Dr. Brett Steenbarger - Improving Trading Performance

hi guys I'm Big Mike and like always I'd like to thank you for being here today today we have Dr Brett steinburger here to talk about improving trading performance and Dr Brett is actually uh uh it's it's a real honor to have Dr Brett on BMT he's actually one of the uh the most favorite authors that we have on the site uh myself in particular I really loved the book The Daily trading coach uh it's my number one most recommended book for anybody that uh wants to improve their trading so it's a absolute honor to have Dr Brett here today um today he wants to talk about a few things I've got some bullet points here uh turning trading into a performance activity characteristics of successful Traders undercontrolled versus overcontrolled trading patterns of poor trading common behavioral triggers diffusing and managing problems as well as maximizing strengths um because this webinar is part of bmt's 5-year anniversary we're going to be giving away 10 autographed books at the end of the presentation in order to have a chance to win one of those books you're going to want to take notes on uh Dr Brett's uh presentation today because the questions at the end of the webinar will be directly related to the material that he's covering today I also want to point out uh that anyone that's joined this webinar uh from Dr Brett's website directly in order to uh to win one of the books or or if you're a winner of one of the books I will be asking uh for your BMT username if you don't have one it's free you can go to big mik trading.com and register so you're ready at the very end and uh that's so that I can get in touch with you once the webinar is done I'll get your mailing address I'll get your autograph request and then we'll get the uh the book in your hands if you're one of the 10 winners I also want to remind everybody the webinar is being recorded I'll post the recording on YouTube sometime tomorrow uh Dr Brett has asked that we hold the questions until the end of the presentation and there will be an extensive Q&A at that point so uh just try to hold them until then and then we'll get through as many questions as we can all right guys with that I'm going to turn things over to Dr Brett right now and we'll get started okay you should have the option to share your screen again one more time okay we've got the Powerpoint looks good all right it's all yours Brett thanks okay very good sound okay sounds good and we we see everything well thanks all right okay very good okay well I appreciate the interest and it's a a a great honor to uh be able to uh present today we're going to be talking about a few aspects of improving Trader performance but before I get started uh let me just emphasize on this title screen uh my email address the Steen bab aol.com if any of you have questions that don't get answered during our session uh please feel free to be in touch with me and I'll do my best to answer those questions I'm not able to do formal coaching online but I'm always happy to answer questions clarify and and help traders in any way that I can and of course you see the URL for the Trader feed blog which uh contains articles relevant to what we'll be discussing today so let's get started and let's start at the very beginning and talk about what makes any activity including trading a performance activity there's several factors that differentiate a performance activity from any routine activity that we would undertake there has to be discretionary decisionmaking in other words we are using our judgment to make decisions about what we are doing if if we completely automated something and had no control over it then for us it would not be a performance activity in the same way as if we are utilizing our judgment but beyond utilizing judgment there is also the importance of measurement of results that once we make decisions we are tracking outcomes how well we are doing what we are doing moreover we're getting some kind of feedback about our performance what we're doing well what we're not doing so well so we're getting process feedback at the same time that we are getting outcome feedback from those results so we're making decisions getting feedback about how we're doing what we're doing getting feedback about the results of what we're doing and then we are taking those results and that feedback and moving it forward to set goals so that we can improve our our future decision making this is what I refer to in my uh Trader performance book as a learning Loop the goal setting and the efforts at Improvement take the feedback from past performance and apply the lessons learned to Future performance if we think about athletic activity if we think about the training of CH uh Championship chess players we see these elements we see discretionary decision making tracking of Process Measurement of results and E systematic efforts at Improvement that turns an ordinary activity into a performance activity where we are dedicated to improving performance over time many of you will recognize the concept of deliberate practice as an essential part of performance activity the practice is deliberate because it is informed by feedback and measurement of results okay what are some characteristics of success uccessful Traders You Know Jack schwager in the market Wizards books did some very good research and found that successful Traders are quite different in their approaches to markets they trade quite differently some are short-term some are longterm some are more directional less directional are there any underlying characteristics that we see among traders who are successful there's not a lot of research published research in this area uh but there are some indications both in the practice literature and in formal research the first characteristic is known as conscientiousness conscientiousness refers to being organized being thoughtful about what you do and how you do it being structured in your approach to doing something being highly responsible is part of being conscientious if you think about the kind of person that you would want to babysit your children you would want a conscientious person someone who takes responsibility in a very serious way low neuroticism now the flip side of neuroticism would be emotional stability so we're looking for people who have a relative Rel atively stable emotional Outlook as opposed to a quote unquote neurotic uh uh makeup where they are having many highs and lows depending on whatever might be going on at the time and as you can imagine the emotional stability contributes to stability of decisionmaking high openness openness to experience is a personality trait that is correlated with creativity a person who is high in openness is someone who likes variety someone who likes change novelty people who are low in openness prefer stability and routine there are a couple of reasons why openness to experience may be correlated with trading success first is that creativity aspect the person who is open to new information different information may be more likely to generate successful trade ideas than someone who is locked into a static routine set of information but I think there's an additional Factor as well people who are high in openness to experience may be more more willing to embrace the changes that occur within markets you know Victor Neer Hofer talks about everchanging Market Cycles we have different periods in markets where the markets are trending other periods where they're not trending there are periods where markets are volatile and other periods where they're not volatile at all to adapt to those changes requires a certain degree of openness to change and variety that we might see in the openness to experience and finally what the research literature calls problem focused coping when something goes wrong in trading how does a person cope with that what we find among successful Traders is that they cope by addressing the problem if a trade goes wrong maybe there's a problem with one's assumptions maybe there's a problem with one's execution but one becomes very problem focused in terms of solving what may have gone wrong that's very different from emotion focused coping where a person might cope by venting Emotion by suppressing emotion the the problem Focus coping ends up being more constructive and helpful to that Learning and Development process these characteristics are relevant when we talk about two of the largest psychological challenges that Traders face and I refer to these as undercontrolled versus overcontrolled trading we see undercontrolled Trading as impulsivity a fear of missing moves a need for Action in markets so people put on trades when there really is not objective opportunity present the impulsive Trader looks like an ADHD person like someone who has an attention deficit there's a loss of focus and a loss of rule governance they stop following rules because they're behaving on the impulse of the moment now when you understand the Dynamics of undercontrolled trading you can