How to master trading psychology | Brett Steenbarger
Summary
TLDRIn this insightful episode of 'Chat with Traders', host Aaron Fichtner interviews Dr. Brett Steyn, a renowned trading psychology coach and author. The conversation delves into the intricacies of trading psychology, emphasizing the importance of understanding market dynamics and personal adaptability. Dr. Steyn shares his journey from philosophy to psychology, and how his fascination with human potential led him to specialize in trading psychology. He discusses the significance of recognizing and leveraging one's strengths, the role of creativity in developing unique trading strategies, and the necessity of cultivating resilience in the face of market volatility. The episode also touches on the challenges of goal setting and the psychological barriers traders face, such as performance anxiety and the fear of loss. Dr. Steyn provides valuable advice on maintaining a balanced life, focusing on process over profit, and viewing losses as opportunities for learning and growth. His insights offer traders a holistic approach to enhancing their performance and achieving long-term success in the markets.
Takeaways
- 📈 **Adaptability is Key**: Successful traders are adaptable and evolve with the markets, which are always changing.
- 🧠 **Mindset Matters**: Identifying whether a trading issue is psychological or logical is crucial for addressing it effectively.
- 🧘 **Self-Awareness**: The first step in breaking bad habits is becoming aware of them as they occur.
- 🚫 **Avoid Emotional Trading**: Frustration and the desire for revenge trades can lead to poor decision-making.
- 📚 **Study and Learn**: Traders should study themselves and the markets to understand what works and what doesn't.
- 🏆 **Strengths Over Weaknesses**: Focus on building on strengths rather than just correcting weaknesses.
- 💡 **Cultivate Creativity**: Seeing opportunities that others miss is a mark of a successful trader.
- 🔄 **Develop Best Practices**: Turn best practices into habits through consistent repetition to influence behavior positively.
- 🎯 **Goal Setting**: Effective goal setting involves having a daily plan that leads towards the achievement of the goal.
- 💰 **Money Mindset**: Thinking in percentages and basis points rather than dollars can alleviate the pressure associated with money.
- 🤝 **Balance in Life**: Having interests and fulfillment outside of trading can provide balance and resilience during market downturns.
Q & A
What is the biggest secret of the best traders in the world according to the transcript?
-The biggest secret is that they are just like everyone else, but they work hard to learn the markets, discover what works and what doesn't.
How did Dr. Brett Steyn Bergers' interest in trading psychology begin?
-Dr. Bergers' interest began unconventionally through philosophy. He was inspired by the novel 'The Fountainhead' by Ayn Rand, which led him to consider psychology as a field to help people reach their potential.
What does Dr. Bergers suggest is the first step in breaking a bad habit?
-The first step is to become exquisitely aware of the habit's presence. It involves building self-awareness and mindfulness to recognize the pattern as it starts.
What does Dr. Bergers mean by 'making friends with loss' in the context of trading?
-He means that traders should view losses as valuable information that tells them something about the market's changes, rather than something to fear or avoid.
What is the ABCD approach to trading psychology as mentioned by Dr. Bergers?
-The ABCD approach stands for Adapting to market changes, Building on strengths, Cultivating creativity, and Developing best practices.
How does Dr. Bergers suggest traders should think about their weaknesses?
-He suggests that traders should focus on their strengths and try to work around their weaknesses. It's rare to turn a weakness into a strength, but one can adapt strategies to avoid areas of weakness and capitalize on strengths.
What is the importance of adaptability in trading according to the interview?
-Adaptability is crucial because markets are always changing. Successful traders must evolve with the markets, which involves both adapting trading methods and dealing with the psychological challenges that come with change.
What role does goal setting play in a trader's performance according to Dr. Bergers?
-Goal setting is important, but it should be accompanied by a specific, daily plan. Goals without a plan are just wishes. It's also better to focus on improvement and risk-adjusted returns rather than absolute monetary goals.
How does Dr. Bergers recommend traders deal with the pressure of trading?
-He suggests having something in life more important than trading. This provides a balance and a source of renewal and inspiration during periods of drawdown, reducing the negative effects of pressure.
What does Dr. Bergers say about the common practice of focusing on monetary gains as a measure of success in trading?
-He advises against setting monetary goals as they can lead to performance anxiety. Instead, he recommends focusing on improvement and risk-adjusted returns.
What is the significance of cultivating creativity in trading, as discussed by Dr. Bergers?
-Cultivating creativity is essential for success as it allows traders to see opportunities that others might miss. It's about seeing the world through fresh eyes and adapting to changing markets.
Outlines
😀 Introduction to Trading Psychology with Dr. Brett Steyn Berger
The episode begins with an introduction to Dr. Brett Steyn Berger, a renowned trading psychology coach and author. Host Aaron Fader discusses the importance of learning from traders' journeys, adapting to market changes, and enhancing trading performance. Dr. Berger shares his background, which includes an unconventional entry into psychology via philosophy, and his realization of psychology's role in enhancing human potential.
📚 Dr. Berger's Initial Foray into Trading and Psychology
Dr. Berger explains how his interest in trading began during his school years and continued in parallel with his academic pursuits in psychology. His decision to write a book, 'The Psychology of Trading,' marked the convergence of his dual interests. The book's popularity led to a full-time offer from a trading firm in Chicago, where he began applying psychological principles to help traders manage the mental aspects of trading.
