065: Brett Steenbarger – How to Master Trading Psychology and Introduce New Best Practises

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Tasty Trade Inc. is a registered broker dealer and member of FINRA, NFA, and SIPC. Podcast. What's up traders? Aaron Firefield here, host of the Chat with Traders podcast. Thank you very much for tuning in to this week's episode. And for this episode, I interviewed Dr. Brett Steenbarger. After many, many requests. From listeners.

Brett is a very well known trading psychology coach and has consulted to some of the biggest names in the industry. He's also a respected author who has now published four books. Some which have been recommended reading by previous guests on this podcast. During our conversation, I asked Brett how to break bad trading habits and introduce new best practices to explain why traders need to be adaptable in markets.

Plus how we should think about goal setting and measure progress. And of course, much more about how to enhance your performance as a trader. Now if you do enjoy the interview, please go ahead and leave an iTunes review. Like I've said in the past, it literally takes you two minutes. You can do it while you're listening, and it really helps to boost our rankings in iTunes and attract more listeners.

So if you'd like to support the podcast, please go to chatwithtraders dot com forward slash iTunes. Okay folks, let's skip to the interview. You're listening to the Chat With Traders podcast, and here is a very special guest for episode sixty-five, Doctor Brett Steinbarger. Brett, many people have been asking for this, so I have to say straight off the bat, thanks a million for being here. I appreciate it and I know listeners will also. How's your day been? What's going on?

The day's been good. Thank you very much, Aaron, and I appreciate the opportunity to be here and to share some ideas with the uh listeners.

Sure thing, the pleasure is mine. So as most traders already know, you are the go to guy for all things related to trading psychology. So of course that will be the ultimate focus for our chat today. But starting from the get-go, Brett, if you could give us a little insight to your background, like how did you get into the psychology field and where did you initially start out after getting your PhD?

Okay. Uh yes, the initial impetus for my entering psychology was a an unconventional one. I came to psychology via philosophy. uh as a uh sophomore in college i was interested in psychology and indeed had declared psychology as my major But I never really considered it a career field until I read a novel called The Fountainhead by Ayn Rand. And that novel illustrated something that I hadn't encountered before, and that is the vision of people as heroic. as reaching their ideals, their potential.

And the thought came to me, it was during a winter break in my sophomore year, the thought came to me that this was a proper role for psychology. to not just treat mental illness but to expand the best of people's potentials. And that's what has interested me in psychology ever since. And what I do now in working with traders and portfolio managers uh and uh earlier before that working with medical students and residents in the medical field, it really has been working with

Healthy people, people who are bright and creative and energetic and helping them make the most out of what they do. Okay. Great answer. And very interesting to get your your backstory there. So Where did the interest in trading come from? Like when did that creep into the picture? You know, the trading thing is something that I first expressed an interest in uh in a project when I was in grade school.

And uh later uh became more interested in, in a formal way, during my graduate school education at the University of Kansas. And I actually opened a trading account and began trading individual stocks. And that was in the late 1970s. But that was completely separate from my interest in psychology. My degree was in clinical psychology, and my interest was in becoming a psychologist. The trading was a side interest, a challenge and and something I found stimulating and interesting.

And those two proceeded in parallel for a number of years. I pursued trading as an avocation and I pursued psychology as my vocation. And it wasn't until around the year two thousand. That I seriously contemplated putting the two of them together and began writing a book. It was my first book in the area, called The Psychology of Trading, which was later published by Wiley. And that was encouraged by my good friend and mentor, Victor Niederhofer.

Uh so that's how the two came together. But up to that point, for a number of years, they were completely parallel interests. Um the book became popular. and was discovered by a trading firm in Chicago. And they began asking me to work with their traders and then made me a full-time offer. So I left the academic setting that I was in. I was teaching at that time in a medical school in Syracuse.

and uh and also running a counseling program and uh went full time to working with traders in Chicago and that's when the psychology and the trading interest truly came together. Okay, excellent. So let's talk a little bit about your time in Chicago. Like, what were you doing? Like, how were you actually helping these traders with the mental aspect, the psychology, uh, and everything that goes on on that side of the field?

