Trader Psychology: Every Elite Trader Has These Six Qualities With Dr. Brett Steenbarger

okay so today I'm gonna be chatting with one of the greatest and most renowned trading psychologists in the world dr. Brett Steen barger about what his research shows are the five common characteristics and behaviors of the world's most talented traders dr. Stein Barger has worked with traders employed by the world's largest hedge funds so he's in a unique position to understand and research these issues and in this video he's going to be presenting the findings of his research if you have a sincere desire to become an elite trader and truly want to know what it's going to take for you to become great then you're gonna want to watch this video because it's based on research about the top tier of lead traders in the world [Music] hi I'm Seth Freiburg and I'm the head trader reson be capitalist options trading desk SMB capital is a proprietary trading firm located in midtown Manhattan and we provide capital for options and equity traders from all over the world trading both remotely and on our offices here in New York City now I'd like to suggest that you click on our subscribe button right now so that you don't miss any of our free trading videos that we produce for traders and investors all over the world they're really very valuable ok so as I promised I've got dr. Brett's team partner with me here today in our offices here at SMB capital in midtown Manhattan I know Brett pretty well as we've been working together for years now as SMB has provided our traders including myself with the unique opportunity to counsel with Brett where as we call him here SMB dr. s so a few years back Brett undertook to perform some research about what are the common traits of the world's greatest traders and he identified six characteristics that I'm not sure would have been intuitively obvious at the outset so welcome Brett and thanks for joining me today well thanks for having me Seth all right so Brett first off why exactly did you decide to do this research in the first place and what was the methodology that you used to gather your data yes so the research has been conducted at a number of different firms with portfolio managers and traders trading various strategies one of the reasons for collecting the information was to help the different firms with their hiring process so that if we know that certain characteristics are associated with success we can look for those characteristics when we're trying to hire new traders or new PMS a second reason is to identify the strengths that accompany success so that we can build that into coaching and build the strengths of the traders we work with that's really interesting and so it had a sort of an impact on both the hiring process as well as the internal training process of company that's right that's right the internal development processes of the companies and it certainly has informed my coaching in the research we've looked at three groups of variables the first are personality traits and there are standardized questionnaires that measure that the second our cognitive traits which means how we process information and the third are biographical variables so are there early life experiences that may be predictive of later life success in financial markets okay so let's jump into each of the six characteristics that you found in common with the world's greatest traders now the first one you found was that all great traders have a capacity for sustained focus now that's an interesting one that I don't think I would have at all intuitively guessed can you tell us more about what you learned about the importance of this trait to great trader success and maybe an example or two of what exactly you mean by this trait yes and it really means two different things Seth what we found cognitively was that great traders are either greatly fast thinkers or greatly deep thinkers and it's a little bit like Daniel Kahneman's idea of Thinking Fast and Slow the book that he wrote on that topic and to think fast means rapid pattern recognition it means looking at things broadly and seeing many different things at one time and seeing the pattern to those thinking deeply means that you're gathering a great deal of information doing a great deal of research and understanding something in more depth than the average market participant both of those requires sustained concentration they are different cognitive functions thinking fast and thinking deeply but both require that we gain attention to find the patterns and to dig-dig-dig in research to generate conclusions now the two categories that the fast thinkers and the deep thinkers are they mutually exclusive or or do some people possess both deep and fast thinking there are people with strengths in both areas I would say it's the exception and usually a person is stronger at one than the other but there are for instance portfolio managers who think deeply and generate big picture ideas but then can trade those on shorter timeframes based on flows within trading instruments but have you found generally speaking the ambidextrous people are fewer and farther between and people tend to very strongly follow one trait or another if they're successful trader either be a fast thinker or a deep thinker in general people are either what I would call traders or investors and that's really part and parcel of the faster thinking and the deeper thinking and again there can be elements of both but usually in terms of strength one is distinctively strong the important point here is that the very successful market participant is either distinctively strong as a fast thinker or distinctively strong as a deep thinker they're not averaging both they show some area of distinctive strengths I see very very interesting so for this particular trait it can come from two different places but be but nonetheless have to be distinctive and powerful yes that ideally we see something in the person's history let's say we're hiring someone who is a relatively junior professional so they don't have a huge track record in financial markets how can we possibly know if they have these strengths well we look to their earlier life successes for example as you know here at s B there are a couple of traders who are very successful in their short term trading who before coming to markets were very successful at playing competitive game video games and so the fast thinking and fast response time of the video games in part reflect a strength that they're able to bring to their short-term training that is really interesting you almost might think companies should give as part of their hiring process video games for people to trade if that were a style of their trading then in fact you probably could give some cognitive tests for pattern recognition fast visual recognition that would give you some useful information about people's competencies that would be out of the box but very interesting yes yes okay Bret so let's jump into the second quality that you identified among all great traders and that is originality and