🤔 The Intersection of Psychology and High-Frequency Trading
In Chicago, Dr. Berger worked with market makers and electronic futures traders, who traded at a very high frequency. He observed that these traders did not rely on traditional technical or fundamental analysis, but instead on real-time market data. His role was to assist them in maintaining focus and making sound decisions despite the intense pressure and rapid pace of their work.
💼 Working with Top Traders and the Role of a Trading Coach
Dr. Berger discusses his work with top traders and asset managers, emphasizing that even successful traders seek coaching to maintain their edge and adapt to market changes. He highlights the importance of understanding when trading issues stem from psychological factors versus logical or methodological problems in trading strategies.
🧘♂️ Mindfulness and Breaking Bad Trading Habits
The conversation shifts to the topic of breaking bad habits and the importance of mindfulness. Dr. Berger outlines a process for recognizing and changing unhelpful patterns of behavior, which involves becoming aware of the habit, making a conscious effort to pause and self-regulate, and then engaging in alternative, positive behaviors.
🌟 ABCDE Framework for Successful Trading
Dr. Berger introduces the ABCDE framework for successful trading, which includes adapting to market changes, building on strengths, cultivating creativity, developing best practices, and maintaining a learning mindset. He explains that successful traders are those who continuously study and adapt, leveraging their unique strengths and strategies.
🎯 Setting Effective Trading Goals and Dealing with Failure
Dr. Berger discusses the importance of setting concrete, actionable goals alongside a detailed plan for achieving them. He also addresses the psychological aspect of dealing with failure and loss, encouraging traders to view these as opportunities for learning and adaptation rather than as purely negative outcomes.
💰 Changing Perceptions of Money in Trading
The discussion touches on the psychological attachment to money and how professional traders often think in terms of percentages and basis points rather than absolute dollar amounts. This approach helps to maintain perspective and avoid the pitfalls of performance anxiety related to monetary outcomes.
🏋️♂️ Balancing Trading with Personal Fulfillment
Dr. Berger stresses the importance of having interests and sources of fulfillment outside of trading to maintain a balanced life. He suggests that finding gratification in the intellectual and strategic aspects of trading, rather than just profitability, contributes to long-term satisfaction and success.
📖 Dr. Berger's Resources for Traders
The episode concludes with information on how to learn more from Dr. Berger, including his books, blogs, and Twitter handle. His most recent book, 'Trading Psychology 2.0,' expands on traditional trading psychology topics by incorporating positive psychology and well-being.
Mindmap
Keywords
💡Trading Psychology
💡Adaptability
💡Goal Setting
💡Risk-Adjusted Returns
💡
💡Behavioral Finance
💡Portfolio Management
💡Cognitive Overload
💡Emotional Control
💡Mindfulness
💡Habit Formation
💡Performance Anxiety
Highlights
The biggest secret of the best traders is their hard work in learning the markets and discovering effective strategies.
Dr. Brett Steyn Berger, a renowned trading psychology coach, shares insights on breaking bad trading habits and introducing best practices.
Traders need to be adaptable in markets, and goal setting and progress measurement are crucial for success.
Dr. Berger's entry into psychology was inspired by the novel 'The Fountainhead', which introduced him to the concept of reaching human potential.
His interest in trading began in grade school and later formalized during his graduate studies, running parallel to his psychology career for years.
Dr. Berger's work in Chicago involved coaching market makers and electronic futures traders, focusing on the psychological aspects of high-speed trading.
Successful traders often seek coaching to stay grounded in their strengths and ensure consistent performance.
Dr. Berger currently consults with various financial firms, helping traders and money managers enhance their performance.
The importance of identifying when a trading problem is logical versus psychological and adapting to market changes.
Building self-awareness is the first step in breaking any habit, whether in trading or personal life.
Successful traders have a process that includes adapting to markets, building on strengths, cultivating creativity, and developing best practices.
The ABCD approach to trading psychology: Adapting, Building on strengths, Cultivating creativity, and Developing best practices.
The significance of developing positive habits through repetition and mindfulness to counteract negative patterns.
Dr. Berger emphasizes the importance of focusing on strengths rather than weaknesses to achieve trading success.
Effective goal setting involves having a concrete plan and working consistently towards it, rather than just having a monetary goal.
Making friends with loss and failure is essential in trading, as losses can provide valuable information about market changes.
Professional traders often think in terms of percentages and basis points rather than absolute dollar amounts to manage the psychological impact of money.
Having interests and fulfillment outside of trading is crucial for maintaining balance and managing the pressures of drawdowns.
Dr. Berger's latest book, 'Trading Psychology 2.0', goes beyond traditional themes to include positive psychology, strengths, creativity, and well-being.
