BRETT STEENBARGER'S TRADING PSYCHOLOGY RESOURCE CENTER

Below are resources to help traders become their own trading coaches, improve their trading processes, and develop a positive work-life balance.  All the TraderFeed posts also contain links to valuable resources and perspectives.  

RADICAL RENEWAL - Free blog book on trading, psychology, spirituality, and leading a fulfilling life

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The Three Minute Trading Coach Videos

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Forbes Articles:

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

My coaching work applies evidence-based psychological techniques (see my background and my book on the topic) to the improvement of productivity, quality of life, teamwork, leadership, hiring best practices, and creativity/idea generation.  An important part of the "solution-focused" approach that I write about is that we can often best grow by focusing on what we do well and how we do it--and then doing more of what works for us.  The key is to know our cognitive, interpersonal, and personality strengths and leverage those in the pursuit of performance. 

FURTHER RESOURCES

*  A Creative Way to Use TraderFeed 

*  Brett Steenbarger Bio

*  Brett's Books on Trading Psychology

I wish you the best of luck in your development as a trader and in your personal evolution.  In the end, those are one and the same:  paths to becoming who we already are when we are at our best.

Brett
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Three Questions to Ask About Your Positive Trading Psychology

 

The book that I'm currently writing, covering the positive psychology of trading, emphasizes that how we approach trading determines how positive our trading experiences become--and that helps determine our trading success.  Too often, people pursue happiness and fulfillment by seeking trading success.  The field of positive psychology suggests the reverse:  if our trading practices and processes draw upon our strengths and what is meaningful to us, we will trade with greater focus and energy, see more in markets, and interact more effectively with peer traders.  

So much of traditional trading psychology is problem-focused, emphasizing what we need to do to avoid reactive, emotional trading; what we need to do to accept risk and handle drawdowns, etc.  The reality is that we will never achieve a peak performance state simply by shoring up weaknesses.  Three questions to ask with respect to our achievement of a positive trading psychology are:

1)  Are my trading processes well-defined, and do they consistently draw upon my personality, social, and information processing strengths?  (Do I truly understand what my strengths are and how my trading methods draw upon those?)

2)  Do I find energy and fulfillment in the processes of trading regardless of near-term P/L?

3)  Do I draw upon the strengths of others and contribute to their strengths so that I am continually learning and improving?

We achieve a peak trading psychology by making our trading an expression of our greatest talents, skills, and ideals. 

Somewhere, hidden in your best trading, is the trader you're meant to be.  

The challenge is to develop a close relationship with your best self.

Further Reading:

Mastering the Positive Psychology of Trading

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Knowing What The F** Is Going On In Markets

 

It's amazing how our trading psychology improves when we take the time to step back, review macro markets, and understand what is going on in the heads of large money managers.

Consider the recent stock market:

*  Growth-related sectors have been particularly weak.  Check out the XLK (technology) and XLY (consumer discretionary) ETFs.

*  Value-related sectors have been relatively strong, especially the ones that benefit from lower interest rates.  Check out the XLRE (real estate); XLU (utilities); and XLP (consumer staples) ETFs.

*  The bond market has been strong, which means interest rates are falling.  Check out the BND (bond) ETF.

*  The US dollar has been weak.  Check out the DXY (dollar index).

*  Commodities have been falling.  Check out the DBC (commodities) ETF and oil prices.

Macro markets do not always trade thematically.  When they do, smart traders pay attention.  You can work on your psychology 24 hours and, if you don't understand market themes, you'll eventually get run over and lose money.

Going forward, a key question to ask is whether the theme of growth slowdown and potential recession is expanding or whether there are signs that the market's "theme-ness" is reversing.  Aligning shorter-term trading with the market's bigger picture helps ensure that you're swimming with the tide, not against it.

Further Reading:

The Importance of Understanding Global Macro Themes

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Exercising Our Character, Improving Ourselves

 

It's been great spending my 70th birthday with wife Margie and daughter Devon, traveling around Colorado.  There's something about natural beauty that inspires mood and mind, turning vacation time into a time of rejuvenation.  With that new energy, I find myself tackling fresh goals and challenges.  One of the most popular TraderFeed blog posts explained the process of FIGS:  Focused, Intensive Goal Setting.  The idea is that we achieve the greatest growth by establishing a limited number of goals and then focusing on working on those on a daily basis, turning them into internalized parts of ourselves.  I've long held that the age at which we become old is the age at which we determine that our best years are behind us.  The key to staying young psychologically is always having a guiding vision that we pursue intensively, challenging and inspiring us.