see why the characteristics of conscientiousness and emotional stability the low neuroticism are so important someone who is conscientious is going to be more likely to stick to a well-crafted trading plan and someone who has a high degree of emotional stability is less likely to be thrown in their cognitive processes by the ups and downs of p&l now when we go from undercontrol trading on one hand to overcontrol trading we move from being too impulsive to being too hesitant the overcontrolled Trader instead of trading too much when opportunity is not there the Over contr Control Trader doesn't trade when opportunity genuinely presents itself there's a fear of sustaining loss a need for safety there's a hesitation the trader is behaving not like the ADHD person but as an anxious person very often during episodes of over control trading attention becomes self focused and particularly focused on pnl and negative p&l so that the self-focused attention ends up distracting the trader from what's going on in markets part of the trader so to speak is focusing on what's going on on the screen and part of the trader is focusing on what's going on internally and what's going on with p&l this becomes a negative spiral because as attention becomes distracted and divided bad trades are either made or very often good trades not taken there's frustration over not participating in a move that one anticipated and out of that frustration can come excuse me impulsive trades so it's not so unusual that we would see a kind of oscillation between overcontrol trading and undercontrol trading where the trader becomes overcontrolled fears loss misses opportunity then becomes frustrated out of frustration becomes impulsive takes bad trades incurs further losses which then in turn leads to further head hesitation many many emotional problems of trading boil down to these two dynamics of over control and under control now a very very important idea here is that patterns of poor trading the patterns of under control and Over Control are State dependent what does that mean our Behavior avior is patterned just like markets are patterned we read patterns and markets our behavior is patterned in the sense that we behave in characteristic ways in particular situations and these patterns recur through the lifespan these patterns are typically associated with particular states that we are in physical States emotional states cognitive States so that in one state we may show a certain set of patterns of behavior and we could show a very different set of behaviors when we are in different states a good example as I mentioned earlier would be frustration when we are highly frustrated we are apt to act in ways that we would never entertain during calm moments now a very important idea is that these states of Consciousness states of Mind states of body are evoked by triggers typically there will be events internally and externally that set off our patterns that set off our shifts in state once we go from one St state to another state we begin to process information very differently if I shift from a calm Focus state to a fearful State suddenly I process Market information in a different way very much in that self-focused way that I mentioned earlier that could be triggered by a losing trade it could be triggered by thoughts of by pnl we could have cognitive Trigg triggers behavioral triggers but the key idea here is that states when they shift typically are triggered by something and that something is not always a factor that we're aware of so what are some common triggers for State shifts among Traders anxiety certainly is one of them any kind of fearful will set off different ways of processing Market related information guilt self-recrimination how many of us have been in a situation where we're just so frustrated with ourselves we're angry at ourselves because we've made a mistake we've done something wrong we told ourselves we would never do that again and so that feeling of guilt and frustration ends up uh triggering different behaviors boredom actually can be a very powerful trigger uh people uh they say nature abhor a vacuum I think people abhor a vacuum as well that when people are bored they try to fill their experience with whatever is available and sometimes that can become a reason for impulsivity fatigue is a common trigger with fatigue we typically lose focus our concentration goes downhill uh we also tend to have more mood swings when we are fatigued and so that can become a trigger for processing information in very shifted ways anger and frustration as I mentioned where we might be angry at markets we might be angry at those we think are manipulating markets we may be angry and frustrated at ourselves but all of that shifts us to a flight or fight mode in our body in our mind where we now process information radically differently and finally physical stimuli can be triggers physical stimuli from being hungry being uh in pain if we have an injury physical stimuli uh in terms of discomfort of our sit sitting position can be enough to lead us to enter a different state of mind which in turn can be a trigger for different trading behaviors so what do we do when we find ourselves being triggered when we find that our best trading practices are not being followed and we are unwittingly sabotaging our performance the first and most important thing that we can do is Iden ify what our triggers may be what is setting us off Traders talk a lot about discipline and the importance of following their trading plans the question is why would someone spend the time and effort crafting a trading plan doing the research doing the work behind it and then seemingly throw it out the window it's not really self-sabotage it's a shift in state the trading plan was created in one frame of mind in one state of consciousness what we know what we can act upon is relative to the State of Consciousness that we are in once we shift to a whole other state of mind and state of body we lose awareness we lose perspective of that plan how many of us have had the experience of placing a trade losing on the trade and then at the end of the day review we go through our charts we go through the trades and we ask ourselves how in the world did I place that trade what in the world was I thinking of that's because the State of Mind in which you were doing your preparation was different from the state of mind that you were in when you made the trading decision something triggered that shift and so above and beyond all of the strategies that I'll be presenting is the importance of self-awareness and learning to recognize what your patterns are your triggers what typically sets you off and it may be a frustration factor that could lead to overtrading the under contr control it could be anxiety and fear that would lead you to be over controlled it could be fatigue from being on overload you want to identify the State of Mind and Body and thought that is associated with your best trading and with your worst trading mistakes so how can we change these triggers how can we alter our patterns I'm going to present several strategies that have been documented in their effectiveness in the psychology research literature the first of these techniques is called exposure in exposure methods you are learning literally to decondition your emotional triggers this is used in the treatment of traumas and the treatment of anxiety disorders the way that works is we create what's called a hierarchy we create a list of situations starting with the least frustrating or the least stressful the least difficult and moving up to the most difficult and challenging the ones that would be most likely to set us off so let's say we have 15 scenarios arranged in a hierarchy from very moderately stressful very modest in their ability to trigger us all the way through moderate ones through very highly stressful scenarios that almost always would trigger us we create the hierarchy and then during our work on ourselves we begin at the bottom of the hierarchy and we apply some very basic coping skills the most B basic coping skill that I use in working with Traders is controlling your physical state and your cognitive State simply by focusing your attention and slowing and deepening your rate of respiration your breathing rate so what you're doing is closing your eyes imagining a situation and in the beginning for the coping exercise you would imagine a relaxing situation maybe walking in a forest or on a beach and while you are imagining this Vivid scenario you're breathing very very slowly very very deeply so you're slowing down your body at the same time that you're focusing your mind that takes some practice and typically when we do exposure work people will just practice keeping Mind and Body in control through a number of practice sessions so before you work on your triggers you learn how to get yourself calm and focused once that happens we move to what's called imaginal exposure exposure using imagery exposure means we expose ourselves to the very situations