Transcripts
that was tried as episode 65 the biggest secret of the best traders in the world
is that they're just like everyone else
however they worked hard to learn the markets and discover what works and what
doesn't
but how can you hear about these journeys and getting on the strategies
and tactics they use you can do it by listening to chat with traders
here's your host Aaron fight field
all right what's up traders and 54 here host of the chat with traders podcast
thank you very much for tuning in to this week's episode and for this episode
i interviewed dr. bread steyn berger after many many requests from this is
brett is a very well known in trading psychology coach and has consulted to
some of the biggest names in the industry
he's also a respected author who is now published four books some of which have
been recommended reading by previous guests on this podcast
during our conversation I a spread how to break bad trading habits and
introduce new best practices to explain why traders need to be adaptable in
markets
Plus how we should think about goal setting and measure progress and of
course much more about how to enhance your performance as a trader
now if you do enjoy the interview please go ahead and leave and itunes review
like I've said in the past it literally takes you two minutes
you can do it while you're listening and it really helps to boost your rankings
in itunes and attract more Lissa's so if you'd like to support the podcast please
go to chat with traders . com /i Jones
ok folks let's skip to the interview you're listening to the chat with
traders podcast and here is a very special guest for episode 65
dr. Brett steyn berger rat
many people have been asking for this so i have to say straight off the bat
thanks a million for being here I appreciate it and I know
listeners will also has your day been what's going on
days been good thank you very much Aaron I appreciate the opportunity to be here
and to share some ideas with the listeners
sure thing the pleasure is mine so as most writers already know you are the
go-to guy for all things related to trading psychology of course that will
be the ultimate focus for a chat today but starting from the get-go
Brett if you could give us a little insight to your background - like how
did you get into the psychology field and where did you initially start out
after getting your pick
eh day ok uh yes
the initial impetus for my entry psychology was a an unconventional one
I came to psychology via philosophy as a sophomore in college I was interested in
psychology and indeed had declared psychology as my major but I never
really considered it a career field until i read a novel called The
Fountainhead by ion Rand and that novel illustrated something that i hadn't
encountered before
and that is the vision of people as heroic as reaching their ideals their
potential and the thought came to me it was during a winter break in my
sophomore year
the thought came to me that this was a proper role for psychology to not just
treat mental illness but to expand the best of people's potentials and that's
what has interested be in psychology ever since
and what i do now in working with traders and portfolio managers and
earlier before that working with medical students and residents of the medical
field
it really has been working with healthy people people who are bright and
creative and energetic and helping them make the most out of what they do
ok right answer and very interesting to get your backstory there so we did the
interest in trading come from like when did that creep into the picture
you know the training thing is something that I first expressed interest in his a
project when I was in grade school
and uh later became more interested in in a formal way during my graduate
school education at the University of Kansas and I actually open to trading
account began trading individual stocks and that was in the late nineteen
seventies but that was completely separate from my interest in psychology
my degree was in clinical psychology and my interest was in becoming a
psychologist the trading was a side interest a challenge and it's something
I found stimulating and interesting and those two preceded in parallel for a
number of years
I shoot trading as an application and I pursued psychology is my vocation and it
wasn't to tell around the year 2000 that I seriously contemplated putting the two
of them together and began writing a book
it was my first book in the area called the psychology of trading which was
later published by why light and that was encouraged by my good friend and
mentor
Victor need her offer so that's how the two came together but up to that point
for a number of years they were completely parallel interests are the
book became popular and was discovered by trading firm in Chicago and they
began asking me to work with their traders and then made me a full-time
offer so i left the academic setting that I was in I was teaching at that
time in the medical school and Syracuse and also running a counseling program
and went full time to working with traders in chicago and that's when the
psychology and with trading interest truly came together
ok excellent so let's talk a little bit about your time in chicago
like what we doing like how were you actually helping these traders with the
mental aspect the psychology and everything that goes on on that side of
the field
well in chicago i was working primarily with market makers and electronic
futures
these were people placing dozens if not more trades per day also trading on a
very short time frame the average holding period for many of the traders
was around three minutes
so they are very actively engaged in markets and it fascinated me because
they were trading in ways that were completely different from what I had
read in the textbooks the books on trading talked about technical analysis
fundamental analysis and these traders who I was encountering Chicago did none
of it
obviously they didn't know fundamental analysis because the fundamentals don't
change in three minutes
but technical analysis in terms of chart patterns and of indicator readings
those were much too slow for these traders these traders were entering
positions and eggs a position is very quickly and they were working off a
depth of market screen
they were working off the order flow not a backward-looking technical information
so that was an education in itself and sensitize to me to the psychological
challenges that they faced in making decisions so rapidly it was easy for
them to become frustrated to become overconfident and for all of those
emotional factors to slant their decision making and so my work as a
trading coach was to help them keep a level head
keep focused and make good decisions in real time and the fact that I was a
full-time working with them and so on site watching them trade and and
standing with them and helping them really help with psychology become part
of the trading right yeah that's that's very interesting Brett and we're going
to dig deeper into that in just a moment
a question I have for you
is like you know over the years you've been in the field for a long time now
you've worked with many many you know
top traders like some very very hard-hitting heavy white traders and
asset manages fun manages you know they're pretty broad spectrum of of
market participants
now these are all guys who are struggling some of these guys are
extremely profitable and make huge amounts of money
why do they come to you for your help on the psychology side
it's a great question Erin it's the same reason that successful professional
athletes work with our coaches as well you know at that point they're not
struggling they would have never gotten to that quite for the large a large
majority of cases if they were marginal participants
so these are people with real experience real strengths but uh what happens is
that markets are always changing and even the most talented participants have
to evolve with the markets and that need to involve itself brings its own
psychological challenges that need to be creative
they need to be resilient in the face of frustrations and also the need to
identify and build upon strength so many times the portfolio managers are seeking
me out when they are doing very well because they want to stay grounded in
their strength they want to make sure they understand what they're doing well
so that they can be more consistent going forward in making use of those
strengths
and so that's the difference with working with someone who is struggling
and wants to work on their weaknesses or vulnerabilities