A particularly powerful vision comes from visualizing the kind of person we would ideally like to be.  What personality strengths would we most like to develop?  We can view our character development much as we view our physical development:  use it or lose it.  We can also set up routines to exercise our character the way we exercise our bodies.  What one personal improvement can you make that will make you a better friend and partner, a better trader, a better human being?  How can you use each day to make that improvement?

The keyword for my character improvement goal is forbearance.  That term can mean a decision to not enforce an obligation, such as the payment of a loan.  It also means patience and an acceptance of the limitations of others.  When we become impatient with others and expect them to meet our needs, we naturally put ourselves first and can create toxic interactions.  The idea of servant leadership is that we best lead by taking care of others, accepting and addressing their needs.  One of the reasons I've enjoyed our adoption of rescue cats is that it pushes us to get outside ourselves and prioritize their development.  In doing so, we create meaningful experiences and interactions.  In building my forbearance, I'm--in a sense--adopting everyone I deal with, committing myself to furthering their lives.

There is wealth in trading, and there is wealth in our personal development.  Indeed, it's not unusual to find that pursuing personal development furthers our trading success.

What are you working on today that will make you a better version of who you already are?  

How will today provide a great exercise routine for the qualities you want to cultivate?

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The Most Important Skill in Trading Psychology

 

Coaching ourselves to trading success requires that we know our strengths and our vulnerabilities.  All of us have our triggers that are associated with the unresolved conflicts and unmet needs that we bring to trading--and to other areas of life.  Not as well recognized is that we also have positive triggers that cue us to activate our strengths.  If we don't know our positive triggers, we can't establish processes that cue our success and benefit from them.  If we can't anticipate our negative triggers, we can't intercept them before they do harm to our trading accounts.

The most important skill in trading psychology is self awareness.  If we are not mindfully self-aware, we operate on autopilot, miss opportunities to put our strengths to work, and expose ourselves to emotional triggers that can hurt us.  If we know our triggers and can actually anticipate them, we gain significant control over our trading.  

A common positive trigger is feeling in the flow of our trading, absorbed and operating in the zone.  That state of heightened focus is one that sets off our intuitive pattern recognition, allowing us to see opportunities unfolding in real time.

A common negative trigger is frustration.  When we undergo a loss and become angry and frustrated, the resulting fight/flight response leads us to trade reactively.  In that state, we cannot possibly see actual opportunity unfolding.

Taking periodic breaks during the trading day and assessing our degree of focus and frustration builds our skills at self awareness.  When we become increasingly able to identify our states in real time, we gain the option of guiding our trading actions accordingly.  If you know you're seeing the ball well, you can take a meaningful swing.  If you know you're agitated and not seeing the ball, you can step back, work on your focus, and preserve your capital.  That is huge.

At SMB Capital, a mantra is "One Good Trade".  Taken after Mike Bellafiore's book of that title, the mantra tells us to just focus on the next trade and what will make it a good one.  Notice how this is actually an exercise in self-awareness.  If we don't know what goes into a good trade--and what we need to avoid to prevent a trade from going bad--we can't recover from a loss (or build upon a gain) by making "one good trade".

Good traders know the market.  Great traders also know themselves.  

Market awareness + self awareness = consistent profitability.

Further Reading:

Strategies for Building Self Awareness

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How to Coach Yourself to Trading Success

 

Suppose we are all like Clark Kent:  an ordinary person on the outside with hidden superpowers and also a vulnerability to Kryptonite.  

Suppose you begin coaching yourself by looking, looking, looking through all your trades and all your life's successes to find your one superpower.

Suppose, in that search, you examine all your trades and all your losses to find your Kryptonite.

What if your path as a trader is to find your personal superpower and figure how it comes out in your trading?

What if your path as a trader is to find the Kryptonite that has created your life's greatest failures and figure out how that shows up in your trading?

The real enemy is viewing ourselves as average.  We are superheroes with super vulnerabilities.  Our path to success requires that we embrace both realities.  Then we can truly act as our own trading coaches.