Well in Chicago I was working primarily with market makers in electronic futures. These were people. placing dozens, if not more, trades per day. So trading on a very short time frame. The average holding period for many of the traders was around three minutes. So they are very actively engaged in markets. And it fascinated me because they were trading in ways that were completely different from what I had read in the textbook. The books on trading talked about technical analysis.

fundamental analysis. And these traders who I was encountering in Chicago did none of it. Obviously they did no fundamental analysis because the fundamentals don't change in three minutes. But technical analysis in terms of chart patterns and uh indicator readings, those were much too slow for these traders. These traders were entering positions and exiting positions very quickly and they were working off a depth of market screen. They were working off the order flow, not

um backward looking technical information. So that was an education in itself. and sensitized me to the psychological challenges that they faced in making decisions so rapidly. It was easy for them to become frustrated, to become overconfident. And for all of those emotional factors to slant their decision making. And so my work as a trading coach was to help them keep a level head, keep focus. and make good decisions in real time.

And the fact that I was full time working with them and so on site watching them trade and s and standing with them and helping them really helped the psychology become part of the trading.

Right. Yeah, that's that's very interesting, Brett. Um, and we're gonna dig deeper into that in just a moment. Um A question I have for you is like, you know, over the years, uh you've been in the field for a long time now, you've worked with many, many you know, top traders, like some very, very hard hitting, heavyweight traders, um, asset managers, fund managers, you know, a pretty broad spectrum of of market participants.

Now these aren't all guys who are struggling. Some of these guys are extremely profitable and make huge amounts of money. Why do they come to you for your help on the psychology side? It's a great question, Aaron. And it's the same reason that successful professional athletes work with uh coaches as well.

You know, at that point they're not struggling. They would have never gotten to that point for the large uh in the large majority of cases if they were uh marginal participants. So these are people with real experience, real strength. But uh what happens is that markets are always changing. And even the most talented participants have to evolve with the market.

And that need to evolve itself brings its own psychological challenges. The need to be creative, the need to be resilient in the face of frustrations. And also the need to identify and build upon strength. So many times the portfolio managers are seeking me out when they are doing very well because they want to stay grounded in their strength. They want to make sure they understand what they're doing well so that they can be more consistent going forward in making use of those strengths.

And so that's the difference. with working with someone who is struggling and wants to work on their weaknesses or vulnerabilities. Okay. That's a great answer and it it makes total sense. Um I really like how you explained that. So Brett, let's bring this up to speed now. Uh what are you doing today? Like what's your work involved um, you know, in current times? Well, I work with several uh hedge funds and uh other financial firms.

So uh I I'm not full time at any one place. I consult with a variety of funds and and what that's done is exposed me to a variety of trading strategies. Some of those strategies are discretionary, some are more systematic. Some of the strategies are more directional. Uh some are more based on relative value movement. Uh some are in macro markets, the the big liquid markets, and some of them are very specialized.

in individual markets such as commodity markets or REITs markets. So I've been exposed to a variety of trading strategies and trading settings. It's been a great, great, great education as a result. But in all cases my main work is to help the traders, the money managers, with their performance, help them build on their strengths and help them learn from their mistakes so that they keep improving.

Uh a secondary focus has been uh at most of the places where I've worked, we've conducted internal research about what makes traders successful. And so I've been able to help the trading firms with their hiring processes.

and help them make better decisions about who to bring on board. So that's been a separate kind of work but a a very fulfilling area as well. Sure. Okay. Now that's really cool. Now that we're caught up on on your background, let's really hone in on the subject of trader psychology.

So one of the things many traders will admit and are well aware of is that they take profits too soon and they cut losses too late. You know, that's mostly due to psychological reasons, I'd imagine. Uh what advice would you give to those traders in that situation? Well, it's a good question, Aaron. And uh as I ran would say, I would encourage uh you and listeners to check your premises with respect to the question because I I think that it can be a psychological issue.

but is not always a psychological issue. I mentioned that markets are always changing and one of the ways that they change is in their volatility. And so market the market as we are talking right now, the market is trading with a VIC. of uh which is implied volatility of fourteen and change. Wasn't so long ago that we were seeing uh VIX readings well into the twenties. So markets were moving much more a few weeks ago than they are currently. What happens is that traders don't adapt to that.

either in their trading or emotionally. And so they're likely to take profits too quickly. or likely to allow things to move against them because they are operating from an old regime, from an old set of assumptions. that don't apply to the current market. So a good example when volatility comes down, traders will uh start to make some money and then w when the uh when they uh try to let the mark uh let the position go.

uh it eventually just reverses against them because the volatility isn't there and you get much more mean reversion on a short time frame. And so they end up scratching the trade. Whereas in a higher volatility regime that might have been profitable. So sometimes a problem that trader has uh might have is logical, not psychological. It's a function of not adapting to markets. It's a it's a function of not trading well.

