trading to our state, avoiding trading when we are not fully calm and focused.  Real time readings also help us identify what we need to do to start our days in the zone.  For instance, I know that drinking alcohol in the evening leads to lower sleep quality that night, which in turn leads to difficulty in sustaining concentration.  I also have learned that going to bed an hour earlier than usual and waking up earlier leads to better sleep quality and improved productivity in my morning routine.

Traders are like athletes in training.  We are most likely to perform at our peak if we keep our bodies and minds at their peak.  We don't have to wait for FOMO, greed, and fear in order to work on our psychology, and we can improve our psychology even when we're not beset with FOMO, greed, and fear!

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6/23/2026 - One of the great tragedies in the trading world is that trading psychology has become equated with the psychology of beginning traders, thus focusing on such things as discipline, emotional control, fear, greed, and frustration.  To use the analogy I often turn to as one who teaches at a medical school, it is as if we were to discuss the psychology of the emergency room physician in the terms that apply to beginning medical students.  Of course the beginner in any field has doubts, needs, ambitions, etc. and those can color decision-making.  What makes a professional a true pro is that they have moved beyond those initial self-doubts and concerns and now can focus on the challenges of peak performance.

An area of psychology that applies to the pros is the ability to access intuition in generating trade ideas.  Intuition is implicit or tacit knowledge:  it's what we know, but don't know that we know.  It shows up as gut feelings and flashes of insight.  Intuition comes to us; it's not something we can manufacture upon demand.

There are, however, things we can do to access and activate intuition.  The more things we see, the more things we can connect.  That is why, in the interviews of the Market Wizards, we find that so many of them spend hours and hours reviewing charts and markets.  They are feeding their heads with example after example, confident that intuition will capture the patterns of strength, weakness, reversal, and continuation.  

Because their review is conducted in a state of intense focus, the successful trader is not only seeing more things, but processing them more deeply.  The quality of focus--its sustained intensity--fuels the generation of intuitive insights.  To the outside observer, it simply looks as though the Market Wizard works harder than others.  It's more than that, however.  What makes the magic of a Wizard is how they work--and what that work generates in terms of intuitive learning.

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6/22/2026 - When a psychologist/therapist speaks with a person, the truly important themes emerge when there is a discrepancy between *what* a person says and *how* they say it.  The mood and tone and body language suddenly don't fit with the meaning of the message.  That is the first sign of potential conflict, and it signals an opportunity for the therapy.  Growth occurs when we are physically, emotionally, and cognitively aligned.  That is when we're most open to absorbing new meanings from life and pursuing fresh sources of purpose.  

In markets, trends persist when there is an alignment between the behavior of the parts of the market and the market as a whole.  When the components of an index begin going their own way, that is an early sign that the market sector is losing alignment.  The tide is no longer lifting all boats; the winds are shifting.  Changes occur within the alignment of the market before those changes manifest themselves as clear price reversals and new patterns of movement.  

Listening to the market the way a therapist listens to a client--carefully gauging not only what is happening but how--allows for flexible trading.  Conviction makes convicts:  We become trapped by what we attach ourselves to.  When we listen with an open mind, the subtle shifts in market behavior become clear.  

The meaning of market action lies in *how* it gets from Point A to Point B.

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Brief Therapy: Therapy for the Mentally Well

It is commonly assumed that the role of the psychologist is to help people with their problems. Lodged in the backs of our minds is the image of the patient on the couch, talking with a Freudian analyst. In reality, applied psychology has come a long way from its beginnings as a "talking cure". Indeed, many of the newer approaches, which have been extensively studied and validated through research, do not emphasize talking at all.

Nonetheless, old assumptions die hard. People assume that you need to have "a problem" in order to see a psychologist. In fact, insurance companies will not reimburse visits to psychologists and psychiatrists unless they are provided with a "diagnosis" of the problems being "treated". Little wonder that the stereotype persists that there's something wrong with you if you need to see a "shrink".

The reality is that the good psychologist is not a shrink, but instead expands people's minds and horizons. The goal is not to treat problems, but to make changes. Psychology is about making changes in life. Sometimes these are changes in relationships; other times, they are changes in the ways we think, feel, or act. To benefit from psychology doesn't require that you have a problem. It does require a desire to make changes.

A group of methods known as brief therapies are extremely promising, because they accelerate the process of change. I refer to the brief therapies as therapies for the mentally well. There are individuals who have chronic mental health problems. They are not the ones for whom brief work is appropriate: lifelong, severe problems often require ongoing assistance, including medication help. The mentally well, however, are not beset with such problems. They are simply interested in making changes. Sometimes those changes are simply to expand their strengths: to become even better at what they do.

A trader who made 2 million dollars last year--and more the year before that--recently insisted on meeting with me before New Year's Day to identify areas for improvement and set goals--and a path for meeting those goals--for 2007. His goal was to enhance his performance, not rid himself of personal demons. That is an excellent use of therapy for the mentally well.

So how do you know if you can benefit from such brief work? Here's a guide:

Behavior is patterned. How we think, feel, and act have a pattern to them, and that patterning is what makes us who we are. The sum total of our patterns is our personality.

Sometimes our patterns interfere with our goals in life. They prevent us from being who we want to be or accomplishing what we want to accomplish.