creativity it's an interesting one I'd really like you to share if you can some examples of the originality that you've seen exemplified by great traders and exactly why you think it may be so critical to success in other words what about this quality lends itself to great trading success okay yep it's very very important if you look at the same things as other traders you'll tend to do the same things as other traders and you'll tend to get the same results as other traders it's hard to have distinctive results when you're not doing anything distinctive in a process sense and what we find with very successful portfolio managers and very successful traders is that they are either looking at different information than others or they're looking at the same information differently and so there's a uniqueness to their perception there's a uniqueness to their research they're not playing the same game as other consensus traders and that is a big part of their success and in fact a big part of their longevity is that they are able to find new sources of unique edge in their trading that others don't find don't participate in so an example of this kind of uniqueness there was a firm that I came across that they had access to the information from satellites in the atmosphere and the satellites could recognize different ships on the oceans and in ports and could recognize what types of ships those were and could download that information so that at any time you had real-time information about how many ships were actively shipping how many were stuck in port how many were oil tankers how many were cargo ships of another type and they could actually forecast economic activity based on the shipping activity that was I mean unique data and clearly looking at something other people weren't that's a dramatic example of someone doing something unique there was a portfolio manager who I had worked with who hired a number of young kids college kids and they would make phone call after phone call after phone call to find out about hotel rates to find out about airplane fares to find out about Oh train fares and all that so they're looking at everything related to travel and so forth a hotel rates and for different time frames and out of that all that information he was able to build a model for demand and supply for discretionary spending and so if he's seeing that air fares are and car rental prices are really firm and hotel prices are really firm six months into the future much firmer than usual he would conclude that there is a high level of discretionary spending and that in that informed his trading decisions about which stocks to buy and sell it's playing a different game it's not just looking at the same old charts as everyone else right and your idea reminds me of Peter Lynch who wrote books about how the typical retail trader can actually have an advantage over a professional trader and he talks about things like if you live in a company town and the parking lots more filled than usual you may want to go and get long the stock of that company and that's the kind of thing that you know you're sitting in your ivory tower in your office you would never necessarily even think of yet might very well be predictive of a bump in the stock price yes yeah yes creative gathering creative thinking gathering new data putting it together in new ways that ends up being extremely important to finding unique sources of advantage Marcus and if you think about it logically what you're really saying is they're finding trades that aren't crowded because nobody thought of them yes yes so and it's true throughout the business world so am I going to succeed if I open up a hamburger stand right next to McDonald's and Burger King I don't think so however if I develop a hamburger in quotes that is based on vegetable protein that becomes a very successful company its unique its creative its throughout the business world that's what we see succeed and it's true in the trading world as well fantastic alright now the third quality that you picked up on is that the world's greatest traders have all been willing to and have in fact learned from mentors and other great traders that's really very interesting because some people might think that the world's greatest traders are cocky brilliant guys who were just that way and didn't have to be humble and accept that someone else may actually know a little bit more than they do but apparently that's not the case is it dr. s so why then is having worked with a mentor as you have said in some cases multiple members so consistently present in great raters I mean are there any guys who just become great without having worked with anyone at all what we see in every performance field is that mentoring is the dominant path to success so let's think about someone who becomes an Olympic professional are they really going to train and workout at home by themselves and suddenly enter the Olympics I don't think so let's talk about chess champions how do they learn how do they grow will they belong to chess clubs and they receive mentoring from chess masters and grandmasters look at the development of artists in art studios do they just start painting by themselves with no external input no they learn from the Masters so it's across fields as you know I teach in a medical school and in medicine what do you do you take courses but you follow different physicians you observe what they do you learn what they do you do different rotations and so you have many mentors who show you firsthand the how to's if you don't have the background yourself you can't suddenly come up with a how to's yourself can I sit at home read books and become a skilled surgeon no way it's the same thing with trading you need to the you need the example of the successful trader to learn from and learn with and that's why the development rate the percentage of successful development cases is so much higher at hedge funds where the junior people are right on the desk learning with the portfolio manager than in independent rating where people are trying to learn on their own at home it's the old master apprentice concept right that absolute same principles at play and there's a lutely blacksmithing or trading blacksmithing or trading if I want to be a skilled plumber I'm not gonna just on my own start hacking away with tools my own sink right no yeah I always tell people you're not going to become a great golfer by reading books on golf right that's right that's right or just by going out to a golf course by yourself and swinging away you you know we need instruction we're not born with those with those skills and skill development is a process itself that needs to be structured and modeled by someone knowledgeable it's interesting what this brings to mind when I first started trading options I was a member of an options trading community and I got a tremendous amount out not from my main mentor but more so from the other guys in the community who were clearly advanced traders and I developed formed relationships with these people and we work together and it was