But you're right, there are other times where traders respond emotionally to making money, losing money. And uh as we know from the behavioral uh uh uh finance research, people are much more sensitive to losing money than they are making money. And so they're likely to um be threatened by losses and not want to take those, they're likely to be afraid of losing whatever they gain and exiting trades early and so forth.

So a huge issue in trading psychology is identifying when is a trading problem a logical problem, a problem with one's trading methods. And when is it the result of a psychological problem? The result of being uh in a wrong mindset that biases your information processing. Okay. That's an that's an awesome answer. That was that was really, really good.

So I mean I guess that is an example of a lack of adaptability. Um, you know, and in some cases possibly even a bad habit. Uh, but in general, when we recognize bad habits in our trading, what's the best way to break these habits? Uh the first step in breaking any habit, whether it's a trading habit or a personal habit, is to become exquisitely aware of its presence. So we want to become mindful. We want to be self-aware. We want to realize that a habit pattern is playing out as it is starting.

So let's say my habit pattern is overeating. I w well the first step in change is to recognize when I'm starting to feel a craving for food or when I'm starting to reach for the refrigerator. If I can't identify it at the time it's happening, how can I possibly control it? So building awareness is and self-awareness is the first step in the change process.

Then, once you have that self-awareness, once you can become an observer to your habit patterns rather than someone who is caught up in those patterns. then you want to make a conscious effort to re-channel yourself. So let's say for argument's sake, I have this habit of overeating, and I tend to overeat most when I'm bored. So I catch myself reaching for the refrigerator and then I calm myself down, I focus myself, and I purposely engage in an activity that I will find engaging.

That will absorb my energy. Maybe it will be some physical exercise. Maybe I'll uh go play with one of my four cats. But um the idea is I would address the boredom. So that I no longer feel the need to compensate with food. The same principle occurs with uh is relevant with trading. So my habit with trading might be to place trades after I'm sorry to place trades out of frustration after I've taken a loss. Revenge trading.

And so that comes from frustration. I I have a losing trade, I'm frustrated, and I want to make that money back. So I want to become self aware about that frustration. I want to catch myself being frustrated and rechannel that emotion. So stepping away from the screen temporarily, calming myself down, and doing something that is gratifying. that's fulfilling to counteract to the frustration will help put me in the right state of mind so that I can go back to the screen and make good decisions.

Okay, sure. And I like how you mentioned earlier in that answer about um more being an observer to your bad habits than um getting caught up in the middle of it. I think that was a really cool concept. Yeah, the important one uh that shows up actually in Eastern philosophy as well as in the psychology research, uh that you we can't change something if we're not aware of it. If the pattern controls us, if the habit controls us. then we're passive. W yeah we we have no say in in what happens.

Uh so the first element of control is being able to step apart from the habit pattern, whether it's a habit of drinking, a habit in trading, uh a habit in our relationship. We stand apart from it and we recognize that this is causing us pain, this is causing us losses, and then we're able to try and do something differently. Right, right. Okay.

Now the intro to Trading Psychology two point zero, you mentioned that all the traders you've worked with varied greatly in how they actually traded, yet they had many commonalities in how they did what they did. So here you are, of course, referring to process and habits. Could you elaborate on these observations for us? Yes, absolutely. Obviously the the traders I work with have very different strategies.

Some are more short-term, some are more long-term. Uh some are long short investors building very large portfolios uh among individual stocks. Some of them are trading uh macro assets globally and uh trading macroeconomic themes. So they're very, very different in their approach to markets and in their trading styles. But at a process level, there's some real similarity. And that's what I uh talk about in the Trading Psychology 2.0 book.

With those basic ABCD themes. A being adapting to markets, B being building on strength. C being cultivating creativity and D being developing best practices. And so what the really successful traders are doing is studying themselves. and figuring out what works, what they're good at, and where their vulnerabilities lie, where their weaknesses lie. And they do more of what works. The they act in ways that make them more of who they actually are. And they may be different strength.

In different markets. But all of them study themselves just as they study market. and stay grounded in what makes them successful. Okay. So the A B C D that you mentioned there, could you just walk us through each one of those in a little more detail just so we can understand um You know, get a better grasp of each point.