Perhaps there are times when you say to yourself, "I don't know why I keep [fill in the blank]. I wish I would stop."

You could fill in the blank with any of the following--and more:

"losing my temper"
"going into slumps"
"winding up in bad relationships"
"overeating"
"beating myself up"
"making stupid trades"
"procrastinating"
"pushing people away"
"worrying"
"choking under pressure"

In each of these situations, we're recognizing that there is some pattern of behavior that is not fully in our control. The pattern has ossified: it's hardened into a habit. If you can identify a pattern that is getting in your way, you can benefit from short-term applications of psychology.

Brief therapy is about changing the patterns that no longer serve us well. The second step in such therapy for the mentally well is to ask yourself: What is the one pattern that is most holding me back from my goals, from being who I want to be?

So what's the first step? To know what our goals are. To know who you want to be. Many people never travel the right path, because they never formulate their destination.

So that's where we'll begin in the next post in this series: Figuring out where you want to go in life. Then we'll take a look at what might be holding you back.

But first things first. Solving a problem will not give you a goal. Furiously climbing the ladder of success won't help you if it's leaning against the wrong structure.

Brief therapy doesn't start with problems. It starts with goals--and a vision for the future. Without such vision, we're walking blind through life. The therapy for the mentally well begins with the recognition that it's time to open our eyes and develop our vision.


Related readings:

Brief Therapy and Becoming Your Own Trading Coach - Part One, Part Two, Part Three

TraderFeed Posts on Psychology From 2006 - Part One, Part Two, Part Three

Evaluating Problems That Interfere With Trading

Excerpt From My Book on Trading Performance

Excerpt From My Book on Trading Psychology

Coaching Yourself To Trading Success

 

7/31/2026 - Many years ago I met with a very successful prop trader who wanted to ask me questions about psychology.  We discussed the psychology of success and then he asked me if I had anything I wanted to discuss regarding trading.  I said, "Sure!"  He asked, "What is the size of your largest trades compared with your average size?"  I thought for a moment and said, "Maybe 3:1".  He gave me a hard look and simply said, "Consider 20:1".  

Years later, this trader would become the head of one of the world's largest hedge funds.  I never forgot his advice.

It is advice that could be dangerous in the wrong hands.  What made this trader special was that he was intimately familiar with the markets he traded and had deeply studied the patterns they displayed and what happened when those patterns played out very successfully.  His ability to recognize in real time that the pattern was recurring enabled him to size up to a huge degree, even as he was aware of what to do if the trade should reverse on him.

His self coaching followed from his intensive study of the patterns that he traded.  He viewed so many examples that he knew when the trades were working and could quickly size up.  He also viewed so many examples that he knew when the trades stopped working and he could quickly exit.  What enabled him to size up to such a degree and not let fear and greed get the better of him was the repetition of studying the trades so many times in so many ways.

A huge percentage of his year's profitability came from the small number of trades that he sized up in this manner.  His intensive, sustained market preparation made his real time coaching automatic.

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7/30/2026 - An impressive developing trader recently wrote to me, not to ask questions and seek answers but to share what he was doing successfully in his trading.  Right away that stood out.  What he shared, however, taught me an important lesson.

He observed that the specifics of his trade planning--tracking market patterns he had observed and outlining in depth every detail of how each pattern has played out--made it possible to see more clearly what was happening in real time and respond without hesitation.

In other words, trading with confidence was a function, not merely of his self-talk, but his intensive preparation.  Because he had seen and noted every facet of every setup, doubts and self-talk did not interfere with his trading.  Indeed, the right actions came to him.

This trader was succeeding because of his self-coaching.  He wasn't just creating chartbooks of setups; he was looking within each of these patterns to see what to do when.  That has enabled him to size up his best trades and has bolstered his confidence.  

Truly, this is what success looks like in markets.  I'm hoping this trader will give me permission to give him a proper, personal shout out in my upcoming Trading Psychology 3.0 book!

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7/29/2026 - How we manage time is how we manage ourselves.  We can be highly purposeful in our structuring of time, or we can go with the flow.  Once we're intentional about our use of time, then we can ask questions about how productive we were, how we could become more productive, how we could use the time more effectively.  Each block of time becomes a project, an enterprise, and we can use each block to become more and more intentional.

The goal is to do the right things and to do them more and more effectively.  Working on each block of time and learning from our performance of each block *is* our way of working on ourselves.  It is how we manage ourselves.

It is how we train.

Every day can be a workout.  Every day can make us better.  It starts with how we manage time.

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7/28/2026 - In any performance field, coaching has very limited value unless the performer is actively involved in training.  Much of what is offered to traders is framed as "education".  So we see online courses, videos, and talks from educators, influencers, and others offering secrets to success.

But in what performance field do people expect to become successful by taking courses and watching videos?  Will that make someone a successful athlete?  Musician?  Painter?  Broadway actor/actress?

And imagine performers signing up for coaching without involving themselves in a structured training program!  Would a legitimate football or basketball coach offer their services if the players were not training each day?  