ok that's a great answer it makes total sense
I really like he explained that the bread let's bring us up to speed now
what are you doing today like what's your work involved you know in current
times
well I work with several hedge funds and other financial firms
so uh I'm not full time in any one place I consult with a variety of funds and
and what that's done is exposed me to a variety of trading strategies some of
those strategies are discretionary summer more systematic some of the
strategies are more directional sub are more based on relative value movement
some are in macro markets the big liquid markets and some of them are very
specialized in individual markets such as commodity market to reach markets so
I've been exposed to a variety of trading strategies and training settings
it's been a great great great education as a result but in all cases
my main work is to help the traders the money managers with their performance
help them build on their strengths and help them learn from their mistakes so
that they keep improving a secondary focus has been at most of the places
where i worked we've conducted an internal research about what makes
traders successful and so I've been able to help the trading firms with their
hiring processes and help them make better decisions about who to bring on
board
so that's been a separate kind of work but a very fulfilling area as well
sure ok that's really cool now that we have caught up on your background
that's really hard in on the subject of trading psychology
so one of the things many traders will admit and a will aware of
is that they take profits to sown and they cut losses to light
you know that's mostly due to psychological reasons or imagine what
advice would you give to those traders in that situation
what is the question Erin and high as Iran would say i would encourage you and
listeners to check your premises with respect to the question because I i
think that it can be a psychological issue
what is not always a psychological issue i mentioned that markets are always
changing and one of the ways that they change is in there
volatility and so market the market as we are talking right now the market is
trading with a fix of which is implied volatility of 14 and change wasn't so
long ago that we were seeing a fix readings
well into the twenties so markets were moving much more
a few weeks ago then they are currently what that what happens is that traders
don't adapt to that either in their trading or emotional life and so they're
likely to take profits too quickly or likely to allow things to move against
them because they are operating from an old regime from an old set of
assumptions that don't apply to the current market
so for example when volatility comes down
traders will start to make some money and then when the it when they tried to
let the market elected position go
it eventually just reverses against them because the volatility isn't there and
you get much more mean reversion on a short time frame and so the end up
scratching the trade
where is in a higher volatility receive that might have been profitable so
sometimes a problem that trader has might have is logical not psychological
it's a function of not adapting to market it's a function of
training well but you're right there are other times where traders respond
emotionally to making money losing money and as we know from the behavioral or
finance research people are much more sensitive to losing money than they are
making money and so they're likely to be threatened by losses and not want to
take those they're likely to be afraid of losing whatever they gain and exiting
trades early and so forth
so a huge issue in trading psychology is identifying when is a trading problem a
logical problem a problem with one's trading methods and when is it the
result of a psychological problem result of being not in a wrong mindset that
biases your information processing
ok that's and that's an awesome answer that was those really really good
something I guess that is an example of a lack of adaptability
you know and in some cases possibly even a bad habit but in general when we
recognize bad habits and out riding
what's the best way to break these habits of the first step in breaking any
habit whether it's a trading habit or personal habit is to become exquisitely
aware of its presence so we want to become mindful we want to be self-aware
we want to realize that the habit pattern is playing out as it is starting
so let's say my habit pattern is overeating
I but first step in change is directed nuys when I'm starting to feel a craving
for food or when I'm starting to reach for the refrigerator if I can't identify
it at the time it's happening
how could I possibly control it so building awareness is in southwest is
the first step in the change process then once you have that self-awareness
once you can become an observer to your habit patterns rather than someone who
is caught up in those patterns then you want to make a conscious effort to reach
annal yourself
so let's say for argument's sake i have this habit of overeating and I tend to
overeat most when i'm bored so I catch myself reaching for the refrigerator and
then I calmed myself down I focus myself and I purposely engage in an activity
that I will find engaging
that will absorb my energy
maybe it will be some physical exercise up
maybe Allah go play with one of my four cats but uh
the idea is I would address the boredom
so that I no longer feel the need to compensate with food
the same principle occurs with what is wrong with trading
so my habit with trading might be to place trades after a website to place
trades out of frustration after I've taken a loss
revenge trading and so that comes from frustration i have a losing trade I'm
frustrated
I want to make that money back so i want to become self-aware about that
frustration
I want to catch myself being frustrated and reach and all that emotion
so step away from the screen temporarily calming myself down and doing something
that is gratifying
that's fulfilling to counteract the frustration will help put me in the
right state of mind so that i can go back to the screen and make good
decisions
I can show and I like how you mentioned earlier in that answer but i will be an
observer to your bad habits then getting caught up in the middle of it i think
that was a really cool concept
yep important one that shows up actually in Eastern philosophy as well as in
psychology research that we can't change something if we're not aware of it
if the pattern controls us if the habit controls us then we're passive but yet
we have no say in what happens
well so the first element of control is being able to step apart from the habit
pattern
whether it's a habit of drinking habit in trading
I have it in our relationships we stand apart from it and we recognize that this
is causing us pain this is causing us losses and then were able to try and do
something differently
right right ok now the intro to trading psychology to point out
you mentioned that all the traders you've worked with varied greatly and
how they actually traded yet they had many commonalities and how they did what
they did
so here you are of course referring to process and habits
could you elaborate on these observations for us
yes absolutely obviously the traders I work with have very different strategies
some more short-term some more long term
some are long short investors building very large portfolios are among
individual socks
some of them are training macro assets globally and trading macroeconomic
themes so they're very very different in their approach to markets and in their
training styles but a process level there's some real similarity and that's
what I talk about in the trading psychology true . notebook with those up
basic a b c d themes not a being adapting to market be being building on
strengths see being cultivating creativity and d being developing best
practices and so what the really successful traders are doing is studying
themselves and figuring out what works what they're good at and where their
vulnerabilities live where the weaknesses lie and they do more of what
works
the active ways that make that and more of who they actually are
and they may be different strengths in different markets but all of them study
themselves just as they study markets and stay grounded in what makes them
successful
ok so the ABCD that you mentioned there could you just walk us through each one
of those in a little more detail just so we can understand you know get a better
grasp of each .