Yeah, absolutely. Yeah, so A uh you know is adapting to changing markets. And this, as I point out in the book, is no different than it would be for any entrepreneur. You start a business. and your marketplace is always changing. And so at one point in time, your if you're starting a restaurant, your your marketplace may have one set of tastes and then something else will become popular.

And so you have to adapt by changing your menu, by changing your decor, uh, by changing how you deliver service. uh successful businesses never stay static. We see this in the technology industry. Uh new uh smartphones are coming out with regularity because the marketplace demands new features. and functionality. So we're always having to adapt. Markets change in their trend.

Markets change in their volatility, as I mentioned. Markets change in their patterns of participation. The people who dominate markets now are not the people who dominated ten years ago or twenty years ago. And so we see different patterns in market. to assume that markets are static and that our edge will last forever does not work any better in financial markets than it does in the business world.

A great way of it to go out of business in the business world is to assume that what you're doing well will last forever and you never have to change. That's how to become a dinosaur. That's how to become obsolete. And that happens in financial markets as well. So the successful traders are always studying markets and always studying how markets are changing.

And the the interesting part, Aaron, is that many times our mistakes in trading, our losses, our setbacks, our drawdowns tell us about changing markets. Because we do what we did do when we were making money, and suddenly it's not making money for us. And if we're reasonably disciplined in doing what we had been doing when we made money, then we have to ask ourselves, well, how come it's not working anymore? What has changed?

And that helps us go back to the market, learn from our mistakes, and adapt. So we're using our drawdowns, we're using our losses as real information. that helps us adapt to uh markets that have changed their correlation patterns or their trend patterns and so forth.

Uh so that's uh adapt that's the A part, adapting to uh changing markets. Uh the B part is building on strengths. And I I alluded to this earlier. Uh what I found in my research with successful traders and portfolio managers. is that all of them have different strengths, but all of them have at least one distinctive strength. And it could be a personality strength, it could be a cognitive strength, but the really successful traders are really strong in some areas.

As a rule, the higher frequency traders, the day traders, are very good at fast thinking skills. They see things broadly. They see many things across different stocks or markets. And they process real-time information across a wide area very quickly so that they can make quick decisions. The traders I worked with in Chicago were very much like that. They were great at pattern recognition. On the other hand, traders with a longer time horizon behave more like investors.

They're slower thinkers, but deeper thinkers. They're more analytical. And so they are going into depth in different areas and finding out information that other people just aren't looking at. And so that becomes their strength and ha and helps them, let's say, find an undervalued company that they can invest in over a longer time horizon. So we we all have um Strengths and the really distinctive traders, the traders who make distinctive returns, have distinctive strengths.

And so the success is based on making the most of your strengths, not just correcting your weak areas.

The uh C stands for cultivating creativity. And and and that's a a topic that I have found tremendously neglected in the trading psychology research and and writing. Creativity is all about seeing the world through fresh eyes. If we trade the same way that everyone trades, we're going to get the same returns that everyone gets.

We have to see some fresh opportunity. We have to see the world differently from others if we're going to achieve distinctive results. Again, it's like the entrepreneur. The entrepreneur sees an opportunity that others don't see and is able to build a business based on that perception of opportunity. The successful traders that I work with have very distinctive strategies. I I've been involved, as I mentioned, in hiring success uh hiring traders and successful traders at uh different firms.

And I always know who has the potential to be a successful trader because we talk about their strategy. And when I hear the strategy, it hits me upside the head, it smacks me in the face, and I say, wow, why didn't I think of that? It's something unique, it's something different. If what they tell me is something I could have read in any of a dozen books, I know that that's not a distinctive skill set.

So cultivating creativity is essential for success. And of course, creativity is a big part of what helps us adapt to changing markets.

And finally, the fourth topic is developing best practices and turning best practices into best processes. So when we look at best practices, we want to look at them in every facet of trading. How we generate our trade ideas, how we manage our positions, and how we manage our risk. How we review our results and learn from those. All of these are separate elements of a trading process.

And we want to identify our best practices in each area. Our best practices in generating ideas, our best practices in managing positions. Our best practices in managing risk and reward, our best practices in managing ourselves as performers. And we weave those together, those best practices, into best processes. And the successful traders I work with. are always working on themselves. and improving their processes over time.