Coaching ourselves to trading success can only occur in the context of our ongoing training.  Each day we build our fitness to sustain concentration, gather and organize information, recognize market patterns, and act on them flexibly:  sizing up when indicated, stopping out when they don't play out.  How in the world are those skills going to develop by talking to a coach or by reading books or watching videos?

When we try to succeed in markets without rigorous training, we quickly become frustrated when success doesn't follow.  And then we tell ourselves that the problem is with our "psychology".  And we listen to other coaches and watch other videos.  Sigh.  

Training involves daily, directed effort to build specific competencies and grow our ability to sustain market focus.  I work with many successful portfolio managers, and I've read every Market Wizards book.  No one achieved distinctive success by watching videos and following influencers.  

No one.

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7/27/2026 - A unique aspect of the upcoming trading psychology webinar will be the opportunity to hear from different coaches on topics important to trading.  (See below for registration information).  A great exercise is to assume that all of the coaching perspectives contain useful information.  Your job is to pull it together in a way that makes sense to you so that the suggestions of the three coaches can become your own self-coaching.

In any performance field, what we find is that successful performers work with multiple mentors and coaches.  They pick up different things from different experienced professionals and then synthesize these in their own ways.  One way of accomplishing that is to review performance each day and then ask, "What would each of my mentors say about what I did?"  Out of those perspectives, you can then create goals for the next day.

When you pull together the inputs from different coaches, you develop your own perspectives on performance.  This enables you to identify your strengths (and ways of building these), as well as your shortcomings.  At times, the coaches will offer the same advice, and that's when you know there's an important theme to work on.

Imagine collaborating with other traders, each of whom is coaching themselves.  Their lessons become your lessons and yours become theirs:  everyone is both mentor and student.  This accelerates development and also broadens it, as we grow in many ways that we would otherwise never think of on our own.  

On a great team, everyone is both coach and student.

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7/26/2026 - August 5th at 7:00 PM ET will be the free trading psychology webinar where I'll join Peter Robbins, author of The Trader's Journey, and trading coach Agniezska Wood for a sharing of perspectives on how aspiring traders can get to that next level in their development.  Here is the registration information.

Most traders work on their trading, some more intensively than others.  Fewer traders work on their self-coaching.  How well are you developing yourself as a trader?  What positive changes have you made in your trading?  How did you make those changes?  How could you apply your self-coaching successes to new areas of growth and expand your performance?

Every trader is both a performer and a performance coach.  The best way you could utilize your time in the upcoming webinar is to figure out how you become better and better at guiding your own trading success.  You'll make your greatest changes when you train yourself to be your own best change agent.  You can begin by figuring out the most positive changes you've already made as a trader and identify how you helped yourself make those changes.  

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7/24/2026 - Please see the post below for information about the free trading psychology webinar a week from Wednesday.  This will be a great opportunity to ask Agniezska Wood, Peter Robbins, and me questions about how you can take your trading to that proverbial next level.

A hard working developing trader shared his journal with me recently and made a very interesting and valuable observation.  He noted that he trades much better--with better clarity--if he has no distractions at all in his preparation.  I've explained in past posts how interactive teamwork helps traders process more information in different ways, helping ideas stick in the mind.  What this trader found is that such interaction *is* a distraction for him.  By preparing in a quiet, focused environment, his ideas became clearer and his execution of those ideas improved.  Yes, he could benefit from interactive review and research with other traders after hours, but what underlies his success is deep focus.

The risk is that traders can pursue breadth of processing--looking at more things, talking with more traders--that they compromise depth of processing.  Clarity gives birth to conviction.  Great traders have a process for teamwork, but they have separate processes for deep work.

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7/23/2026 - On Wednesday, August 5th at 7 PM ET, I will join Peter Robbins and Agniezska Wood for a free trading psychology webinar.  Registration is here.  This will be a great way to get different coaching perspectives and practical takeaways that can improve your trading.  

During my portion of the program, I will share a trading framework that I employ that helps trade execution, identifying spots of unusually good reward relative to risk.  If we can find those great execution spots, it is much easier to size up promising ideas and still control risk well.  The key is spotting inflection points and (psychologically) being prepared to exit quickly if the trade does not go your way promptly and also being prepared to size the position meaningfully.  That means adopting a mind frame that is simultaneously cautious and aggressive.  

To identify those inflection points, we need to follow price and volume action at a higher frequency timeframe than the one we are trading.  This is very important.  Great trade ideas set up on one time frame; great execution occurs at a quicker time frame.  The same idea applies to exits.  What gets us out of a good trade occurs at a more rapid time frame than the one we're primarily trading.  When time frames line up, we can quickly size up our positions.  When time frames fail to line up, we can quickly exit.  We coach ourselves by mindfully blending tactics with well-researched ideas.  Think of a football team.  They depend upon calling the right plays, but their success crucially depends upon how they execute those plays.  Many trading psychology problems occur because we're not properly focused on execution.  More to come in the webinar.

  

Understanding, Prediction, and What Makes Discretionary Traders Successful

This post was written from Glacier National Park in Montana.  Sometimes it takes a complete change of scenery to create a fresh mindset and renewed focus on what is essential--in life, as well as in trading.  It's when we introduce novelty into our lives that we are most likely to achieve new insights.

