Notes for Chat with Traders, Episode 65

Added on by C. Maoxian.

Episode 65 ... Brett Steenbarger (59:20)

  • Read The Fountainhead by Ayn Rand as sophomore in college
  • Thought psychology could be used to make people do their best
  • University of Kansas grad school, late 1970s, political psychology degree
  • Trading his avocation, psychology his vocation -- parallel interest
  • The Psychology of Trading, his first book, written in 2000
  • Victor Niederhoffer, a friend and mentor, encouraged him to write a book
  • Teaching at Syracuse University medical school at that time
  • Chicago trading firm hired him away to work for them full time as trading coach 
  • Market makers he was working with didn't use charts or fundamentals, just the book (DOM)
  • Pro athletes still work with coaches even after they've made it; same is true of pro traders
  • Markets change, traders need to evolve
  • Identify and build upon strengths
  • Now he works with several hedge funds and financial firms as a consultant
  • Market volatility expands and contracts, traders need to adapt to that
  • Separate logical from psychological errors -- correctly identify that first
  • People are more sensitive to losing money than making money
  • Become exquisitely aware of your habits -- build self-awareness
  • Observe yourself, then re-channel yourself
  • He has four cats
  • Revenge trading comes from frustration, you want to make it back
  • Be aware that you are about to revenge trade, step away from screens, calm down
  • You can't change something you're not aware of
  • Commonalities of successful traders:
  1. Adapting to changing markets (trends, volatility, people participating all change)
  2. Building on strengths (day traders are good at fast thinking skills and pattern recognition; investors are slower, deeper thinkers)
  3. Cultivating creativity (seeing the world differently from others, seeing opportunities others don't see)
  4. Developing best practices (and turning them into best processes)
  • Best practices: how you generate ideas, manage positions, manage risk and reward, review your results
  • Trading Psychology 2.0 is his second book
  • You don't have to motivate yourself to eat breakfast, it's just routine
  • All your best trading practices should also just be routine, no motivational sticky notes on monitor needed
  • Repeat what you do every day until it becomes a routine ... all about repetition
  • Make the most of your competencies
  • Work around your weaknesses
  • Steenbarger knows he can't make markets, cognitively and emotionally he's unable to make rapid decisions and process lots of information
  • Steenbarger himself suffers from cognitive overload easily, needs to be able to reflect
  • Steenbarger tried to trade full time and absolutely hated it because he wasn't working with people [I'm the opposite]
  • Uses guided imagery to have traders imagine hitting their stops, losing money ... but staying calm and controlled
  • Effective goal setting requires a specific plan, a day to day plan
  • A goal without a plan is a wish
  • Not a fan of monetary goals -- performance anxiety is real
  • P&L front and center (the outcome) will mess up your processes
  • Better to look at improvement ... month to month, not just P&L, but risk-adjusted P&L
  • Make friends with loss and failure ... your losing trades teach you things, what changed? 
  • Embrace the mistakes you make, ultimately how we become better is by learning from mistakes
  • Don't think about your results in dollar terms, think in percentage terms 
  • Hard to take risk and make good decisions when you think you must succeed 
  • Make sure you have something in your life that's more important than trading
  • Trading shouldn't be the major part of your life ... you need to be balanced
  • Traders with longevity have some source of satisfaction separate from profits
  • A fascination with the markets themselves could be that source of satisfaction
  • Website:
  • Twitter: @steenbab