That's awesome, Brett, and very, very insightful. Thanks a lot for taking the time to to um flesh that out for us. And obviously if guys want to learn more about that, um definitely check out your book, uh Trading Psychology 2.0. I'll link to that in the show notes. at chatwithraders.com. Are you ready to get serious about trading? Then join Tasty Trade, Investopedia's best platform for options trading in twenty twenty six.

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Um and just a couple questions to bounce off your answer there. Um

Firstly, one about habits. Um earlier we covered um bad habits, how to break bad habits. What's the best way to form new habits and um implement those? Introduce new uh new habits? Yes, and you're absolutely right. We want to develop best practices by turning those into habit patterns. Uh so often we hear that traders need to motivate themselves.

And, you know, they'll do various things uh with imagery. They'll do various things like uh have sticky notes on their computer screen uh to motivate them to do the right thing. But in fact motivating us it ourselves is not the best source of uh influencing behavior, the best method for influencing behavior. If you look at the things we do consistently in life, it's not things we do through motivation, it's things we do through habit. So I don't have to motivate myself to Eat breakfast.

Take a shower in the morning. Um, I don't have to motivate myself to do the right things for the people I uh work with as a psychologist because that is part of me and part of my routine. And and so we want to take our best practices. are trading practices that work well and repeat them with Fidelity, repeat them in a routine way so that time and time again, with repetition, they start to become habit patterns. So repetition is really the source.

Of developing positive habits. Once we identify a best practice, once we identify something that works for us. We want to be very conscious about employing that day after day after day after day. Uh Tony Robbins, the the well-known uh motivational speaker, uh makes the case that if we repeat something for thirty consecutive days uh in a reliable way, it eventually becomes part of us. And I think there's some truth to that.

that uh by doing things again and again it they start to feel familiar and they start to become part of us. Mm-hmm. Very, very great points there, Brett. Thank you very much.

Now you also mentioned weaknesses. So, you know, every single one of us we have our own weaknesses. How should we treat our weaknesses? I mean, some people with this school of thought that um you should just focus on your strong points and really drill down on those.

Others say you should, you know, improve on your weaknesses. How do you feel on on this subject? Yeah, yeah. No, that's a great question and yeah our our our strong areas, our strengths are there because th those are competencies we've built over time and and and they're also talents that we've been born with. And so we want to make the most of those. And you know, when you see people have been distinctively successful, there are people who have really made the most of their competencies.

With the weaknesses, it's rare that you could ever turn a weakness into a strength. But we can work around our weaknesses. So there are some kinds of trading that I personally am not good at. In fact, the trading that we were talking about in Chicago, uh very high frequency trading making rapid decisions. I don't have the same kind of fast information processing skills that the very successful traders in Chicago had.

And if I try to do that, I quickly hit a point of saturation, both cognitively and emotionally. And so I that's not a strength of mine. So I want to avoid having to make rapid decisions. and process lots of information in a short amount of time. So in my own trading, I will trade short-term, but those tend to be intraday swings or maybe swings from one day to the next. where I have enough time to process relevant information and not get overloaded.

So by altering my time frame of holding positions, I'm able to dodge or avoid some of my weaker areas and play to some of my strengths. uh some of which are more research oriented. Okay. So this might be just to continue on this on this tangent here.

This might be a little bit of a strange question, but how do you know that that was a weakness of yours, that you wouldn't actually be able to trade like the guys you worked with in Chicago. Because I mean, all of us, uh even those who could process information very rapidly,

Um, even on day one, we would still struggle and, you know, for the first few months, you know, maybe for a first few years. Um even guys who could process information very quickly um might still struggle in the beginning. Um how do you know when it's a when it's a weakness of yours and just not a skill that you're yet to develop. Uh great question. Um It it wasn't simply that I uh tried it initially and didn't make money from it. It's that Uh I h I rapidly hit a point of cognitive overload.

And in fact that had happened to me in other areas of my life apart from trading. If I was in a situation where I had to process too much information at one time and make rapid decisions. I often would not make my best decisions. So let's say for argument's sake that I was in a situation in a relationship and there was some disagreement or some issue in the relationship.

Uh if I tried to deal with that right then and right there, often I was not as effective as if I took a step back, really thought about what was going on, really reflected upon myself. and then responded in the way that I felt and knew was best. And that typically wasn't a huge amount of time, but it wasn't spur of the moment either. So I had recognized in myself that um I do well when I'm able to reflect.