Recently I wrote a post that has found unusually strong interest from readers, focusing on what is most important in markets.  The post was distinctive because it emphasized market understanding, not the prediction of markets.  This is a very important distinction for discretionary traders.

Let's say I'm a parent and I notice my son being unusually quiet, talking softly and keeping to herself.  I've seen those facial expressions, tones, and behaviors before and know that they have typically occurred whenever he has felt hurt or rejected.  As a psychologist, I also know that those same behavior patterns occur in other people for other reasons, such as when they are deeply reflective about a challenge at work or when they are deeply frustrated about a situation.  For those other people, the period of quiet might be followed by a burst of work effort--or a burst of anger.  The quiet comes from a different place for my son, however, and has in the past led to periods of sad mood and poor work performance.

With that understanding, I simply give him a hug and let him know that he is special to me.  That reaching out is enough to bring him out of his shell and get him talking about what went wrong with his best friend.  With the emotional release, he begins to feel better, short-circuiting the depressed feelings and helping him reengage with other life activities.

Being a therapist is all about tracking the thoughts, feelings, and actions of a unique human being;  understanding what is driving those; and then using that awareness to help create a set of conditions that can lead to growth rather than setback.  In a different context, that is also what a great parent does.  What therapists and parents don't do is conduct backtests of all similar occurrences across all people and then generate a prediction of future behavior to figure out how to respond.  Understanding is built from the ground up, taking particulars and making sense of them, creating possible explanations.  Prediction is a top-down process, starting with universal patterns and applying them to particular contexts.

A meteorologist seeks prediction, making use of complex models that track temperature, humidity, wind, air pressure, etc.  A historian seeks understanding, looking at the motives and cultural influences that lead to political, economic, and military decisions and outcomes.  Each is an approach to knowledge:  we might accurately predict the outcome of a ball game and also understand the decisions and strategies that led to the outcome.  

Successful discretionary traders I've known and worked with have been distinguished by their level of market understanding.  Successful quantitative traders I've encountered have excelled at analysis and prediction.  Sometimes the successful discretionary trader makes use of predictive models as inputs to decisions; the successful quantitative trader will ground models in sound market understanding.  At the end of the day, however, quants trade their predictions and discretionary participants trade their understanding.  One trades universal patterns; another trades insights specific to what is observed here and now in a particular market.

What I realized in the Montana mountains is that the psychological challenges faced by traders often leads them to seek quick (and artificial) security in market predictions.  Instead to staying grounded in what is happening here and now, as in the example of my response to my son, a frustrated or uncertain trader might look for answers in top-down predictions.  If a psychologist were to do this, he or she would become emotionally tone-deaf, no longer tracking the meaning of the unique individual in the conversation.  When discretionary traders leap to a mode of prediction, they often lose their feel for markets by imposing ideas that clash with the actual messages of "the tape".

I propose that successful discretionary traders are successful for the same reason that people are successful in relationships:  they are able to stand apart from their own emotional responses and habit patterns so that they can appreciate and understand the thoughts, feelings, and actions of others.  When we track who is in the market, what they are doing, and the price levels at which they are acting, we assemble the raw materials for understanding market activity.  It is difficult to truly understand what someone is saying if we're busy fitting them into a model and trying to predict what they'll do.  The same is true for the trading of markets:  we fail when we become so eager to anticipate outcomes that we stop listening to the actual messages of markets.  Quantitative information can assist the understanding of a discretionary trader; it can never substitute for it.

Further Reading:  Trading Emotionally, With Intelligence
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Coaching Yourself for a Better Trading Psychology

Thanks once again to the good folks at Futures.io, who hosted the recent webinar on techniques for changing your trading psychology.  The recording of that session is now up on YouTube.  I appreciate Mike, Terry, and crew making that available for those who could not attend live.  We had over 250 attendees and many more questions than I had time to answer.  In August, therefore, I'll do another session with Futures.io, but this time with the sole focus of Q&A.  Traders can ask me any question about any trading (or life) problem, and I'll respond with ways I deal with those challenges as a psychologist and coach.  As the time gets closer, I'll post instructions for registering for that session.

In this post, I'd like to elaborate on a point made in the recent webinar:

What traders typically identify as psychological problems in trading are usually the result of an underlying problem and not the problem itself.  Successfully dealing with the issue means identifying and addressing its cause.

This is a very important concept, and it's what distinguishes would-be trading coaches from actual psychologists.  Very often the wannabe coach has a favorite tool or set of techniques for dealing with trader issues.  It's one size fits all.  A psychologist recognizes that the problems people experience can have many causes and first tries to determine where the problem is coming from.  

Let's take a typical example of a trader complaining of lapses in discipline.  The trader trades well for a while, then overtrades and loses more money than is prudent.  The trader asks the coach, "How can I solve this problem?"

It's the wrong question.  The right question is, "Where is this problem coming from?"  It's only after asking that question that we can figure out a possible solution.

Consider the following possible causes of lapses in trading discipline:

*  The trader is trying to focus on screens continually for an extended time and is becoming fatigued, with a resulting loss of willpower;

*  The trader is distracted by problems in his/her personal life, perhaps upset about arguments at home or financial issues;

*  The trader suffers from attention deficit disorder and resulting impulsivity;

*  The trader has become frustrated by recent trading losses, as these trigger past feelings of being a loser;

*  The trader has failed to adapt to a lower volume/lower volatility market and is now trading breakouts/momentum that fail to materialize.

