Some Trading Observations from Dr. Brett Steenbarger

My general impression is that traders make 3 basic errors when seeking help of a psychological nature:

1) They interpret their problems as psychological, when the actual problem is the absence of a valid trading system.

Many traders experience anxiety and self-doubt because, at a fundamental level, they do not know what they are doing. They have never backtested their ideas/systems and thus don't really know how those perform in real time (expectable drawdowns, etc). Traders who seek psychological help when they lack a tested methodology remind me of couples who seek help with "communications" when, in fact, they are wholly incompatible and have little to communicate about. The psych help is used as a way of avoiding a more fundamental problem.

2) They try to figure out ways of changing their patterns before they have truly observed and understood those patterns.

I completely agree with Mark Cook that the best exercise one can perform is the maintenance of a trading journal. In addition to recording detailed information about the trades (size, time of day/week, rationale), it is helpful to record information about one's frame of mind before, during, and after the trade, market events that occurred while the trade was open, etc. Very often, patterns will jump out that had gone hitherto unnoticed. It is not enough to say, "I want to be less nervous" or "I want to be more confident". Detailed notes on when one feels more and less nervous and confident, what is occurring at those times, and how one attempted to cope are necessary in targeting changes.

I also like to assign self-observation exercises early in counseling because it sorts out those who are truly motivated to change from those with other motivations. People who want a quick fix and who are interested in making money (as opposed to trading) won't stick to keeping a journal. The best way to help those people out is to show them the door.

3) They focus on negative patterns and miss out on observing positive ones.

This "solution-focused" approach is most promising. Instead of focusing on when you are trading poorly, review detailed notes from those occasions when you're trading well, "in the zone". Look for the patterns when you're at your best. Many times, you can isolate what is working for you and begin to do more of it.

A simple example of this is that I find I process market data *very* differently if I talk my trades out loud and write them down than if they are bottled up in my head, so to speak. Talking them aloud also places me in the role of listener; writing them allows me to read them over and gain some distance from them. I cannot tell you how many times an idea that felt good when I first thought of it sounded absolutely absurd once I had talked it out and written it down. I only realized that after doing an audit of my trading results and separating out what I was doing differently during successful and unsuccessful trades.

Anyway, my book will have a ton of ideas like these. In just the last 15 years, I've averaged 130 counseling/therapy clients per year using these kinds of techniques. Hard to do something day in and day out for so long without picking up a few tricks of the trade. That, for me, is a big part of what makes speculation special: there are few arenas in life where self-development is so tangibly and richly rewarded.