ZF Capital

Many traders who report emotional problems in the market are experiencing their diffuculties because they have not found a good fit between their trading styles and their personalities. Tolerance for risk is, in part, a traitlike personality variable. The issue isn’t so much one of which approach to trading is best. Rather, it is important to find the proper fit between the trader and the trading.

– Brett Steenbarger, The Psychology of Trading

A significant proportion of traders with whom I have talked make the lion’s share of their money from a relative handful of good market moves. Many of their trades are narrow winners, narrow losers, or total scratches. If, however, they fail to honor stops, those occasional big winners will be balanced by one or two large losers, which will undo many weeks of good trading. Although there may be room for a measure of discretion in entering trades, the use of discretion in honoring stops is a slippery slope that leads to trading ruin.

– Brett Steenbarger, The Psychology of Trading

Changing yourself as a trader requires the recognition that you are every bit as patterned as the markets you’re trading. Change begins with repeated and intensive self-observation. Keep a journal of all trades, the reasons you made the trades, the states you were in while placing the trades, and the outcomes of those trades. Over time, isolate the trades that went awry and the patterns common to those. Then isolate the successful trades and their shared ingredients.

Imagine that, trapped within you, is a self-destructive trader about to go bankrupt and a master trader poised on the brink of success. How does that self-destructive trader make decisions? How does that master trader operate? Once you can answer those questions, you are better positioned to do less of what doesn’t work and more of what will bring you to your goals.

– Brett Steenbarger, The Psychology of Trading

All you need to reach your profitability goals is a replicable edge in the markets, a pattern to trade that tilts the odds in your favor. Once you’ve found that, the rest is consistency– doing over and over what works. Many traders with whom I have talked despair that they have not discovered more patterns to give them an edge. They buy books and attend seminars in the desperate hope of accumulating more sources of edge. That climb up the trading mountain face, however, must be tackled one step at a time, beginning with a single toehold. It is far better to internalize success from a single pattern than mixed results from many patterns.

– Brett Steenbarger, The Psychology of Trading

It is a rare individual who can form a conviction strong enough to act on and yet remain sufficiently flexible to reverse this conviction in the face of objective evidence. Simple human nature, not any emotional disorder, cuts against this grain, allowing one to interpret the world through his or her beliefs and convictions. Successful traders are trading against their own human nature, making unnatural ways of processing information natural.

– Brett Steenbarger, The Psychology of Trading

Successful traders don’t need to trade to be successful; their trading success is an extension of– and is permitted by– their other life accomplishments. The markets can be challenging, rewarding arenas; but they are not life and they cannot fulfill the panoply of legitimate human needs. To pursue one’s development as a trader at the expense of one’s personal development is to court the very emotional interference that generates inconsistent, substandard results.

– Brett Steenbarger, The Psychology of Trading

I strongly suspect that even the most successful traders have a constructive side and a destructive side– a self that is capable of mastering the markets and a self that is capable of implosion. The traders who are ultimately successful have found ways of continuously accessing the mastery they possess.

The ones who fail may be every bit as knowledgeable and experienced, but they remain locked in states that undermine their goals. Overcoming problem patterns is only half the game. The equal challenge is to cultivate successful patterns that can be invoked at will. This is only possible to those who have developed a high degree of intentionality– the capacity to sustain significant effort and purpose.

– Brett Steenbarger, The Psychology of Trading