And the pattern recognition that the people were doing in Chicago was relatively instantaneous and and really a remarkable skill. I admire people who can do that. And when I try to do anything similar, I just hit a point of cognitive overload. And that's how I know that I'm just not wired that way. I don't operate that way in any area of my life and when I'm uh pushed to uh process information that way, um it's unpleasant.

Uh whereas when we act on our strengths, there's an intrinsic pleasure to that because we're doing what we're really good at. It it feels fulfilling to us. So some kinds of analysis I really enjoy doing. I look at markets in a rather quantitative way. and being able to solve the puzzle, so to speak.

and and see quantitative patterns in markets is very gratifying for me, very fulfilling. And then being able to trade based on those and see them work out, that's very fulfilling and gratifying to me. So when we act on our strength we feel strong, we feel good, we feel fulfilled. And when we act counter to our strengths, it's intrinsically frustrating. And that's

a big part of how we can know. Right. Okay. I like how you mentioned there that you you pull on um, you know, your strengths and your and weaknesses and you you find those in in other areas of your life. Um and you know, the the crossover to trading is all very relevant. So no, excellent point. Yeah. Let me just add another point that I I've I've mentioned in my writings. Um

I have never traded full time in my career. And a couple of times I tried to do it. I tried to trade full time. And I actually was making money. And I hated it. I absolutely hated the experience of trading full time. Why? Because one of my strengths is working with people. And one of the things that drew me to psychology was the opportunity to be a meaningful part of people's lives. And uh it and and so trading full-time wasn't playing to one of my greatest strengths. and became frustrating.

So we have to know ourselves, and often it's our feelings of happiness and fulfillment. That tell us whether we're playing to our strengths or not. Okay. Yeah, that's really interesting, Brett. Again. Now Something I'm curious about when you're working with uh other traders and you're, you know, implementing techniques to get them closer to peak performance.

Do any of the techniques that you work on uh operate on a subconscious level to provoke change? Uh it depends on w uh it depends what you mean by that. Um when you say subconscious, you have any technique that as you were saying, develops a habit pattern is making that pattern automatic and therefore out of consciousness. Um and so using techniques, let's say, like guided imagery, let's say a trader is afraid to lose money.

And we will do some guided imagery to have them mentally rehearse scenarios in which they hit their stop levels. And they keep themselves calm and they keep themselves focused. While they're going through this guided imagery. And they do that again and again and again and again. And pretty soon the feeling of hitting your stop and getting stopped out. uh is something that becomes familiar to them, not threatening to them, and they're able to keep themselves calm and controlled.

And so it is in a sense reprogramming their emotional responses to a situation they had experienced as threatening. And that is happening at an emotional level. And so you could say that it's subconscious. Okay, okay, sure. But what you're really trying to do, in a sense, is rewire a person. You're trying to uh reprogram their uh responses to certain situations. Right.

Now Brett, one of the things I'd like to ask you more about is goal setting. I think your advice on this topic would be really valuable. So how do you suggest developing traders best go about setting goals for themselves? Yeah, there's actually research and I've written on this uh on the uh Trader Feed blog, there's research on effective goal setting. What what happens a lot of times is that people uh set a goal.

But they don't follow up the goal with a specific plan. And so if I have a goal, let's say my goal is, let's say my goal is to lose weight. Well, that's only going to work if it's part of a day-to-day plan. And that's only going to work if it's meal by meal. I have to eat less calories. I have to do more exercise. And that's day in, day out. And so the goal is the big picture, but what makes it happen, what makes it effective, is the day-to-day implementation of a plan.

And what traders often miss is they'll set a goal for themselves to make a certain amount of money or to avoid losing a certain amount of money or to trade a certain way, but they don't drill down so that the goal is something they are concretely working on. Each day in each trade. Ving firar 70 år av resor som är svåra att släppa taget om. Och det gör vi med massor av erbjudanden som är omöjliga att motstå. Boka redan nu på wing.se, de bästa resorna försvinner först. Semester.

Jag vill inte vill hemfrån. So we want effective we want to be effective in goal setting by being very planned and very consistent in working those plans. A goal without a plan is a wish. You know, uh if you have a goal and you don't have a specific plan, th that's just a good intention. That's a wish. It's nice, but it it's like New Year's resolutions. For the most part, they're not gonna happen unless we have a concrete plan to actualize them.

