How do you prepare yourself to win the mental battle of trading? In this week’s Trader’s Mindchat Show, Mike and I discussed trading endurance & what it means to prepare yourself for the many mental hurdles you’ll encounter along this trading journey. We were thrilled to be joined by Bestselling author & Top Trading Psychologist Dr. Brett Steenbarger to provide valuable insight on how to best mentally prepare yourself for trading success.
Check out the Full Trader’s Mindchat Show Interview with Dr. Brett Steenbarger Here…
Dr. Brett N. Steenbarger is a Clinical Associate Professor of Psychiatry and Behavioral Sciences at SUNY Upstate Medical University in Syracuse, New York. He is the author of The Daily Trading Coach, The Psychology of Trading, & Trading Psychology 2.0 all from Wiley. He is the author of the popular TraderFeed blog and currently writes a peak performance blog for Forbes. Dr. Steenbarger currently consults with a number of hedge funds, where he helps traders and portfolio managers maximize their performance.
Here are Top Ten Trading Highlights From Dr. Brett Steenbarger:
- Look at stocks that have relative strength (rate of change in relative strength). See which stocks are supported by the flow of institutions and see certain themes (ex. Homebuilding & home improvements are recent themes). By looking at the rate of change is one way to help identify key trends.
- Have a Stair Step Progression with risk. If you start trading in simulation mode you will help build more confidence in your trading and grow consistency and rule-following. Once consistent, you can trade with real money and accept some risk. As you gain consistency with real money, then you can grow and accept more risk. Then add more, and accept more risk, etc.
- Put Consistency & Preparation First. When people trade too large and don’t put consistency and preparation first, that’s when emotional trading can happen, especially when there are losses.
- Proprietary Trading Firms: You can partner with a proprietary trading firm, but you will need to find a reputable one to work with. Do your research!
- Drawdowns occur when Markets Change. Drawdowns are information from the market. It’s telling you something. Pull back, reassess and then get back in.
- You want a Positive Learning PnL so get Something out of your Losses. You’re paying tuition, as they say, so get your money’s worth!
- Remember, it’s about Patterns! In the beginning it’s not about profits and losses. It’s about patterns and making decisions off of those patterns.
- Trading is Like Dating. When dating you go on lots of first dates, but not as many second dates. Most of those first dates are losses. Don’t take it personally. It wasn’t the right fit. Don’t overcommit to any particular idea. Yes, you’re going to take losses but then you’ll find one you want to take on that second date and figure out it’s the one. The trade may end in divorce but don’t divorce the idea.
- Undergo a Disciplined Learning Process. Why don’t surgeons over-operate? They’ve gone through a difficult training process and observed multiple surgeries. They start on a cadaver. There’s lots of observation and practice before taking risks. This is what traders should do but often don’t. They go in unprepared and don’t know how to handle the situation. Just like you don’t want to go to a self-help surgery, you want to learn from those with real trading experience. =)
- Lose in Planned Ways & Don’t Let Losses Multiply. Sometimes traders will call an audible (like in football, you call out a different play at the line of scrimmage just before the ball is put into play). This is effective when done properly. Experienced traders write out a game plan call an audible when a gamechanger occurs. They think through and clearly define the potential game changers. This makes sticking to the plan so much easier.
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Melissa Lamothe is a bestselling author and co-host of “The Trader’s Mindchat Show” with husband Michael Lamothe. Melissa has 15+ years of marketing and writing experience and is the marketing director/content supervisor for Mara Wealth.