Further Reading:

The Heroic Dimensions of Trading

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Overcoming Emotional Trading - Part Three: Eliminating Tilt Trading

 

In Part Two of this series, we took a look at the importance of focus and concentration in successful trading.  Indeed, if we are focused and "in the zone", there is no way that emotionality can disrupt our trading.  On the other hand, if we are caught up in P/L and the need to make money, every price movement will have the potential to be disruptive.  Going on tilt means that we become totally reactive in our trading rather than planned and proactive.  We act on fear, greed, and impulse and make decisions that we would never make if we were in our usual calm and focused state.  Tilt occurs when the needs we bring to trading dominate our need to understand and follow markets.  

Please review this post on a powerful technique for overcoming tilt trading.  The key to the success of this method is to train yourself to enter a state of mind and body that is incompatible with tilt.  This can be accomplished with breathing exercises, meditation, and biofeedback work.  It takes practice, but quickly pays off:  Once we can enter a calm, relaxed, focused state at will, then we can recognize in real time when we're starting to become emotional and quickly place ourselves in our focused zone.  The goal is not to eliminate emotion from trading, but to recognize it in real time and become able to shift gears when we need to.

As I noted in my talk with traders at SMB, it is the awareness of danger--the view that tilt is the enemy, not losing money on a particular trade--that allows surgeons and elite military troops to tackle dangerous missions and remove emotion from their work.  The key to eliminating tilt from our trading is to mentally rehearse situations of loss and frustration while we engage in exercises that keep us focused and slowed down.  As long as we're slowed down physically, we can't be worked up emotionally.  These exercises can be part of our daily preparation, where we reinforce the idea that losses in trading are normal and are not threats.  The real enemy is tilt and the loss of emotional control.  When we enter trading totally aware of the dangers of tilt with techniques that help us stay calm and focused, we're like the surgeon or soldier operating in a risky environment.  

A prepared mind never enters tilt.

Further Reading:

Training Your Focus

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Overcoming Emotional Trading - Part Two: Training Your Focus

 

So often, the problem with discipline in our trading is not an excess of emotion, but the relative absence of focus.  If we grow our capacity for focus, we activate the parts of our brains that are responsible for planning and problem solving--not the parts that respond to threat with flight or fight.  

In the first post in this series, we saw that utilizing mental rehearsal with respect to position management--our stops and even our take-profit levels--helps us take the emotion out of decision making.  One of the reasons for this is that frequent and prolonged mental rehearsal actually serves as training for focus and concentration.  When we review performance and rehearse our trading plans, we are creating an associative link between our state of focus and the execution of our processes.  Doing this again and again strengthens this link, so that when we face decisions in real time, we can activate our intensified concentration and bring to mind all the things we've been rehearsing in that focused state.

Training our focus helps us make decisions in the heat of battle.  Rehearsing our plans in the state of intensified focus cements them, so that they become automatic and not laden with emotion.

As I recently shared, brain wave biofeedback (neurofeedback) is an effective tool for training our focus.  When we get real time feedback about our state of concentration, we can figure out how to enter and stay "in the zone".  The biofeedback platform I use, Muse, allows users to engage in video games that give them better scores when they stay more focused.  Playing the games repeatedly and moving up to more and more challenging levels turns the biofeedback sessions into a kind of mind gym, where we strengthen our concentration and extend it for longer and longer times.  Working with a teacher to learn yoga or meditation can serve a very similar purpose.

What I find particularly helpful is mentally rehearsing stressful situations in trading *while* tracking my focus in the biofeedback.  Going through scenarios again and again and training ourselves to stay focused literally trains mind and body to take emotion out of decision making.  We are not only exercising our capacity for concentration, but our specific ability to stay focused in stressful circumstances.

We can grow our heads.  When we stay switched on, it's amazing how emotions switch off.

Further Reading:

Three Dimensions of Trading Focus

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Overcoming Emotional Trading - Part One: Mental Rehearsal and Stops

 

Unless they are trading very specialized strategies, most traders do not win on significantly more than half of their trades.  What makes them profitable is that the average size of their winning trades nicely exceeds the average size of their losers.  Indeed, it's not uncommon to see traders make a little or lose a little on most of their trades.  Their profitability comes from a few sizable winners and from the absence of sizable losers.  Risk management is absolutely key to consistent profitability.

This is why setting stop losses is vital to successful trading.  We need to clearly identify what would tell us our trade is wrong and commit to exiting immediately.  For example, I may see selling pressure in the stock market, with several minutes of negative NYSE TICK readings.  I notice that the market cannot move below the previous level at which we had similar selling.  On the first sign of buying pressure, I go long and my stop is at the most recent lows.  Right away, this provides a favorable risk/reward.  It also makes good sense to me because a violation of the recent lows tells me that buyers have not taken control.