You get the idea.  Loss of discipline is not the problem.  Loss of discipline is the result of a problem, and we have to diagnose that problem to figure out how to address it.  Filling out trading journals and checklists will not help the trader deal with personal issues at home or medical issues regarding ADD.  Working on mindfulness and awareness/control of emotions will not help a trader adapt to a changing market regime or address past psychological conflicts.  All of those techniques are useful in certain situations; none are universal solutions for our trading psychology.

The starting point for identifying causes of our trading psychology challenges is creating a catalogue of instances when those challenges are and aren't occurring.  So, for example, we would note when we are having more trouble with discipline in trading and we would jot down what is occurring at those times:  what's happening in markets, what's going on in our minds, what's happening in our personal lives, etc.  We would also write down occasions when we're faring much better in our discipline and what is going on at those occasions.  As we catalogue instances, we begin to notice patterns and those provide excellent clues as to potential sources of our trading woes.

The most important distinction is between issues that occur solely within the trading context and issues that also occur outside of trading and/or that have occurred in our past.  If we're lacking discipline in our personal lives (perhaps by not paying bills on time, by being easily distracted, by being emotionally upset), that is different from situations where discipline lapses are specific to the trading context.  Very often the connection is an emotional one:  the frustration that triggers the lapse of discipline is a frustration that is being felt in other parts of the trader's life and/or that has been felt during the trader's past.  

Very often, as you catalogue the waxing and waning of problem patterns, you'll see that working with a dedicated trading coach is not the answer.  If the problem is a conflict from your past repeating itself in your trading, a competent counselor or therapist can help with this.  If the problem is an attention deficit that has been present since our youth, this can be addressed medically and perhaps via biofeedback training.  If the problem is adapting to changing market conditions, perhaps what is needed is some mentoring from an experienced trader.

We can coach ourselves for a better trading psychology by paying close attention to the triggers of our trading challenges.  Asking the right questions greatly increases the odds of finding solutions for our trading.

Further Reading:  

Brief Therapy for the Mentally Well

More Therapy for the Mentally Well

Four Triggers for Trading Psychology Problems

A Powerful Change Technique for Our Trading Psychology

The Daily Trading Coach:  101 Techniques for Changing Trading Psychology
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Control Your Ego, Listen to Your Emotions

A commonly encountered view in writings on trading psychology is that good decisions require that we tame our emotions through discipline and self-control.  Many of those same writings talk about trusting your gut and not overthinking decisions.  How we are to be open to our feel for markets and yet trade in an emotionless, zen-like state is left unanswered.

In this post, I will propose something different.  Our task as effective traders is to tame the ego, not dampen our emotions.  Indeed, it is when we trade without the ego that we're most likely to be open to our feel for what markets are telling us.  

The recent post made an important distinction between understanding and prediction.  Discretionary traders seek to understand market behavior from the ground up, by listening to markets the way we listen to people when we seek to understand them.  When traders become uncomfortable with market uncertainty, they often seek false security in predictions.  They impose views from the top-down, and they stop listening to what markets are trying to tell us.

Why do traders become so enamored with prediction?  Perhaps it is because prediction is all about us.  We are the ones calling the moves and leading the markets.  In the dance with markets, the trader seeking understanding lets the market lead and takes their cues from the market's steps.  When we seek prediction, we seek to lead the dance with the market.  It becomes about us.

It occurred to me after writing the post that, when I've developed quant models of market behavior than anticipated a move, I've often heard kudos from others about my "good call."  When I'm a psychologist and listening to my clients, helping them make changes in their lives by accessing strengths they didn't realize they had, no one compliments me on good calls.  As a psychologist, it's not about me; my ego is placed as far to the side as possible.  It's about listening to others and discovering those hidden strengths.

Emotions become problems in trading when they follow from our ego involvement in decisions.  If we're making a market call and looking for self-validation by anticipating a market move, then it will be particularly frustrating if and when that move doesn't materialize.  We no longer feel validated.  If a trading decision is the result of listening and isn't about us, being wrong doesn't feel like being stupid.  Being wrong becomes information.  It tells us we have to listen harder, listen differently.

Imagine if I were to come into a session with a client with a clear conviction about what we needed to talk about that day.  Chances are good I'd miss what that other person had to say and might even create a frustration for them.  It's no different with markets.  Once it becomes about me, I can justify ignoring the messages of markets simply by calling myself a contrarian or a "mean-reversion" trader.  Very often, ego-involvement is the source of trading without emotional intelligence.

How ironic it is, then, that would-be trading coaches tell us to trade with confidence and double down on bets when we have our greatest conviction.  Listening to markets and following their lead requires the utmost of humility and open-mindedness.  The trader with supreme conviction is the one most likely to be blind as markets turn.

Once we put ego aside, we can pick up on market cues the way we pick up on the subtle nuances of tone and facial expression when we speak with those closest to us.  If I'm in a rush, focused on my needs to get to work, will I really be attentive to what my wife or children are trying to tell me?  We are wonderful pattern recognition machines if only we can learn to not superimpose our needs and views on what we're meant to process from the world.  It's when set the ego aside that we become most attuned to our feel for the world.