effectively a mentoring process going on even though I'm not sure I would have called it that at that point role-modeling its mutual learning you're learning from the mistakes and successes of others and it just accelerates your learning curve we see this consistently in the trading world so it's so interesting well before we learn about the final three traits that bred it identified in his research I wanted to mention that we're currently running a to our free intensive workshop at the moment where we'll be teaching three real-world options strategies the professional options traders use including a really simple but incredibly effective strategy that some of the greatest investors in the world like Warren Buffett use all the time plus an options trading strategy that has an 80% statistical probability of profit month in and month out plus an option strategy that you can employ with the stock that you like where you'll make your target profit whether the stock goes up goes nowhere or even goes down a small percentage so those strategies would be of interest to you then you should check out the options cliffs that we're currently running so just go ahead and click the link that should be appearing now at the top right corner of your screen that will open the free registration page in a new window so don't worry you won't lose this video where you can just head on over to options class comm to register for this free intensive workshop it's a rare opportunity for retail traders and investors to learn directly from Wall Street traders but that's exactly what you'll be getting through this free online workshop so click the link to sign up now and don't miss it okay so now dr. s the fourth quality that was consistent among all great traders but was what you called emotional resilience now I'm a huge pro football fan and I know that if you play cornerback and a receiver beats you badly for a big gain they say the great quarterbacks are able to just erase their memory of the play and get back and do a great job defending in the next pass that comes his way is there a similar analogy in trading is that what you mean or is it more nuanced than that it's a little more nuanced than that Seth because you're not erasing the memory of it you want to remember a let's say a bad trade a trade that goes wrong you want to remember it because you want to learn from it and what gives you the resilience is that you're treating losses as learning experiences in that sense you're embracing the losses now that of course presumes reasonable risk management's okay but if you are making a good bet betting this amount to make this amount and it goes wrong you can try to identify what might I have done differently what did I miss and so now the loss is not so threatening it's there to make you better resilience helps us traverse our learning curves we're going to make mistakes and even the best traders are often wrong close to 50% of the time we want to use losses to make us better not to tear us down I see so that emotional resilience is it sounds to me like a critical element of a success I mean I know traders who probably could have been very successful but they just could not handle losses and they would get so overly depressed they bail out come back to trading a few months later experience of success have another serious loss bailout again and there was no consistency to their trading those periods of where they had bailed out they could easily have been successful right but they never gave themselves that opportunity because of the lack of emotional Brazil yes it is very difficult for someone who has succeeded consistently in other areas of their life to enter a performance arena where you're going to be wrong 50% or more of the time so in college and school I had a grade point average where all my grades were A's or B's and that's what allowed me to get to graduate school and be successful academically so I never had a quote unquote failure in trading I have many failures there are many losing trades and if you can't accept it and use it constructively it can really tear you down that's it's incredible and so now the fifth treat that you identified in your research was attention to detail now that's one of those blocking and tackling traits as you said that may not be the most fascinating quality that you picked up one in your research but apparently you nonetheless identify this as a common trait that all great traders had so how does this trade of attention to detail manifest exactly in great traders and why do you think that it's so critically important when we look at the results of traders their profitability it turns out that only a modest fraction of the success comes from the actual ideas that they're trading the ideas are important but they're not all important once you have the idea you still have to structure that idea as a good risk reward proposition to turn it into a trade and that's a very detail area of exploration so if I have an idea that the global economy is growing that there's going to be economic expansion overseas that that will carry over to certain international companies in the u.s. great that's a worthwhile idea but where do I buy where would I sell how would I structure that trade would I think about using options and limiting the amount of premium that I dedicate to the idea might I structure it as a spread trade or a relative value trade I'll buy this industry and sell another industry against it there's so many different ways of structuring an idea so many different ways of timing and sizing an idea those are the mechanics of trading and they account for a surprisingly large degree of success or failure of traders it reminds me of the expression that success is one one percent inspiration and 99 percent perspiration writing something along those line exactly exactly and so you can come up with a brilliant idea for the design of an automobile and that's great but if you don't have the detail work to create an efficient engine and to create a beautiful interior that's well constructed then that car is not going to be a commercial success very interesting so there are just some basic fundamental human character issues which come in two successes trading if you're not if you don't have the attention span and the discipline to pay attention to details you're not going to be successful that's right and the detail orientation is part of what is mentored in good learning processes that's interesting so that's how in a sense a couple different traits sort of interact with each other exactly exactly right these are not necessarily mutually exclusive and finally the sixth trait that you noticed that all great traders have is that they're always working to improve their game now having been at SME for many years I can't am surprised that this is on the list of common traits that's culturally what we're about here but I'm definitely very curious about exactly what you mean by this how does this manifest exactly what are some examples of how great traders work on improving themselves what exactly do they do to improve well the basic