that we find stressful so in the beginning when we were doing the culing exercise we were imagining ourselves wandering on a beach on a sunny day but now when we begin the exposure work we imagine the first item in our hierarchy the first scenario that is very mildly stressful and we play a movie in our head we imagine ourselves in that situation we visualize ourselves and what is happening in Market and what we would be thinking and doing and how we would respond we are rehearsing that situation in imagery while we continue to breathe slowly and deeply and keep ourselves chilled so think about what's happening psychologically here you are pairing two different things a stressful situation that in the past has triggered you with physical calm and cognitive Focus now normally something that is stressful would make you unfocus cognitively and would rev you up physically that's what the flight and fight response is all about in this deconditioning work when you reprocess your triggers you are learning to un do the flight or fight response you are learning to stay chilled even when you are vividly imagining situations that had triggered you those rehearsals need to be intensive and frequent repetition is what makes this technique work and once you become completely calm completely chilled at the lowest level of your hierarchy then you move to the next scenario that you laid out and into the next one and the next one until you're imagining your worst case scenarios the ones that always frustrate you and you're repeating them again and again and again with imagery and keeping yourself calm and focused that is called imaginal exposure by the time you get through your hierarchy you've had plenty of practice keeping yourself calm and focused so that by the time you are in the real world and putting on trades and some of these trigger situations are now happening in real time you can take a few deep breaths and focus your attention and bring yourself to a very calm place where you're more likely to make the decisions that you had planned during that state earlier when you start using the breathing and the cognitive focus in real time that's known as invivo exposure so you're going from gradual hierarchies to real life situation and in fact you could do that in a gradualistic way by moving from the imaginal exposure to using invivo exposure with simulated trading and then move from simulated trading to Trading small size and then bumping up your risk as you master these situations emotionally very powerful technique it is the most effective technique in the research literature for anxiety Related Disorders and for the uh reprocessing of uh stress and dealing with post-traumatic stress uh a and gives us a degree of control over situations that formerly had made us lose control strategy number two shifting your state now what this requires is what I call in in my book taking your emotional temperature in fact with some Traders I work with I actually print out a sheet with a thermometer on it and uh during the trading day they have to label on the thermometer how hot their emotions are that's taking your emotional temperature and of course what you're doing with an exercise like that is working on becoming more self-aware we want to be mindful we want to be aware of the states we're in if you don't know what state you're in how can you make a conscious effort to shift that state now once we take our emotional temperature and we recognize in real time that we are frustrated or we are bored then we take active measures to activate a complex elentary state or activate a non-emotional state so you are purposely engaging in an activity that is counter to the state that you're in and that could trigger poor trading so a very simple example would be if you felt bored and markets are slow and nothing is happening and it's a situation where you've been tempted to put on positions just to stay involved uh a complimentary State might be pumping yourself up by doing some short-term vigorous exercise physical exercise activating a non-emotional state let's say you were frustrated and worked up perhaps you could do a short meditation exercise off the desk where you put yourself in almost like a Trans State where you are uh very self-aware but very slowed down with some Traders I've used biof feedback for emotional traing training and as most of you know biof feedback is a a method where people receive direct and real-time feedback about their the state of their bodies so biof feedback can measure things like skin temperature it can measure things like uh heart rate uh muscle tension there are a number of good heart rate related biof feedback measure uh devices out there and what's interesting about them is that they can be used to control stress but you can use them to shift your state to learn how to stay focused and calm there's a unit called stress eraser that I've used most recently very portable small electronic device and basically to get yourself to a point where you control your heart rhythms you have to maintain very regular breathing which in turn requires you to focus on your breathing so it becomes a training device for entering a state that would counter the state which has triggered poor trading behavior for you strategy three I call solution Focus it's based on the solution focused methodologies in uh counseling and therapy and here instead of focusing on problem patterns in other words instead of focusing on your episodes of undercontrol trading or your episodes of overcontrol trading you are finding exceptions to those problem patterns so the question from a solution Focus vantage point would be when are you trading in the zone so to speak when are you not undercontrolled when are you not overcontrolled when do you have optimal control where you are immersed in what you are doing and where your ideas your perceptions and your plans come to you well most Traders have had episodes where they're not undercontrolled or overcontrolled where they're relatively in the zone they may not be able to sustain those but most people know what it's like to be absorbed in what they're doing and not frustrated and not fearful so we start to look for the triggers behind those exceptions just as negative problem patterns can be triggered our positive patterns very often have a trigger as well so now if we understand our positive triggers we can create models of our desired Behavior how we want to be trading and we can identify the specific triggers and the specific states that we're in when we are in our zone so for example for me a trigger for positive trading would be the time period right before the Market opens and right before I begin trading to be very distraction free and to be in a very open-minded place where I am observing markets but no longer in a planning mode and no longer in really a doing mode really I'm absorbing what's coming from the screen that's a very different state for me than the state where I am actively researching or the state where I'm managing the risk of a large position to me it feels more like a Zen state where I am very quiet very focused and just observing and in the mode of letting the market come to me letting patterns come to me rather than being in the mode of trying to figure out what the market is doing and impose my views on the market now for other people they would have other states and other triggers but what I find is that the quiet of my physical environment ends up being an important trigger for my cognitive quiet so to speak which then helps me stay with a pattern of desired Behavior so the focus is not on eliminating overtrading or under trading the focus is on staying in that zone of optimal decision making strategy four maximizing your strengths and this gets back to jack schwager's work you know what he found is that successful Traders are all very different but one thing they share is that each of them has a very distinctive personality and a very distinct set of Personality related strengths and cognitive strengths and they find a way to engage markets that make use of their signature strengths this is a very important concept because it suggests that the way to be successful is not simply to imitate someone else but rather to draw upon your particular strengths emotionally cognitively interpersonally so for instance some portfolio managers I work with have tremendous analytical abilities they are great at processing lots of information digging into that information and sifting it and finding nuggets and sure enough when they are successful and trading they're making use of those analytical skills there are other portfolio managers I work with who really don't like reading research reports and sifting through data they end up processing information in very interpersonal ways discussing with people they develop a network of colleagues and they very much develop ideas by bouncing from person to person and they become as good at reading other people as they are reading markets it's a very different set of strengths what's important is