Perhaps the best trading strategy of all is to live a fulfilling life outside of trading.  If you don't need markets for your self-validation, you're less likely to seek those "good call" compliments, and you're less likely to make your profit/loss statement a barometer of your personal worth.  It's when we insist on leading the dance with markets that we're most likely to stumble as the music changes.

Further Reading:  Cultivating Emotional Creativity
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Focusing on Trading Solutions

* How can I trade with discipline?

* How can I find the right places to enter trades?

* How can I manage risk better?

* How can I trade with confidence?

* How can I stick with my winning trades?

* How can I best prepare for the trading day?

* How can I decide the best stocks to be trading?

* How can I decide when I shouldn't be trading?

These are among the most common questions I receive from traders who read the blog. They're good questions, but they're the wrong questions from a solution-focused perspective.

Let's turn those problem-focused questions into solution-focused ones:

* When have I been trading with good discipline? What do I do differently at those times?

* When have I executed trades well? What helped me find good prices for my entries?

* When have I done a good job managing the risk of a particular trade or a particular trading day? What did I draw upon to implement good risk management?

* When have I traded with better confidence? What did I do at those times that helped give me stronger conviction in my trades and my trading?

* When have I stuck with my winning trades a little longer than usual? What went through my mind at those times that allowed me to milk the trade?

* When have I done a good job of preparing for the day's trading? What, specifically, did I do to be (and feel) well-prepared?

* When have I been successful with my stock-picking? What did I look for to tell me which names would provide me with the greatest opportunity?

* When have I done a good job of stepping back from the screen and from trading? What helped me make the decision to slow down or stop my trading?

The solution-focused perspective tells us that there are always times when we *don't* fall into our problem patterns. The key to success is to figure out what we're doing when we enact exceptions to our problems.

Too often, we focus on what we do wrong and never recognize when we do things right. The goal of coaching is not to do less of the wrong things; it's to become more consistent in engaging in the right behaviors.

From a solution-focused vantage point, the answers we seek are within our own experience. That is why seeking answers from a coach is often the wrong approach. At best you'll develop confidence in your coach, not yourself.

AT TIMES, YOU *ARE* THE TRADER YOU WANT TO BECOME. THE KEY TO YOUR DEVELOPMENT IS TO CAPTURE THOSE TIMES AND DO MORE OF THE THINGS THAT DEFINE THE BEST WITHIN YOU.

For more on the solution-focused approach, check out this post and its links.
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How To Separate Frustration From Your Trading

A successful developing trader recently wrote to me about a psychological obstacle in his trading.  I'll quote him, so that you can appreciate the problem as he is experiencing it:

"What is the biggest challenge I face after gaining a solid technical knowledge and skill base?  I think it's frustration.  Most often:  1) frustration of not being able to explain to myself what's going on with the market's price action at a given time; 2) frustration driven by understanding what's going on in the market, but not being able to make an execution because of poor risk/reward and/or absence of proper setup to enter; 3) frustration after making a dumb mistake and/or acting wrong while not in 100% mental shape.

Based on the 3 points above, it seems that part of myself is acting as a perfectionist...while another part of me does not have the confidence that will allow me to be more flawless and move to the next level...

I have developed decent self-observation and can relatively quickly determine when I am not 100%.  You know:  the tension, the accelerated breathing...that feeling in the stomach...Although I realize in real time that something is off, that same feeling makes me uncomfortable and is also harming my concentration...Let me add that I do not always feel that way when some of the triggers occur, so I would NOT describe it as a critical and uncontrolled situation.  But, yes, it is a barrier I am struggling with..."

This situation will be familiar to many active traders:  frustration intrudes during the trading process and threatens to interfere with our best decision-making.  As the perceptive reader notices, this can even occur when we are relatively self-aware and in touch with that frustration.  How can we move past frustration?

The key is recognizing that frustration occurs when we have a need and that need is thwarted.  If we eliminate or change the need, the frustration melts away.  If I'm a perfectionist, I create many artificial needs.  Perhaps I feel a need to be 10 minutes early for every appointment on my calendar.  That will create frustration when I am caught in traffic.  If I can accept that I will be just on time or even a bit late once in a while, the traffic is no fun, but it's also no threat.  Frustration is a function of expectation--and perfectionism creates excessive expectations.

So what is our trader's need?  It's the need to trade, the need to make money.  If the market isn't making sense, there's no trade to put on and no money to be made.  If the setup isn't there, the trade isn't there and neither are the profits.  If a bad trade is placed, the fruits of a good trade are erased and there go profits.  That same dynamic can also make it difficult to step away from screens, even though the trader recognizes in real time the signs of frustration.  It's not OK to miss opportunity.

Our trader recognizes that there are occasions in which he finds himself thwarted but is not dominated by frustration.  Those solution occasions are important to figure out.  The capacity to tolerate frustration as an observer and not act on the frustration is true self-control.  It is also true self-confidence to recognize that one doesn't always have to trade and make money to be a successful trader.  The need to trade and make money, ironically, *feeds* a lack of confidence because it reinforces the notion that we're never good enough, we always have to do more and better.