yeah absolutely yes so a you know is adapting to changing markets and this is
I point out in the book is no different than it would be for any entrepreneur
you start a business and your marketplace is always changing and so at
one point in time you're if you're starting a restaurant
you have your marketplace may have one set of taste and then something else
will become popular and and so you have to adapt by changing your menu by
changing your de coeur by changing how you deliver service successful
businesses never stay static we see this in the technology industry new
smartphones are coming out with regularity
because the marketplace demands new features and functionality so we're
always having to adapt markets change in their trend markets change in their
volatility as i mentioned markets change in their patterns of participation the
people who dominate markets now are not the people who dominated 10 years ago or
20 years ago and so we see different patterns and markets to assume that
markets are static and that our edge will last forever
does not work any better in financial markets that it does in the business
world a great way to go out of business in the business world is to assume that
what you're doing well
will last forever and you never have to change that's how to become a dinosaur
that's how to become obsolete and that happens in financial markets as well
so the successful traders are always studying markets and only studying how
markets are changing and the interesting part aaron is that many times our
mistakes and trading our losses are setbacks are drawdowns tell us about
changing markets because we do what we did do when we were making muddy and
suddenly it's not making money for us and if we reasonably disciplined doing
what we have been doing when we made money that we have to ask ourselves well
how could smell working anymore
what has changed and that helps us go back to the market
learn from our mistakes and adapt so we're using our drawdowns we're using
our losses as real information that helps us adapt to markets that have
changed their correlation patterns or other trend patterns and so forth
so that's a adapt that's the a party adapting to changing markets of the B
part is building on strengths and I i alluded to this earlier of why I found
in my research with successful traders and portfolio managers is that all of
them have different strengths but all of them have at least one distinct and
strength and it could be a personality strengths could be a cognitive strengths
but really successful traders are really strong in some areas as a rule the
higher frequency traders the day traders are very good at fast thinking skills
they see things broadly they see many things across different stocks or
markets and they process
real-time information across a wide area very quickly so that they can make quick
decisions
the traders i worked with in Chicago were very much like that they were great
at pattern recognition on the other hand
traders with a longer time
verizon behave more like investors they're slower thinkers but deeper
thinkers are more analytical and so they are going into depth in different areas
and finding out information that other people just aren't looking at and so
that becomes their strength and happened help them
let's say find an undervalued company that they can invest in over a longer
time horizon
so we we all have our strengths and the really distinctive traders that traders
who make distinctive returns have distinctive strength and so the success
is based on making the most of your strengths not just correcting your weak
areas the C stands for cultivating creativity and and and that's a topic
that i have found tremendously neglected in the trading psychology research and
writing
creativity is all about seeing the world through fresh eyes
if we trade the same way that everyone trades
we're going to get the same returns with everyone gets we have to see some fresh
opportunity we have to see the world differently from others
if we're going to achieve distinctive results again
it's like the entrepreneur entrepreneur sees an opportunity that others don't
see and is able to build a business based on that perception of opportunity
the successful traders that I work with have very distinctive strategies and
i've been involved as i mentioned in hiring success hiring traders and
successful traders at I different firms and I always know who has the potential
to be a successful trader because we talk about their strategy and when I
hear the strategy it hits me upside the head
it smacks you in the face and I said Wow why didn't I think that it's something
unique it's something different if what they tell me is something i could have
read in any of a dozen books
I know that that's not a distinctive skill set so cultivating creativity is
an essential for success and of course creativity is a big part of what helps
us adapt to changing markets and finally the fourth topic is developing breast
best practices and turning best practices into best processes
so when we look at best practices we want to look at them in every facet of
trading how we generate our track paid ideas how we manage our positions and
how we manage our risk
how we review our results and learn from those all of these are separate elements
of a training process and we want to identify our best practices in each area
are best practices and generating ideas are best practices in damaging positions
are best practices in managing risk and reward our best practices and managing
ourselves as performers and we leave those together those best practices into
best processes and the successful traders I work with are always working
on themselves and improving their processes over time
that's awesome bread and very very insightful thanks a lot for taking the
time to to flush that out for us and obviously if guys want to learn more
about that
definitely check out your book trading psychology too . our link to that in the
show notes at chat with traders . calm and just a couple questions to bounce
off your answer there
firstly what about habits early we covered and bad habits how to break bad
habits
what's the best way to form new habits and implement those introduce new new
habits
yes and you're absolutely right
we want to develop best practices by turning those into habit patterns are so
often we hear that traders need to motivate themselves and y'all do various
things with imagery
they'll do various things like have sticky notes I don't have a computer
screen to motivate them to do the right thing but in fact motivating us it
ourselves is not the best source of up influencing the behavior of the best
method for influencing behavior