Such setting of stops is as much a psychological exercise as a risk management one.  It is not enough simply to identify a price level for exit.  This must be an emotional commitment.  By mentally rehearsing scenarios in which we're stopped out--visualizing the market action that would take us out of a trade and how we want to respond--the setting of the stop becomes an emotional preparation to handle the loss.  If we are mentally rehearsing a negative scenario and making that scenario familiar--and if we know in advance how much we can lose on the trade and can accept that--then losing no longer becomes a shock or a threat.  Repetition takes the emotion out of negative scenarios.

We always want to create psychological safety in our trading.  Our sizing and our stop losses should be such that we can lose and always come back.  As I've mentioned in the past, we should never lose so much in one trade that we cannot be profitable by the end of the day.  We should never lose so much in one day that we cannot be profitable at week's end.  And we should never lose so much in a week that we can't have a winning month.  If we achieve that kind of consistency of process, we will be consistently profitable and cultivate a consistent trading psychology.

Further Reading:

Using Emotion to Change Emotion

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Finding Our Greatness

Update:  Here's a valuable reading passed along by an experienced, successful trader.  It explains how we can make very large gains in any area of life by making small improvements every single day.  Note how this builds consistency of mindset, as our daily focus becomes forward-looking and constructive.

In an impactful video, Mike Bellafiore at SMB Capital explains how our development as traders embraces the far larger development of our greatness.   

The reason for this is that, for us to be successful, our development has to be based upon our strengths:  our talents and our passionate interests.  Very often, we find our passion when we pursue our talent:  the exercise of our distinctive talents is intrinsically rewarding and motivating.

That is why our development as traders should always begin broadly and only later proceed deeply.  We need to try different styles of trading, work with different mentors, and trade different markets before we discover what truly speaks to us.  This is why medical students participate in rotations in different medical specialties before they focus their training on the field that matches their talents, skills, and interests.  Play many sports and then focus on one.  Play many positions on the field and then pursue one.  

Many, many times we fail to achieve our potential--and we cannot find our passion or greatness--because we have short-circuited the developmental process.  We try to go deep before we explore broadly.  We are typically meant to date many people before we find our lifetime partner.  If we jump into partnership without the exploration of dating, we are far more likely to make a poor decision.  Some traders so need to make money that they jump into a style of trading before exploring a variety of styles and markets.  Greatness cannot be grounded in desperate need.  It must stem from what speaks to us uniquely.  

Your greatness as a trader will be related to something you already do greatly in life.

Your past successes and passionate interests hold clues to your trading success.  Try many roles and ways of engaging markets.  After you date lots of trading roles, you just may find your mate.

Further Reading:

What Is Your Path To Greatness?

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Two Important Lessons From Professional Traders

 

Here are two key takeaways from successful portfolio managers and traders I've been privileged to work with.  

1)  Create Multiple Ways to Win - A trader who only knows to go long or short a particular instrument is like a baseball pitcher that only knows how to throw one kind of pitch.  There are many ways to win in markets:  by using options to trade patterns of volatility; by trading the relative relationships between two or more assets; and by expressing market views across a variety of instruments and markets.  Note that the stock market pullback today would have hurt a trader who was long, but would have made money for a trader who had recognized the shift in relative strength between small cap stocks and large cap ones.  What is the best way to express a given market idea?  Trade structuring is every bit as important to returns as trade ideas themselves.

2)  Create a Lifestyle That Builds Your Strengths - If we internalize what we consistently do, then consistently exercising our strengths will make us stronger people and more successful traders.  What we do outside markets ultimately finds its expression in our trading.  Profitable trading requires intensity of focus and flexibility of focus, as we shift from generating ideas to executing and managing trades.  If we live a distracted life, we unwittingly undermine the cognitive strengths needed for market success.  The degree to which we actively structure our calendars is the degree to which we can live each day intentionally and use each day to build our capacity for focus and purpose.  There can be no trading discipline if life itself is lived without discipline.

Trading is a performance activity that builds upon our talents and skills.  Whatever you do that is successful in markets will be an expression of what you've already done successfully in life.  We find our passion in expressing our talents:  that is what drives us to build skills, and it is what ultimately builds our trading psychology.  A masterpiece painting is crafted one brushstroke at a time.  A masterpiece life is created one purposeful, meaningful day at a time.

Further Reading:

What Predicts Success Among Developing Traders?

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