I suspect those exception situations where the triggers occur but the frustrated trading does not are occasions in which there is a degree of genuine contentment and peace with oneself.  That is the antidote to frustration.  If you can accept where you're at now and accept that it's OK to not be trading or to make a mistake, you eliminate the expectation that drives the frustration.  "I know my best setups, I know how to make money, I'll know what to do when the opportunities present themselves"--that is real confidence.  You no longer have to *make* things happen; you have the confidence that, if you do the right things, they will happen over time.

Imagine starting each trading day with a meditation that emphasizes imagery based on peace, contentment, and gratitude for where one is at in trading--and in life.  Imagine taking a trading break midday to clear one's head (fatigue is a great breeding ground for frustration) and come back to markets refreshed.  Imagine stepping away from the screens each time frustration appears and returning to a few deep, slow breaths and the images from the meditation.  Frustrations will always be part of our experience, but they don't have to become drivers of our actions.  The capacity to step away from self-demands gives us control and expresses genuine confidence.

Further Reading:  Overcoming Frustration in Trading
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How We Develop: As People, As Traders

 

11/25/2025 - What if I told you that I had begun a romantic relationship and that, every day, my partner says or does something that I can't stand and I find myself becoming emotional and unsettled.  I come to you and ask how I can improve my mind frame in the relationship.  What would you say?

At some point, sooner rather than later, you would question whether this is the right relationship for me.  A promising, good relationship should not spend most of its time in conflict!  The answer to my dilemma is to find a more suitable partner, not to keep trying to change myself to fit into a situation that isn't working.

Now take that same reasoning and apply it to our trading.  If trading is leaving you feeling stressed, anxious, and frustrated, perhaps the answer is not to pursue psychological help.  Perhaps how you are trading doesn't fit who you are.  If your style of trading frustrates your most basic interests, needs, and strengths, then you will always struggle with markets.

If I were to adopt a true "scalping" style of trading where I was buying bids and selling offers and holding positions for seconds to a few minutes, I would become frantic and overloaded.  That style of trading does not fit the more analytical approach that represents what I'm good at and what I enjoy.  As soon as I step back from the moment-to-moment trading, explore cycles in market behavior, and align my trading with the cycles that cannot bring us higher or lower, I feel in sync with markets and trading becomes fulfilling.

We develop as traders the way we develop as people because our best trading is always an extension of who we are.  Tilt is often a sign that your trading is frustrating who you truly are.

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11/24/2025 - Every day, we exercise some part of our personalities and development.  The question is whether that exercise is planned and directed, or whether it is random and unplanned.  If we waste time routinely, we exercise laziness.  If we overeat, we exercise a lack of discipline.  If we reach out to others, we exercise kindness.  Everything is exercise.  What we do, we internalize.

So what are you exercising in your trading?  A true process orientation to trading is one that exercises our greatest interests and talents and that opens us to listen to and follow markets.  When we lack a rigorous trading process, we exercise the wrong functions, listening to ourselves rather than to markets.  Great ideas come to us when we are focused and study the right things.  Great trading exercises open-mindedness and flexibility--and our ability to live our lives with flexible open minds exercises our greatest trading abilities.  

In the long run, how we live our lives is how we will trade.

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11/23/2025 - How does expertise develop?  We begin as students and then we become apprentices to successful performers.  That is how medical students grow into interns and then grow into becoming residents and attending physicians.  It is how a freshman football player practices with the starters, helps them scrimmage, and eventually gets into games and becomes a starter.  It is how a beginning actress becomes a small role-player in a production, becomes a backup to the star, and eventually gets larger roles herself.  We develop expertise by developing professional roles.  Through that development, we gain the experience of training, but we also gain the expertise of being a true performer.  In the hedge fund world, a junior person begins as an analyst, sees how ideas are traded, grows into managing a "sleeve" of capital themselves, and eventually grows into becoming an associate portfolio manager and a full PM with their own team.

We grow through professional roles and from the feedback we get from our experience and from our mentors.

No one develops expertise in isolation.  In any performance field.

Much of the frustration encountered in trading has nothing to do with lack of control over emotions, lack of discipline, etc.  It is a function of a lack of training and mentoring--and a lack of opportunity to internalize the new roles and experiences of expertise.  Trying to improve your psychology while trading in isolation is like trying to improve your game as a basketball player without being part of a team.

The most promising thing a developing trader can do is form a pod with other developing traders and learn from each other and with each other.   

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11/21/2025 - The greatest part of our psychological growth occurs through social roles.  When we take on a role with others, we inevitably receive feedback about who we are and how we perform and we internalize that feedback.  When we take on many social roles, we absorb a wide range of such feedback and develop a broad sense of who we are and what we do well.  A child takes on roles with parents, siblings, and peers and then broadens their sense of self through roles at school, in extracurricular activities, in social groups, etc.  What is important in this process is that we internalize our sense of self through relationship experiences.  Everyone we interact with is a mirror, showing us something of ourselves.  In our work, our family lives, our social and community lives, we experience many mirrors and build a diversified sense of who we are.