if you look at the things we do consistently in life it's not things we
do through motivation
it's things we do through habit so i don't have to motivate myself to eat
breakfast take a shower in the morning
uh I don't have to motivate myself to do the right things for the people i work
with as a psychologist because that is part of me and part of my routine and so
we want to take our best practices are trading practices that work well and
repeat them with fidelity repeat them in a routine way so that time and time
again with repetition
they start to become habit patterns so repetition is really
the our source of developing positive habits
once we identify best practice once we identify something that works for us we
want to be very conscious about employing that day after day after day
after day Tony Robbins the the well-known a motivational speaker makes
the case that if we repeat something for 30 consecutive days in a reliable way it
eventually becomes part of us and I think there's some truth to that
that by doing things again and again it they start to feel familiar and they
start to become part of us
mmm very very great points their breath thank you very much
now you also mentioned weaknesses
so you know every single one of us we have their own weaknesses
how should we treat our weaknesses i mean some people with the school of
thought that you should just focus on your strong points and really drew down
on those others say you should you know improve on your weaknesses
how do you feel on on this subject
yeah yeah that's a great question and yep
ar-ar-ar strong areas are strengths are there because those are competencies we
built over time and and and they're also talents that we've been born with and so
we want to make the most of those and you know when you see people have been
distinctively successful there are people who have really made the most of
their competencies with the weaknesses of into rare that you could ever turn a
weakness into a strength but we can our work around our week this is so there
are some kinds of trading that i personally am not good at
in fact the training that we were talking about in Chicago very high
frequency trading banking rapid decisions
I don't have
have the stain kind of fast information processing skills that the very
successful traders in chicago had and if i try to do that
I quickly in a point of saturation well cognitively and emotionally inside
that's not a strength of mine so I want to avoid having to make rapid decisions
and process lots of information in a short amount of time
so in my own trading i will trade short term but those tend to be introduced
wings or maybe swings from one day to the next
where I have enough time to process relevant information and not get
overloaded so by altering my time frame of holding positions on able to dodge or
avoid some of my weaker areas and play to some of my strengths some of which
are more research oriented
ok so this might be just to continue on this on this tangent here
this might be a little bit of a strange question but how do you know that that
was a weakness of yours that you wouldn't actually be able to trade like
the guys you work with in Chicago because I mean all of us even those who
could process information very rapidly and even on day one we would still
struggle when you know for the first few months you know it may be for first few
years and even guys who could process information very quickly and might still
struggle in the beginning
how do you know when it's a when it's a weakness of yours and just not a skill
that you get to develop a great question
uh it wasn't simply the I tried it initially and didn't make money from it
it's that I I rapidly hit a point of cognitive overload and in fact that had
happened to me in other areas of my life apart from trading if I was in a
situation where I
add to process too much information at one time and make rapid decisions
I often would not make my best decisions
so let's say for argument's sake that I was in a situation in a relationship and
there was some disagreement or some issue in the relationship of if I tried
to deal with that right then and right there
often I was not as effective as if I took a step back
really thought about what was going on really reflected upon myself and then
responded in the way that I felt a new was best and that typically wasn't a
huge amount of time but it wasn't spur of the moment either so I had recognized
myself that I do well when I'm able to reflect and the pattern recognition that
the people were doing in chicago was relatively instantaneous and really a
remarkable skill i admire people who can do that
and when I tried to do anything similar
I just hit a point of cognitive overload and that's how i know that i'm just not
wired that way
I don't operate that way in any area of my life and when I'm pushed it to
process information that way is unpleasant
where is when we act on our strengths
there's an intrinsic pleasure to that because we're doing what we're really
good at it it feels fulfilling to us
so some kinds of analysis I really enjoy doing
I look at markets in a rather quantitative way and being able to solve
the puzzle so to speak in and see quantitative patterns and markets is
very gratifying for me very fulfilling and then being able to trade based on
those and see them work out
that's very fulfilling and gratifying to me so when we act on our strengths we
feel strongly feel good we feel fulfilled and when we act counter to our
strength
it's intrinsically frustrating that's a big part of how we can know right i can
ally kay mentioned that you pull on you know your strengths and your in
witnesses and you find those in and other areas of your life and United the
cross-eyed it's a train is all very relevant so excellent point
yeah let me add another point that i've i've mentioned my writings up
I have never traded full time in my career and a couple of times I tried to
do it
I tried to trade full time and I actually was making money and I hated it
I absolutely hated the experience of trading full time
why because one of my strengths is working with people and one of the
things that drew me to psychology was the opportunity to be a meaningful part
of people's lives and it and so trading full-time wasn't playing to one of my
greatest strength and became frustrating
so we have to know ourselves and often
what it's our feelings of happiness and fulfillment that tell us whether we're
playing to our strengths or not
ok yeah that's really interesting Brenda going now
something i'm curious about when you're working with other traders and you know
implementing techniques to get them closer to peak performance