Okay. So you brought up an interesting point there in your answer about traders wanting to make a certain amount of money. What do what's your take on goals that have a monetary value attached to them?

I'm not a fan. You know, um one of the things, one of the problems that affects traders and affects people in all performance fields is something called performance anxiety. And performance anxiety arises when we become so concerned about the outcome of the performance that it starts to interfere with the process of performing.

And so if I'm a public speaker and I become very worried about how my audience is going to think of me and whether they're going to be interested in my topic, well pretty soon I'll forget what I'm speaking about. So we by putting the profit and loss, the P and L uh front and center in our goals, we're emphasizing outcomes and that can inner that can put pressure on us and interfere with processes.

Sometimes markets offer more opportunity than others, and to have a fixed P L goal doesn't really take that into account. What I would rather do as an outcome-related goal is look at improvement. So am I improving from month to month, year to year in my trading performance? And I would look not only at P and L in absolute terms. But I would look at it the way that hedge funds look at it, and the way most financial professionals look at it, in terms of risk-adjusted returns.

How much money am I making per unit of risk that I'm taking? try to improve not only in my absolute returns, but in my sharp ratio or in my uh risk adjusted returns. And that I think is meaningful. Okay, good good point. Now just continuing on this path.

How do you think traders should think about failure or loss? Because I know that some people are genuinely afraid to fail. So in your work, do you ever try to get traders to reframe negative thought patterns or anything similar to to this? Yes, and uh I think an important part of trading is in is it's funny, making friends with law. And in a sentence, making friends with failure, that it's, as I mentioned earlier, it's often our losing trades that teach us about how markets have changed.

Look at it this way. If we follow a best practice and we are relatively diligent, if we're re relatively consistent in our trading, uh and we follow our best practice and then we start losing money. Well, something has changed in the market. We're doing the same thing, but something has changed in the market. We want to use those losses as a prod, as a stimulus. to learn about what has changed in markets so that we can adapt.

Our losses are information. They're telling us something. If I'm running a store, let's say I own a department store. And I normally sell um, you know, 500 pair of blue jeans in a week. And now suddenly I'm selling 150 in a week. And that happens in week one, that happens in week two, that happens in week three, and pretty soon I say to myself, What the heck? You know, why aren't people buying blue jeans? And sure enough, I go to the fashion magazines.

And people are into something else. And I realize I have to adapt. I have to change my inventory as a retailer. That's how business works. That's how trading works. Our losses, our mistakes. are there for a reason. They are there to teach us something. And if we embrace them, if we don't push them away, we can learn from our mistakes. It makes us stronger. It makes us more adaptable.

So yes, it's frustrating. Yes, it it sets us back temporarily, but ultimately that's how we become better by learning from our mistakes. Absolutely. Now, Brett, I'd like to ask you about the actual subject of money. So let me ask you this.

When you're coaching and working with traders Do you try to change how they think about and how they view money? Because straight away, by default, many people have a tight psychological attachment to money. So how do you treat this? Gosh, it's a great question. And the answer, I don't know, maybe it'll surprise people. Uh no one ever thinks about money. Where I work. Uh you know, the um

the minimum portfolio size for a regular trader at at one of the funds where I work is two hundred million dollars. Um but no one thinks about money. Um you think in uh percentages and basis points. And so whenever you ask someone how much did you make or lose today or this week or this month, they'll always say, I I made fifty basis points. I made, you know, I made 1%.

So they're not thinking in dollar terms. And that's very, very helpful. Because if you start to think of it in dollar terms, it'll drive you crazy. You know, that i if you have a$200 million portfolio and you lose 1%, you've just lost$2 million. Um but uh by putting it in basis point then when you grow your capital, a thirty basis point loss is the same when you're trading a smaller book as when you're trading a larger one.

And so that's a big part of how professional traders get around thinking about money. They think in those percentage terms.

That's a really great that's a really great pointer there, Brett. Um Many many of us often feel you know, many developing traders often feel a great amount of pressure to succeed and become great traders. How do you feel about pressure? I mean, is it a good thing, uh, to to place, you know, sometimes quite a lot of pressure on yourself to succeed, or can it have negative effects?