If you understand this social role perspective, you can appreciate why solo trading is psychologically dangerous.  Trading is a challenging activity, and it can be an enjoyable application of our skills and talents.  But undertaken in isolation, it is a limited experience.  We operate in a relative vacuum.  We do not encounter fresh mirrors that stimulate new experiences of ourselves.  Over time, we become stale.  We do not grow as people.  Sometimes we attempt to fill that void by trading more and more, hoping that profits will provide us with the fulfillment and inner satisfaction that we lack.  We know how that ends up.

A major benefit of trading in a team is the opportunity to take on fresh roles as part of the trading process.  We mentor others, we share ideas, we enjoy the company of our mates.  At the firms where I work, an important part of the enjoyment and fulfillment traders experience in their work is in what they learn from others, what they give to others, and the roles they play within the team.  When there is fulfillment in those roles, there is no need to put all of one's self-esteem eggs in the trading basket and overtrade.  A rich personal life outside of markets and a broad range of roles within one's trading experience create psychological wealth--and that is what can help create trading wealth.  

Brief Therapy Techniques: How Traders Can Become Their Own Trading Coaches - Part Three

In the second post of this series, I laid out three principles to guide traders in working on patterns of thinking, feeling, and behaving that might be interfering with sound trading decisions. The first article in the series introduced the notion of brief therapy techniques as relatively rapid and effective tools for self-change. In this final installment, I will outline a process for utilizing these tools.

Let's say we have a trader named Chris who is struggling with a problem of impulsive trading. Although Chris has a general idea of a trading plan, she finds that she takes many trades that don't meet her criteria. This is costing her money, both in added commissions and in trading losses. How could she begin to help herself with the problem?

Recall that brief methods for changing problem patterns are effective when those patterns are situational. The first question Chris should ask is whether she is impulsive and undisciplined in other areas of her life, outside of trading, and whether she is experiencing negative consequences from this broader impulsivity. If the answer is yes, that's evidence that this is not just a situational problem. Rather than try to tackle the problem on her own, she should seek a professional to help her figure it out. Perhaps it's an addictive problem; maybe it's a problem related to attention deficits and/or hyperactivity. Perhaps it's the result of a mood disorder. An objective evaluation is in order.

If, however, this is a recent problem limited to trading, the odds for success with self-help are much greater.

What Chris needs to answer is the following: "What is the problem that she is trying to solve with her impulsive trades?"

My earlier post noted that what we label as problems are actually attempted solutions to situations that bring unwanted consequences.

In Chris' case, she may be trying to manage a specific fear: one that trading coach Doug Hirschhorn refers to as the "fear of missing out". She is afraid that the market will move without her being on board.

Her real problem is in her definition of opportunity. She equates opportunity with movement in her market. Movement, however, in itself is not opportunity. Opportunity comes from anticipated movement. Behind her impulsive trades is a kind of thinking that says, "I should be able to anticipate movement. I don't want to be wrong."

In a very real sense, Chris is trading to avoid self-blame. It's her self-blaming and her faulty definition of opportunity that are the real problems. Impulsive trading is simply her way of trying to cope with these problems.

Once we frame the problem in this manner, it is not difficult to find solutions. I review Chris' trading performance with her and identify times in which she was *not* impulsive and traded well. I ask her what she did at those times that seemed to work for her. She tells me that she made a conscious effort to stick with one or two setups, wrote those down, and taped them to her monitor.

I tell Chris that self-blaming is a good thing if we're focusing on the right behavior. A person without self-blame would be a sociopath. Chris should blame herself if she doesn't trade her setups; those are her real opportunity. If a market moves without her setup, she can always research the move after the fact and see if there's opportunity in a different setup. For now, however, her opportunity is what she knows how to do best.

We perform mental rehearsals before the start of the trading day in which Chris visualizes herself trading her setups and focusing on her opportunity. I also have her visualize the "old Chris" and imagine herself correcting her errant ways. This talk of "new Chris" and "old Chris" helps cement the changes in her mind. Then, at the end of each trading day, we give her a report card based, not on P/L, but on her ability to pursue true opportunity.

In one sense the change has occurred quickly. But in another sense, no change at all has occurred. Chris is simply more consistent in doing something she already knew how to do. By focusing on solutions rather than problems, we turned self-blame and the obsession with opportunity into virtues. While, to an outsider, it appears that she's become more "disciplined", in fact she has simply redefined what it means to pursue opportunity.

Brief change occurs in four steps:

1) View the problem as a solution and ask yourself what this pattern is accomplishing. What real problem am I trying to solve by thinking, acting, and feeling the way I do?

2) Find exceptions to your problem pattern. Once you understand what your underlying fear or concern is, go back in your trading performance and identify occasions when you've successfully dealt with that fear.

3) Create a pattern out of those successful occasions that you can become part of a market routine. Do more of what you've been doing when you've been trading well.

4) Keep repeating your solution pattern until it becomes automatic. It's not enough to initiate change; you want the change to become part of you.

Additional resources are available on the Articles page of my personal site. My Psychology of Trading book goes into greater detail about solution-focused techniques for change; my latest book on Enhancing Trader Performance details cognitive and behavioral methods you can use to shift problem patterns. My hope is that these tools help you become your own trading coach. If so, you'll have developed skills to last a trading lifetime.

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