reality as you know Seth is that markets are ever-changing we go through periods where markets are trending and periods where they are range bound where they are more volatile less volatile in some markets we see correlations among assets in other markets those break down and so any one approach to trading tends to have a shelf life in terms of its quote unquote edge and so to have a successful career as a portfolio manager and investor as a trader you need to be evolving with markets you need to be finding ever new sources of edge and so there's always research and development going on sometimes beginning traders hope that they find a Holy Grail they look for what they call quote unquote setups that our chart patterns that will lead them to success if they're implemented well obviously if those if that was the case there are plenty of algorithmic participants who could automate that trade and profit from it continuously but in fact that doesn't happen and that's not what algorithmic traders do the advantage we would find in one market let's say a breakout pattern won't work in a different kind of market and so we always need to be adapting to market conditions and that takes unusual amount of open-mindedness and flexibility I was going to say it sounds like it's a person who doesn't get too attached to any one discipline but have it has a sort of fluidity to be able to move into other disciplines to continue to succeed in tomorrow yes and again we see this in the business world so right now a stickler product may be popular but consumer tastes change technology change so at one time flip phones were the rage and then all of a sudden we have these smartphones and no one wants a flip phone we have to adapt to new technology we adapt to new markets and that's what makes for ongoing success I took a marketing course in college and now that's way back when at this point and our professor taught us that Proctor and Gamble which at that time was one of the most successful companies in the world may still be had a principle that you must routinized innovation that was how they stayed ahead by routine izing innovation within their corporate culture it sounds like that works at the trader level as well yes that the ones who have successful careers are always engaged in research and development just like successful companies so they route the individual traders routine eyes innovation is would be another way of putting it now Brett before we go I'm guessing that most of you out there watching this video are thinking well there are a few of these qualities that I just don't possess are some of these traits simply genetic and if you don't have them at Birth you're doomed to failure as a trader or are all of them traits that can be learned and built within oneself I'm hoping for some good news here Brett ok well there are important capacities that are inborn that we see in developmental research and so people tend to have as a result of their heredity their Constitution higher degrees of capacity for focus they may have higher intelligence and those can be relevant to success in financial markets what is most important is to identify what are their particular strengths cognitively in terms of personality and how can they leverage those strengths these are the strategies in financial markets I do think there are people who have a high level of distractibility and a low level of frustration tolerance who are going to be or and who may have mood problems they're going to be challenged to be successful in financial markets in ways that other people won't and so heredity is relevant here but within the traits and characteristics that were born with where are our strengths and how can we develop those as fully as possible and apply them to strategies and markets that speak to those strengths so that's telling me that someone may have a weakness on one or more of the traits that were mentioned today but still be able to be successful if they learn how to strengthen and grow those areas where they may naturally have strengths yes they can adapt their training in such a way so if they are not let's say a fast thinker they could still be a successful investor okay so so it depends on the patterning of strengths that people have many times traders fail because they're not playing to their strengths again they're not playing the right game so to speak so someone who was is very talented let's say is a weightlifter if they tried to succeed as a baseball player or as a ballet dancer you know they would you feel like a miserable failure right understood so really great and Brett I know that you're an extremely busy guy and a great demand and so on behalf of all of our viewers I'd really like to thank you for spending the time with us today to share your research on this really interesting topic it was very valuable thank you very much okay so now you've heard the research and I hope that this video will inspire you to do the things you need to do to become not just good but great as you develop and work on your craft as a trader you've got to take this process seriously because like anything else in life you'll get out of it what you put into it to qualify as a trader for a top-tier proprietary trading firm like SMB you're gonna need to work on all of these skills and traits and I hope that you'll do just that and stay in touch with us throughout your journey now just to remind you as I said earlier if you enjoyed this video and learn something valuable from it and would like to learn the three real-world option strategies the professional options traders use all the time then you should check out the free options cliffs that we're currently running just go ahead and click the link that should be appearing now at the top right corner of your screen that will open the free registration page in a new window so you won't lose this video don't worry or you could just head on over to options class comm to register for this free intensive workshop it's really a rare opportunity for retail traders and investors to learn directly from Wall Street traders but that's exactly what you'll be getting through is free online workshop so click the link to sign up now and don't miss it when you watch this video because you're human I'll bet you admittedly started to think about how you stack up against these six traits that are common to all successful traders so what I'd like you to do is to comment below about which of the traits you think you have and which ones you need to work on do that right now and I'll try to make some comments and reply to you to give some suggestions on how you might go about working on those areas that you need to improve on to become a lead I'm looking forward to seeing what you come up with

Channel: SMB Capital

Views: 109,001

Rating: 4.9131746 out of 5

Keywords: trader psychology, day trader psychology, stock trader psychology, successful trader psychology, trader psychologist, trading psychology, trading psychology brett steenbarger, dr brett steenbarger

Id: lsmnlIoH5qA

Length: 33min 29sec (2009 seconds)

Published: Mon Nov 11 2019