that your strengths anchor your best practices that how you trade becomes an expression of Who You Are so in that situation you're avoiding the emotional disruptions of trading by anchoring yourself in what you are good at doing so often trading slumps occur the same way that batting slumps occur in baseball people begin to doubt themselves and they start to alter their swing or the pitcher will alter their pitch and Traders will alter how they approach markets they'll lose confidence and they get away from doing what they do best in order to be consistent in implementing your strengths you want to turn best practices into best processes you want to create routines for your trading that draw upon your particular strengths wellbeing I put down as a core strength because as Barbara frederickson's research at Chapel Hill suggests when we experience significant well-being we process information more deeply and more broadly many times Traders are not process processing Market related information effectively because they don't have enough of the positive experience in their lives to balance the natural and unavoidable stresses of what they do in markets well-being incorporates everything from our social life our romantic life our individual interests how much gratification how much satisfaction we are deriving from the events in our life if you understand this idea of well-being as a core strength then you'll realize that the person who lives for their trading they're 247 they're focused on markets and they and they're the loudest in declaring their passion for trading those end up being among the most vulnerable Traders because we all go through draw downs we all make mistakes we all have periods of losses and if that's your whole life if you have no other sources of emotional well-being other than markets then what's going to happen your moods your energy level will rise and fall with your p&l and you'll be vulnerable to those twin problems of over contr control and under contr control ultimately as I say training is the best therapy because when we train ourselves we can become more rule governed and we can build our cognitive capacity to process information in a heightened state of awareness and focus training means practice it means what we talked about in the beginning making your TR trading a performance activity continually getting feedback about what you're doing and how you're doing it continually monitoring your results so that you can identify clearly what am I doing right that is working for me and what am I doing that needs to be improved so you're continually formulating positive goals the positive trading behaviors you want to continue and you're formulating goals for improvement that become that turns ordinary Trading into performance training so a couple of conclusions first developing ourselves as Traders means developing ourselves developing ourselves as people that in training ourselves to make optim optimal decisions under conditions of risk and uncertainty in training ourselves to master the inevitable emotions of fear and greed and frustration and fear we develop ourselves and that self-development reverberates to other parts of our lives in mastering our emotions in trading we become better at mastering ourselves in the emotional situations in family life in outside careers so we are always working on markets and understanding markets and we're always working on ourselves and understanding ourselves we become exquisitely aware of Market patterns we become exquisitely aware of our patterns we're always working on those two paths and finally the conclusion you succeed by becoming more of who you already are you already have certain cognitive strengths certain emotional strengths if you are going to be successful in financial markets you are going to find a way of leveraging those strengths to identify and exploit objective opportunity in the marketplace so instead of trying to make yourself into a different person you're trying to identify who you are at your best so that you can apply apply those strengths to the processes of trading well I man to do it in under an hour you know what that means that means there is more time for questions and discussion and application because I really wanted to leave a good amount of time to apply these ideas to people's interests and situations as much as possible right well thank you very much Brett for the great presentation so guys uh you can go ahead and start typing your questions we'll spend some time on Q&A before we go to the book giveaway all right um so as the questions are coming in Brett I had a question of my own can you tell me which I mean you have you have three books right and which one do you hear the most about which one do people contact you most often and say I love this book is there one that stands out yeah it's a good question and and uh it really stands out differently for different Traders and different Trader needs uh you know traders who are interested in Psychology and understanding themselves from a psychological vantage point I think like that first book um on trading psychology uh the second book has really appealed to Traders interested in developing themselves particularly uh beginning and early career traders who are interested in supercharging their learning curves so the second book on enhancing Trader performance really focuses on developing yourself as a Trader as opposed to the psychological experience of trading which is more the psychology of trading the first book the third book the daily trading coach is a kind of cookbook of Psy iCal techniques in fact I present 101 techniques that Traders can use for different kinds of situations and so as a self-help reference specific to trading some Traders have found that particularly useful so it really depends on a particular Trader situation and needs and interests right yeah like I said at the top of the webinar the daily trading coach was the one that really stood out for me but you know I can totally understand that it depends on on each individual and maybe where they're at in their Journey you know what's going to speak to them the most at that particular time yes and in general you know different authors will speak to different people and and you know it's not one siiz fit all and if you go through the trader feed blog and go through enough entries uh you will see a variety of topics related to Performance as well as related to markets and you can get a sense for whether that that material speaks to you right and that's probably the best way of initially encountering the material I've written one more question uh before I start reading the the user questions you know so for five years I've kind of been preaching if you will to members on the site saying hey you guys really should pay more attention to psychology and it's tough there's a lot of people that push back on that and um I can understand you know I actually used to be one of those people I mean I've been trading for almost 20 years and it wasn't until you know a few years ago that I really started to embrace the whole psychological part of trading and you know prior to that I kind of considered it mumbo jumbo you know so I can I can kind of relate to that I I'm wondering you know what for anybody that maybe is in this webinar or anybody that um doesn't really believe that focusing on psychology as opposed to focusing on what a lot of people would call methodology um yes what you know what is your advice to those people yeah again a good question and you know my take on this is probably a bit surprising given that I'm a clinical psychologist by training and a Trader coach uh who works with hedge fund portfolio managers and prop Traders psychology becomes particularly relevant once one has a successful methodology with Edge if a person is trading Randomness they can employ all the psychological insight in the world and all the greatest techniques and it's not going to make them money if people could make money simply by being disciplined then every computerized trading system would be profitable and it's not you need to have an edge in the marketplace you need to understand Market Behavior you need to spend the screen time the study time the research time to understand those Market patterns right once that happens the implementation is very much affected by psychology and by some of the forces that we talked about here today so it's not an either or either methodology is important or psychology is important but the two do really have to work in concert particularly once you have a sound methodology psychology will help you implement that in a consistent way but also in a flexible way right I think what what helps Traders appreciate the value of psychology is practical experience they like me have made all the trading mistakes in the book and you get to the point where you realize that you're unwittingly getting in the way of your own success and I think for a number of Traders that's when a light bulb goes off that the psychological component makes sense for