Oh, it definitely can have negative effects. It i it's hard to take risks, you know, when when you feel under the gun. uh it's hard to make good decisions you know under uh conditions of pressure. So I I absolutely think that that that is a challenge associated with trading. Um one of the things I've uh commonly told traders and I've written about i is that For me, a a a si a uh element of success in trading is making sure that you have something in your life more important to you than trading.

Okay. Because if you have something in your life that's more important to you than markets, than trading, than profits, then during periods of drawdown, you'll always have something to turn to to renew you and inspire you and keep you positive. Sometimes I hear traders say to me, you know, I have a passion for trading and trading's the most important thing to me and and I work on it, you know, uh fourteen hours a day. And you know, that's being vulnerable.

Trading uh should not be the the only part or the major part in your life, because then you'll have nothing to balance yourself. and to balance the pressures during inevitable drawdowns. So I think have living a balanced life Having sources of happiness and fulfillment and energy and closeness to people apart from markets, very, very important to trading success.

Right, well this leads into an interesting topic. So From what you've observed, what factors have the greatest contribution to a trader's satisfaction and and sense of accomplishment? What ki what contributes to satisfaction and accomplishment? Like do they get excited about making huge profits in, you know, a month or are they do they find satisfaction in other areas of their business. Um, I don't know. Is is that an appropriate question?

It's it's oh it's a great question and I'm pausing to reflect, which is what I mentioned I do and why I don't process information super quickly,'cause I like to reflect. And I'm thinking about specific trainers and I'm thinking about my work with them and You know, and if I look and I certainly know traders who get a lot of excitement and satisfaction from making money in markets, and I certainly find that to be gratifying.

But the ones who have longevity in the business, who have been at this for a while, have some source of satisfaction in trading that is separate from their profitability. In other words, it's not that they find fulfillment in trading, they find fulfillment in market. And I think that's an important distinction. that if you find your fulfillment in markets and learning about markets and learning new strategies and trying new things.

then you can find gratification. You find you your your intellectual curiosity is gratified. your your sense of puzzle solving and and challenges are satisfied, even during those periods of drawdown. If your only source of gratification and fulfillment comes from the profitability then psychologically you're barren, so to speak. You're you're you're bereft. You you don't have anything to sustain you during those periods of drawdown.

So I think it's important to have sources of fulfillment in trading that are separate from profitability, even though profitability is obviously one of the important uh drivers of our uh satisfaction.

Okay, I like it. Really, really good answer there, Brett, and an awesome one to to take us out. So let's wind things down now. Uh where can listeners go to find out more about you? Oh, um well the easiest way uh would be through the two blogs that I write. One is Trader Feed. The address is Trader Feed, all one word, T-R-A-D-E-R-F-E-E-D.blogspot.com. And the second uh are is the blogs I write for Forbes online.

And if you go to the Forbes online site and type it by name, you'll see a lot of articles pertaining to positive psychology and financial markets. So those are two ways that are free and that uh you'll find more information than you care to know. Uh and obviously I've written four books in the area of trading psychology and those go more into depth into the topics that we're discussing today.

For sure. And you're also on Twitter, I know. So um what's your Twitter handle? Oh yeah. So yeah, so Steam Bab, S T E E N B A B. uh is my Twitter handle. And so uh I try to post at least uh once a day. Excellent. Now Um, like you mentioned, you've got uh several books out. Uh the most recent one being Trading Psychology 2.0, which came out towards the end of last year.

Um, I'll be sure to include all the links that Brett has mentioned um just now at chatwithraders.com, including a link to his book and uh some of his prior books. Is there anything that really separates this your most recent book from your previous material? Yeah, that's why I called it the Trading Psychology 2.0 because I really wanted to touch upon themes that were not traditional in the writings on trading psychology. So there are many

Topics related to positive psychology and building on strengths. There are many topics related to building creativity. and well-being uh that uh typically we don't hear about when we read uh books on training psychology. A lot of the traditional training psychology dealt with controlling your emotions, being disciplined, and all of those are great. I I would say those are necessary but not sufficient. In the Trading Psychology two point oh book, I try to go beyond those traditional themes.

Good one. Okay. All right guys, well um yeah, check that out at chatwistraders dot com. Brett, thank you so much for doing this. Um I really appreciate you taking the time out of your day. I hope listeners get a lot of value from this and I have no doubt that they will. So again, thank you. Well, thank you for having me. I appreciate the opportunity. You've reached the end of this episode of Chat with Traders, but rest assured there are more activities. See you soon. if you leave a rate