do any of the techniques that you work on operate on a subconscious level to
provide change
I it depends on what
depends what you mean by that are you say subconscious yeah
any technique that as you were saying develops a habit pattern is making that
pattern
automatic and therefore out of consciousness
uh and so you see dating techniques let's say like guided imagery
let's say a trader is afraid to lose money
and we will do some guided imagery to have them mentally rehearse scenarios in
which they hit their stop levels and they keep themselves calm and they keep
themselves focused while they're going through this guided imagery and they do
that again and again and again and again and pretty soon the feeling of hitting
your stop and get stopped out
I is something that becomes familiar to them not threatening to them and they're
able to keep themselves calm and controlled and so is in a sense
reprogramming their emotional responses to a situation they have experienced
this threatening and that is happening at an emotional level until you could
say that it's subconscious
ok ok sure but what you're really trying to do in a sense is rewire a person
you're trying to re-program their responses to certain situations right
now brick one of the things i'd like to ask you more about his goal setting
I think your advice on the topic would be really valuable so how do you suggest
developing traders best go about setting goals for themselves
yeah it's actually research and I've written on this a on the trader feed log
his research on effective goal setting
what what happens a lot of times that people are set a goal but they don't
follow up the goal with a specific plan and so if i have a goal let's say by
goal is let's say my goal is to lose weight
well that's only going to work if it's part of a day to day plan and that's
only going to work if its meal by meal
I have to eat less calories I have to do more exercise and that's day in day out
and so the goal is the big picture
but what makes it happen what makes an effective is the day-to-day
implementation of a plan and what traders often this is all set a goal for
themselves to make a certain amount of money order to avoid losing a certain
amount of money or trade a certain way but they don't drill down so that the
goal is something they are concretely working on each day in each trade
so we want effective if we want to be effective in goal setting by being very
planned and very consistent in working those plans
a goal without a plan is a wish you know if you have a goal you don't have a
specific plan but that's just a good intention
that's a wish that's nice but it is like new years resolutions it for the most
part they're not going to happen unless we have a concrete plan to actualize
them
ok she brought up an interesting point there in your answer about child is
wanting to make a certain amount of money
what - what's your take on goals that have a monetary value attached to them
well not a fan
you know uh one of the things one of the problems that affects traders and
affects people in all performance fields is something called performance anxiety
and performance anxiety arises when we become so concerned about the outcome of
the performance that it starts to interfere with the process of performing
and so if I'm a public speaker and I become very worried about how my
audience is going to think of me and whether they're going to be interested
my topic will pretty soon all forgot what i was speaking about
so we by putting the profit loss of P&L up front and center in our goals were
emphasizing outcomes and that can enter that can put pressure on us and
interfere with processes sometimes markets offer more opportunity than
others and to have a fixed P&L goal doesn't really take that into account
what I would rather do as an outcome related ball is look at improvement
so am I improving from month to month year to year in my trading performance
and I would look not only at pnl in absolute terms but i would look at it
the way that hedge funds look at it and the way most financial professionals
look at it in terms of risk-adjusted returns
how much money am I making per unit of risk that I'm taking and try to improve
not only in my absolute returns but in my Sharpe ratio or in my risk-adjusted
returns and and that I think is meaningful
okay good good . now just continuing on this path
how do you think traders should think about failure or loss because i know
that some people are genuinely afraid to file single work do you ever try to get
tried as to reframe negative thought patterns or anything similar to this
yes and I i think an important part of trading is in his it's fine making
friends with loss and a sentence making friends with failure that it's as i
mentioned earlier it's often are losing trades that teach us about how markets
have changed
look at it this way if we follow a best practice and we are relatively diligent
if we're relatively consistent are trading and we follow our best practice
and then we start losing money
well something has changed in the market we're doing the same thing but something
has changed in the market
we want to use those losses as a prod as a stimulus to learn about what has
changed in markets so that we can adapt our losses are information they're
telling us something
if i'm running a store let's say I own a department store and I normally sell of
you know 500 pair of blue jeans and a week and now suddenly I'm set up playing
a hundred fifty in a week and that happens in week one that happens a week
to that happens we three pretty soon I say to myself what the hack
you know why are people buying blue jeans and sure enough i go to the
fashion magazines and people are into something else and I realize I have to
adapt I have to change my inventory as a retailer
well that's how business works that's how trading works
our losses are mistakes are there for a reason
they are there to teach us something
and if we embrace them if we don't push them away
we can learn from our mistakes it makes us stronger makes us more adaptable
so yes it's frustrating yes it it sets us back temporarily but ultimately
that's how we become better by learning from our mistakes
absolutely now Bret I'd like to ask you about the actual subject of money so let
me ask you this when you're coaching and working with traders do you try to
change how they think about and he'll give you money because straight away by
default
many people have a tight psychological attachment to money so how do you treat
this
gosh it's a great question and had the answer
I don't know maybe I'll surprise people I don't ever think about money
hey where I work haha you know the the minimum portfolio size for a regular