performance reasons which is why many Olympic athletes for example will employ psychological methods as part of their training yeah you know I I mean just looking at a daily basis kind of like the 10,000 foot view looking at the the site and there's a lot of people that have journals which is fantastic but what what I see happen over and over again I mean thousands of times over the fiveyear period is that people uh focus on methodology they focus on entries and exits they focus only on that right and they'll they'll Journal it which is great that's already better than not journaling it but let's say they do this for two weeks or two months or whatever it is and it's not working and and by the way the you know this but the way most people measure whether it's working is from p&l and so they make a decision okay this isn't working so I'm going to change so now they have a whole new methodology and they kind of repeat this Behavior you know numerous times and this journal is you know 10 pages long 50 pages long 100 pages long and they never seem to connect the dots between I guess the type of psychology I would maybe refer to it as is like behavioral you know what they're doing with regards to changing their method all the time I still think that's psychology but I you know a lot of people need some convincing with that they don't they don't agree so I just I just want one more I'm just trying to help these people because I see this is the biggest problem that I see on the site this is something that everybody suffers from yeah yes I think you're making a great Point well I would use an analogy take let's consider a different performance field let's say that you are going in for surgery and your surgeon changes his methods every few days or weeks and gets frustrated when something doesn't work with a patient and then try something different yeah how would you feel about going under surgery with that individual well of course you would recognize that as a fertile field for malpractice well why is it any different in the financial realm you once you have something that back tests something that has worked for you in an extended period of simulation you have something solid then you track performance over time and and large variations of performance are either due to changes in markets markets are behaving differently than During the period where you developed your methods or are due to something changing in you more of the psychological factors when people change their methods frequently of course they're not giving themselves enough experience to really see whether those methods are working or not they're just assuming that random variation and performance is a sign that a method doesn't work and so that's really an expression of frustration if you're changing your methods frequently you're frustrated and as you point out that becomes a psychological issue you wouldn't want that in your surgeon it's no more helpful in trading okay all right uh let's see Cindy wants to know would you consider a trading room to be a distraction so like a service that you would read that again um yeah so basically like a trading room service that uh you know some people subscribe to these rooms would you consider that to be a distraction uh very good question Cindy and I think for some people it would be and for others not you know I mentioned for my own trading that I need that time to be in a in more of a Zen mode if I were in a chat room if I uh were listening to other people or interacting with other people during that time I would find it tremendously distracting and I know I would perform quite poorly uh other people are different I do think a trading room or chat room can have value even apart from the momentto moment trading in other words imagine a situation where people are doing their own trading and are focused on their own markets but then come together at a point in time to discuss the markets to discuss their performance to share ideas I think that could be very useful but we are all different in our cognitive Styles and our cognitive needs and what would be distracting and difficult for one person may not be for another it's really a situation where you have to know yourself the more you are relying on being immersed in markets synthesizing information putting patterns together the more potential distraction that would be in real time from shatter around you okay so John is asking a question earlier in the presentation you were saying something along the lines of traders that are the most vocal or the most maybe uh passionate or um emotional perhaps about their trades are also the the ones that are most at risk and John says that isn't it that passion that you know actually makes them successful or gets them through it what what do you say about that well you know I work with some very very successful Traders and they certainly are passionate about what they do and and I routinely get up at uh 4 in the morning if not earlier to work on markets and I think you could only do that if something passionately meant something to you what I was referring to was the trader who makes trading their whole life who trading isn't an important part of their life or simply a passionate part of their life it becomes their life they become all consumed with their trading and so it crowds out other potential sources of well-being it interferes with the formation of relationships it interferes with physical development and so so all of that person's psychological eggs are in one basket and that's a very vulnerable place to be what I was saying was that that kind of single-minded focus putting all of the psychological eggs in one basket is often justified by saying well it's my passion right but a passionate interest in trading does not have to be reflected in an unbalanced life having life balance and multiple sources of well-being can keep us aoft in our passions especially during periods of draw down right I can't remember where I read it but I think someone said that you shouldn't get your Thrills from Trading you know if you need something thrilling in your life it's better to you know go uh uh jump from a plane or you know Skydive or do something right to get that excitement instead of having it come from your Trading yes yes and and I and I think it's a great point I remember Linda rashki who I admire quite a bit um I'm making a statement like that um and I would distinguish between a passion for markets and a passion for trading because when you have a passion for markets when your interest is in understanding markets then you have something to sustain you even when the trade is not there people who have a passion for for trading are all too prone to what I call addictive trading M and that's a recipe for overtrading uh Joe is asking he says that you mentioned a site called stress eraser for the biof feedback he says that site looks to be shutting down in July do you have any other suggestions for someone that wants to take a look at the bio feedback devices well that's interesting I wasn't aware of the um I know the devices are available for sale on Amazon as well as from the company I wasn't aware that it's shutting down um but thanks for alerting me to that um there are other monitors bof feedback monitors um there's a company called heartmath uh heart then math matat um that does some work in this area uh that might be worth looking into but uh let me check that out I may put something on the blog okay uh Max wants to know if you think it's possible to be over aware of ones self during trading uh yeah a good question and and that's part of what I was mentioning with respect to self-focused attention during trading you want to be focused on markets you don't want to be thinking positively about yourself you don't want to be thinking negatively about yourself you don't want to be thinking about yourself it's not about you it's about understanding how markets are moving why they're moving and recognizing those patterns and those might be fundamental patterns those might be technical patterns they may be statistical patterns but we to the extent that we are self-focused our attention toward markets is divided some interesting research on pattern recognition that suggests that we are most able to recognize patterns when we are in an in an absorbed state of awareness in that zone and so I think we can be so self-aware and self-conscious that we are no longer absorbed and no longer able to extract the patterns that are playing out in front of us right uh there's several people asking for like a specific um I don't know let's call it a template or maybe like an Excel worksheet do you do you have anything along those lines that you've maybe designed over the years that would help people measure themselves or to you know try to find a solution to a certain problem you like you covered in some of the strategies um you know the closest thing that I have to a a template would be the uh daily trading coach book and the techniques in that book now certainly one could map out any of those techniques as a series of steps and uh make it more formulaic more templat like uh but in the coaching work I do I very much try to adapt methods to the specific needs of Traders and so I I tend not to be focused on uh one size fits all so to speak right okay um Javier is asking do you believe that there's like one guiding principle that uh the Traders have I know that Jack schagger mentioned this and you mentioned what he mentioned but do you do you agree with with what Jack says or do you think that it's really you know too it's too varied to say there's any one thing yeah um maybe we could reframe the question one guiding principle you mean guiding principle of success right yes um I would say that if there are guiding principles it would be that successful Traders show some kind of aptitude for trading related skills relatively early in their lifespan which suggests that they have basic talents they acquire an interest in markets relatively early in their lives which gives them a longer learning curve and they have some of those distinctive strengths that I mentioned that they are able to apply to markets in a rather direct way okay so I would say the common element is really a developmental process if you look at top Traders rarely have they started their trading careers later in their lifespans r whether they acquire the interest early and are able to immerse themselves in markets when they don't have the demands of formal education and career and child raising and so forth yeah that that raises an actually very interesting point there there was a recent discussion on the site where people I I brought up in my experience I've kind of noticed this divide between what I would frame as Blue Collar versus versus yollar uh people you know in their careers prior to trading and like a correlation as to their success as a Trader and it it seems to me and I could be wrong but it seems to me that white collar you know you know uh people that are typically not focused on manual labor you they're inside an aircond conditioned office type of a job or maybe they're an executive or a sea level position they have a harder time being good Traders and and it's usually or at least in my case it was because I'm not used to being wrong they're not used to being wrong they they don't accept that very well whereas the opposite end of the spectrum the Blue Collar the not to oversimplify this um they're more used to taking Direction and following Direction and it seems like almost that they're uh better wired or have more experience in that area to be a better Trader what do you think about any of that yeah that that's an interesting observation I haven't really thought of that uh in Blue Collar White Collar terms um thus far although I know a number of very successful traders who have very blue collar backgrounds um that being said the research from Angela Duckworth on what she calls grit which is the ability to persevere in the face of setbacks the ability to endure failure and keep moving forward uh I think is correlated with success across fields and is definitely something I have noticed among successful Traders okay that they are able to endure setbacks and learn from them and aren't devastated by them okay uh e- mini Trader has a really good question here and okay so well let me just read his question to start so he says is it better to use a spouse or some kind of a fellow Trader um to kind of act as like a sounding board for someone's trading and I I just want to kind of add to the end of his question uh piggy back my own you know what do you think about the overall importance of I don't know if you want to call it emotional support or whatnot from like immediate family um and what type of well psychological impact it could it could have on you let's say for example if your wife doesn't support your trading so do you think it's a good idea to to use like your spouse um as a sounding board or is it too stressful or you know what do you think yeah yeah very interesting question you know I I think there's a very important role for the spouse I'm not sure I would call it a sounding board um you know if I'm running multivariate regression equations and looking at the relative contribution of sentiment to forward price movement the S&P I'm not sure that my wife is going to have a lot of meaningful input uh in that analysis but that's really a different kind of sounding board something I would discuss with a trading colleague than the emotional support Factor if I did not have the level of emotional understanding and support from my spouse that I have there is no way I would have gone anywhere in my career either as a psychologist or a trading coach or anything else um I I do believe that maslo had it right when he talked about a hierarchy of needs and if your basic needs are not met in a romantic relationship if there is conflict at home I think it is very difficult to be optimally focused in one's personal development and career development and uh so I do believe a spouse is extremely important to a Trader's succcess and it's extremely important for a Trader to keep a spouse in the loop what they're doing how well they're doing this gets into a touchy topic every year I encounter a number of traders who trade in a way that again I would label as addictive they are trading impul impulsively they are not trading with any objective Edge whatsoever they're overtrading they're taking large risks and it really does take over their lives and they begin to hide their losses and hide their activities from their spouse at that point trading is no different from a gambling addiction and a spouse in that scenario is very vulnerable and a spouse in that scenario may not be supportive of the trading because they Intuit it that it's not a performance activity or professional activity right it's an addictive activity right and and so I think it is important to empathize with the position of the spouse who has no control over the trading and yet whose Financial Security is very much impacted by the results of the trading and make sure that the business decisions of trading and to go into trading and to expand trading are shared with the spouse just like any business decisions would be if you were starting a restaurant you would be sharing that information with the spouse and encouraging their support and involving them in in a feedback loop I think the same is true for trading yeah and anybody that wants to maybe uh read some discussion on that there's a really good thread uh you can do a search for time to give up it was a really great discussion a while back um I had a a question about the accountability aspect okay so whether it's your spouse or a friend or just your own journal um preferably like one in public maybe to enhance the accountability what in your mind what what is the importance of having that level of accountability when it comes to you know improving yourself as a Trader uh accountability is huge accountability to oneself you know that's what tracking results is all about and making those improvements that's a way of being accountable to yourself but accountability also is important in the professional context if you ever hope to be managing investor money then accountability to investors is Paramount and you learn to be accountable to investors by being accountable to your own trading processes so by being process focused by being results oriented tracking results uh in that performance performance way uh we are accountable to ourselves and to our development Traders but we also position ourselves to be accountable to those who would invest with us right Josephine is asking so if a person who is consistently diverging from his or her plan when it comes to taking losses or moving stops for ETC um what's you know what's the best thing to do to choose from one of the strategies that you listed which which one should they focus on yeah I I think the uh exposure methods would be particularly helpful to a Trader in that situation um there can be other factors that could lead a Trader to um get away from their stops or get away from their uh sizing rules uh I find the problem to be particularly common among Traders with small portfolios that are putting pressure on themselves to make enough enough from their trading to make an independent living right uh at the firms where I work a Trader who makes a 20% annual return is considered to have a very good year and if you're trading $500 million right in a 20% year is indeed a good year if you're Trading $50,000 then that's not going to pay all the family bills sure so what happens is Traders push themselves to take too much risk for the size of their portfolio right that puts too much pressure on the trading which leads them to abandon their rules yep yep and especially in the Futures side uh which is the most of BMT audience is is trading Futures uh we've got Brokers out there encouraging you know $5,000 accounts um with this enor leverage you know with maybe $500 uh day trading margins on the on the es and we've got traders that are