trader at one of the funds right work is two hundred million dollars uh but no
one thinks about money
you think in percentages and basis points and so whatever you ask someone
how much did you make her lose today or this week or this month will always say
I made 50 basis points I made
yeah I made one percent so they're not thinking in dollar terms
that's very very helpful because if you start to think of it in dollar terms
will try if you're crazy
yeah this if you have a 200 million dollar portfolio and you lose one
percent you just lost two million dollars uh but of by putting it basis
points then when you grow your capital a 30 basis . loss is the same when you're
trading a smaller book is when you're trading a larger one and so that's a big
part of how professional traders get around thinking about money
uh they think in those percentage terms
that's a really great that's really great . to the breath
many many of us often feel you know many developing traders often feel a great
amount of pressure to succeed and become great traders
how do you feel about pressure
I mean is it a good thing to place you know sometimes quite a lot of pressure
on yourself to succeed or can't have negative effects
well it definitely can have negative effects and it's hard to take risk
you know when when you feel under the gun
it's hard to make good decisions under conditions of pressure
so I absolutely think that that that is a challenge associated with trading of
one of the things I've commonly told traders and I've written about it is
that for me a 68 of element of success in trading is making sure that you have
something in your life more important to you then trading because if you have
something in your life that's more important to you than markets than
trading the profits
then during periods of drawdown you'll always have something to turn to to
renew you and inspire you and keep you positive
sometimes I hear traders say to me you know i have a passion for trading and
trading the most important thing to me and and I worked got it
you have 14 hours a day and well that's being vulnerable training should not be
the only part of the major part in your life because then you'll have nothing to
balance yourself and to balance the pressures during inevitable drawdowns
so I think have living a balanced life having sources of happiness and
fulfillment and energy and closeness to people apart from markets very very
important to trading success right well this leads into an interesting topic so
from what you've observed what factors have the greatest contribution to a try
to satisfaction and and sense of accomplishment
what what contributes to satisfaction and accomplishment like do they get
excited about making huge profits and you know a month or are they do they
find satisfaction in other areas of the business
I don't know is that an appropriate question it's always a great question
and I'm pausing to reflect which is just what i mentioned i doing
while processing information super quickly because i like to reflect and
I'm thinking about specific trainers I'm thinking about my work with them and you
know if I look and I certainly know traders who get a lot of excitement and
satisfaction from making money and markets and I certainly find that to be
gratifying but the ones who have longevity in the business who have been
at this for a while have some source of satisfaction and trading that is
separate from their profitability in other words it's not that they find
fulfillment in trading they find fulfillment in markets and I think
that's an important distinction that if you find your fulfillment in markets and
learning about markets and learning new strategies and trying new things
then you can find gratification from your your intellectual curiosity is
gratified your sense of puzzle solving and challenges are satisfied even during
those periods drawdown if your only source of ratification and fulfillment
comes from the profitability
then psychologically your Baron so to speak your ear your breath
you don't have anything to sustain you
during those periods of drawing down so I think it's important to have sources
of fulfillment in trading that are separate from profitability
even though profitability is obviously one of the important drivers of our
satisfaction
ok a lock it really really good answer Brett and all someone to take us outside
that's one things down now weakness is going to find out more about you
oh uh well the easiest way would be through the two blogs that I right one
is trader feed the addresses trader feed all one word
trad erfe e dot blog spot.com and the second
yeah r is the blog's I write for Forbes online and if you go to the Forbes
online site and say goodbye name you'll see a lot of articles pertaining to
positive psychology and financial markets
so those are two ways that are free and that uh you'll find more information
than you care to know and obviously I've written four books in the area of
trading psychology and those go more into depth into the topics that we're
discussing today show and you're also on Twitter I know so
which one hand like that so yeah sixteen bab st ii n da b is my twitter handle
and so what I try to post at least the ones a day
excellent now like you mentioned you've got a several books out the most recent
one being trading psychology too . I which came out towards in the last year
that will be sure to include all the links that Brett is mentioned just now
at checkout strides . com including a link to his book and some of his prior
box is there anything that really separates this your most recent book
from your previous material
yeah that's why I called it the tray psychology to point out because i really
wanted to touch upon themes that were not traditional in the writings on
trading psychology
so there are many topics related to positive psychology building on
strengths
there are many topics related to building creativity and well-being that
typically we don't hear about when we read a book some trading psychology
a lot of the traditional trading psychology dealt with controlling your
emotions being disciplined and all those are great that I would take those are
necessary but not sufficient in the trading psychology to play book i tried
to go beyond those traditional themes good one
ok our guys will i'm yet check that out at chose tradus.com Brett
thank you so much for doing this I really appreciate you taking the time
out of your day
I hope this is get a lot of value from this and I have no doubt that they will
so again thank you
well thank you for having me I appreciate the opportunity
you've come to the end of this episode of chat with traders but don't worry
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