trying to pull off you know $500 a day or more thousand dollar a day so they want 10 or 20% of their account daily you know and their risk is just pure Insanity yeah um Richard is asked and of course that's going to cause all sorts of emotional disruption and no psychological techniques will help the trader who the the vastly overleveraged trader yep right you got to be realistic right one of the most important things I ever found in my own trading was that uh I've got to set I mean it's important to have goals but they need to be realistic goals um Richard Richard is asking so how do I apply these Concepts when uh his biggest problem is simply getting the motivation to work on his trading skills oh that's interesting um uh a couple of possibilities I'm really thinking this one through because there really are a few different possibilities here um one possibility is that uh trading is not meant for everyone and if someone is having trouble recruiting the motivation to do something um is that activity truly speaking to them so I think a real hard self analysis is important uh because many times uh people keep climbing the ladder without without thinking about you know where it's ultimately leading them uh the second thing is that once in a while psychological problems and significant psychological problems s can interfere with trading for instance we know that 7 to 10% of the population in the United States experiences some diagnosable psychological disorder during the course of a year I ran a counseling program in ccus and sure enough 10% or more of students ended up utilizing that service we know that a significant portion of the population experiences anxiety disorders mood disorders such as depression and so it could be the case for some people that they're not finding the motivation to pursue their trading because of let's say a depression problem the way you would know that is if you were having trouble sustaining motivation in other areas of life as well if you're motivated in other areas and just not in trading that's when I think the reflection about whether trading is the proper path for you makes sense on the other hand if you're having trouble sustaining motivation pretty much across the board in life uh then you might want to entertain the possibility that this is a more General psychological problem and not something specific to Trading okay uh Futures operator is asking what would you say with or say to someone with impulsive or hyperactive add um impulsive trading Tendencies do you think it's a poor fit for trading or is it still possible to overcome those weaknesses yeah um in general it's a poor fit um it doesn't mean it's impossible it means that you're facing a headwind and so if there the first question would be it is there if there is a true attention deficit problem attention deficits uh you know we encountered those with children in school but they're just as common and prevalent among adults uh if one has a clinically diagnosable attention deficit disorder then getting the right kind of help for that could be important to suc in any field that involves focus and concentration and so that would be my first approach I do think some of those biof feedback devices and techniques to help build one's focusing muscles can be helpful uh but many of the uh best treatments for genuine attention deficits whether they include hyperactivity or not um are medications okay uh Abby is asking a question about the two states of anxiety she's saying that are you are you indicating that there's really only two states of anxiety one that leads to fear and missing opportunity and the other uh which is aggressiveness that would lead to overtrading um is it uh or have you encountered Ed Traders out there that have succeeded in going from one of those states to more of a hybrid State uh balancing the two um yeah and and I don't see those as two different kinds of anxiety I I do see anger and frustration as being fundamentally different from fear and anxiety um however um yes you know I think the idea that successful Traders are emotionless Traders is misguided I work with very successful Traders and they certainly have a wide variety of emotions and some of them quite strong at times I think what happens is that they become quite good at recognizing their emotional states at the time they're occurring so they develop a kind of self-aware aess or mindfulness and that allows them to place themselves in a different mode the integration of those so to speak to me is an optimal control not an over control not an under control but an optimal control that results when you are in what the psychological research calls a flow state if you Google Flow State you'll find research by a psychologist named shazi who examined States Of Consciousness where people are absorbed in what they're doing and he found that those states are highly correlated with creativity and productivity so the ability to sustain Focus to stay absorbed uh ends up being I think uh a balancing element to those to control extremes okay um so right now I'm reading questions from 30 minutes ago and there's there's still over a 100 questions so just let me know how we're doing on time okay well we're getting up on an hour and my understanding is we wanted to do questions for the uh for the book giveaway right yeah so you tell me do you want do you have time for more Q&A or no yes let's do a few more um I I've been up since uh a little after three this morning and so if I take all hundreds of questions I'm sure I'll pass out and uh then I will be truly under controlled uh but let's take a few more and and again if people have pressing questions and would like to email me uh I'm certainly open to that okay so here's a question from s that I know a lot of people um suffer from or or have the same question so how do you overcome the fear of going live after you've been on SIM for quite some time um the way you overcome the fear of going live is by going live in very small signs and such ize that it really is inconsequential to your portfolio so in the beginning I would be trading the smallest possible size and just doing the same things I had been doing in simulation mode and getting comfortable with having a live p&l and with having risk on the table and only when I reach the Comfort level that I achieve during simulation would I start to bump up the size the key is making the risk taking relatively inconsequential to one's account size right if one's account size is so small that any risk taking will be uh a significant chunk then that's a different problem sure um kind of combining multiple questions into one I see several people asking about automated or algorithmic trading and over the years I've noticed a pattern of people that um I don't know maybe let's just say that they have some um issues with discretionary training you know whether they want to describe them as uh methodology or psychological you know whatever so now they've they've kind of Taken on automated trading and say hey um I can just tell the strategy what to do and I can back test it and I can prove it and I can remove emotion from Trading what what do you have to say to those group of people um I love systematic trading I respect greatly the people who do systematic trading who do it well uh I think systematic trading has its own sets of perils but for certain people who are research oriented and who can operationalize their research through programming uh systematic trading can be a tremendous Avenue for trading success it's a classic example of what I mentioned in terms of leveraging one's strengths as a Trader because some people have tremendous research strengths and some people have strengths in terms of programming and systematic trading is a great way of expressing those strengths um um the problem with Systema trading is that it is so easy to overfit trading systems to tell the computer to run one test after another test after another test one variation after another until you find something that quote unquote works and even when you're doing in Sample and out of sample testing it's very easy to find things that look like they work but end up being random some interesting work in this area by David Bailey and Marcos Lopez depra uh if you go to the website Quant research doino you'll see some of that work uh I respect their work tremendously but one of their recent research papers outlines how easy it is to derive a false sense of confidence in back tests so that's a different Pitfall but for some people sticking with strong research and taking discretionary and emotional factors out of the equation can make a lot of sense right I speaking from personal experience um I I think I I think you summed it up best when you said that automated trading has its own set set of pitfalls uh personally I think it's easier to be profitable as a discretionary Trader first and then once you learn some of the ropes if you will you can start to apply some of those techniques to automated trading but uh I guess everybody is is different um let's let's do one final question and then we can move to the books okay um this this kind of came from multiple people phrased in different ways so the question is basically what do you think is the most common mistake that people make and what is your advice on on how to correct it or you know what to do to solve that mistake the most common mistake people make that one is relatively easy for me because I see it made so many times it's putting your Capital At Risk before you're genuinely ready to in terms of your performance development um people trade because they want to make money and they read a book they see some chart patterns and they think they're ready to make money uh and that's not how any performance Activity Works if you're going to make your living from playing golf if you're going to make your living from being a creative artist it takes a considerable developmental process of practice and learning skills and working on skills before you can entertain making any kind of living from the activity I believe trading is exactly the same way people put their Capital At Risk way too too early in their development and then become frustrated go through losses put their families through losses uh and don't respect the learning curve that's required right okay um well Brad I really appreciate all of your time and I'll just finish up with a little editorial comment and that's a problem in the industry because not many people have a vested interest in telling Traders they shouldn't be trading right yeah you know the Brokers aren't going to tell you that yeah the idiots who are selling their wees you know whatever they're not going to tell you that yep you know get rich quick yep yeah I mean so everyone has a stake in the trader trading uh but not as many have a stake in the trader developing themselves before they put their Capital At Risk yep and and I think that a very important Pitfall to avoid yep all right man well Brett like I said I really appreciate the presentation and the Q&A and I I hope that we can do this again one day um so now that would be great we could get to some of the other questions as well and touch on other topics yeah uh I joined the Forum uh today and so I'm happy to be uh welcome a member an Elite member I'm feeling good there you go an Elite member of BMT so uh I'm looking forward to interacting with the community uh Beyond this presentation yeah and it's it's an honor to have you all right let's give away some books so guys um I'm going to read through 10 questions we have 10 books to give away they're going to be autographed by Brett um the if you're one of the winners I'm going to ask you for your BMT username if you do not have that please go get it right now um you can go to bigmike trading.com click on register it's free and I will need that uh because that is how I'm going to get in touch with you once the webinar is over to get your mailing address uh and to get your autograph request all right so there's 10 books the way we do it is the uh the first person to answer correctly for book number one will win the book uh for the second book we're looking for the second correct answer by the time we get down to book number 10 we're going to look for the 10th correct answer that way it's kind of fair for everybody whether you're a fast typer slow typer or whatever so um let's get started so the first question I have a list here from Brett the first question name three things that are necessary for turning ordinary discretionary trading into an organized performance process all right guys um give me just one second I I see as usual you guys have made excellent notes uh Brett are you able to view the questions now or not uh I am uh seeing some things uh okay flashing before my eyes um yeah I told you I'll need you I'll need you to process those things because I'm yeah I'm seeing it on a very reduced size screen all right no problem yeah there's there's you know hundreds of people typing answers all at once so it can be uh a process all right guys I I'm wondering if if if can you seal uh see Neil's Neil's K do you see his answer yeah unfortunately I'm not seeing um I'm seeing this very compressed screen so unfortunately okay um all right let's just do this I I'm quite certain so the answer is measuring results setting goals for improvement getting feedback from future performance to see if goals are met and Neil's K I need your BMT username please uh and you'll get the first book okay let me write that down all right book number two looking for the second correct answer why is conscious conscientiousness helpful to trading success as the answers fly by okay uh so I believe the second correct answer uh okay so the answer is uh it Ena a Trader to stay process driven and planned rather than reactive in markets um sounds like a winner yeah hope I'm pronouncing this correctly Co kjva I need your BMT username please for the second book just waiting for your username okay that that was easy all right book number three looking for the third correct answer why is open openess important to trading success why is openness important to trading success okay we've got the answer uh so the answer is it helps a Trader to adapt to changing market conditions and uh Keith E I need your BMT username please for the third book Keith E okay all right fourth book looking for the fourth correct answer what is a common trigger for undercontrolled trading okay uh so we got the answer the answer is frustration anger boredom um Eugene B I need your BMT username please Eugene for the fourth book okay all right book number five looking for the F fifth correct answer what is a common trigger for overcontrolled trading okay we've got the answer um fear anxiety worry over analysis Josephine F I need your BMT username please Josephine for the fifth book okay book number six using imagery to rehearse following a trading plan during stressful market conditions is no known as okay looking for the sixth answer you guys are are picking a different one so I'm still waiting for the sixth one sixth correct one so let me read the question again using imagery to rehearse following a trading plan during stressful market conditions is known as okay I just got the sixth one uh the answer is exposure Allan B I need your BMT username please Allan at B okay all right book number seven why is it helpful to take your emotional temperature periodically during trading all right you you guys were on top of this one all right so the answer uh is to become self-aware and take action to return to the zone and prevent triggering of negative trading behaviors uh Joe R I need your BMT username please for book number seven Joe R waiting for Joe's username come on Joe okay oh wait that's not Joe all right Joe I'm gonna move on yes it's you I need your username Joe Roma okay all right book number eight what is what is a solution focus in trading I see people strategically delaying their response so they can be number [Laughter] eight all right all right so we got the answer the answer I identifying positive trading performance and creating Behavior patterns based on your success Chuck E I need your BMT username please for the eth book all right book number nine what are signature strengths what are signature strengths okay good job guys we got the answer looking for the ninth all right so the answer is distinctive areas of talent and skill to Anchor a traitor best practices two three four five six s eight nine uh John B as in boy I need your BMT username please John B all right book number 10 final book why are many trading problems not psychological in nature all right guys good job so the answer because Traders may be trading patterns in markets without an edge or might be trading in a way that does not draw upon their signature strengths Sandra F I need your BMT username please all right guys so congratulations on winning uh one of the 10 books um if you're one of the winners I will be in touch with you in just a few minutes on BMT via private message so you guys can uh check that and then you can get back to me right away with your mailing address uh and your autograph request and then uh we can get the books in your hands uh Sandra F I'm still waiting for your username so while we wait Brett I just want to thank you again for all your time today for the presentation and especially for the Q&A and for agreeing to autograph all these books and also since I'm in Ecuador for agreeing to mail the books to the winners I really appreciate it okay well thank you for having me and I look forward to being part of the uh EMT Community thank you so much Brett all right guys I'll see everybody on the Forum I'll post the recording of this sometime tomorrow thanks guys thanks Brett bye

Channel: futures io

Views: 65,937

Keywords: dr. brett, brett steenbarger, dr brett steenbarger, big mike trading, bmt, trading psychology, successful traders, psychology of trading, daily trading coach, enhancing trader performance, trading coach

Id: 2LKW1fbDNOo

Length: 106min 59sec (6419 seconds)

Published: Tue Jun 17 2014