SimCast Ep. 10 – Trading Mastery w/ Roman Bogomazov
Tag: trading psychology
In this episode of the SimCast, we were joined again by veteran trader Roman Bogomazov. Roman is the purveyor of WyckoffAnalytics.com and is one of the most prolific technical analysis educators in the world. His approach to trading mastery stems from a deep knowledge of advance market analysis techniques based on Richard Wyckoff.
In Part I and Part II of our interviews with Roman, we covered his trading history and the basic of the Wyckoff methodology. If you missed those episodes, please do yourself a favor and check them out.
Wyckoff Analytics home page, where Roman teaches trading mastery
The Path to Trading Mastery
In this episode, Roman breaks down his strategy for teaching trading mastery. As part of this, Roman discusses the importance of mentorship, speeding up the process, competing against yourself, and more. In addition, Roman shares his 4 steps to mastery:
Knowledge
Skill
Process
Mindset
These are his 4 core components to building mastery in trading. Along those lines, we take the time with each step in the interview, sharing practical examples of each.
For example, within the knowledge level, your goal is to read, read, and read. You read about technical analysis, psychology and more. Consequently, it isn’t until you reach the skill component that you begin to practice. This evolves into process and mindset where Roman recommends reading less, and doing more observing.
As an advanced trader, you should have the foundation already. Your time is better spent developing your skills and scaling up your consistency and wealth.
Lastly, Roman discusses the importance of community and feedback.
SimCast Ep. 10 Chapters and Topics
Intro
What is Mastery? – 0:45
Speeding up the Process – 13:20
Competing Against Yourself – 19:10
4 Steps – 26:50
Community – 38:15
Outro – 45:30
For more information about Roman, be sure to follow Wyckoff Analytics on Twitter.
Whether you’re a complete newbie or you’ve been trading for some time, you have likely experienced fear and other emotions while trading. If you haven’t, you might be robot. It’s natural to experience these things because we are human and subject to the pulls of the flesh. In this post, we’ll uncover 5 ways you can overcome fear and emotions in trading.
The Root of Fear and Emotional Problems in Trading
As humans, we are naturally predisposed for certain emotions. Psychologists often label these with cute labels like scarcity bias or one of a myriad of other biases. To them, we are subject to the habits ingrained in our dna.
For example, we are prone to think as humans that if we don’t store up for hard times, we might not have enough to get through the winter, or drought, or famine, or whatever. As our ancestors were more agrarian than we are today, we have a tendency to associate other aspects of our lives with similar biases — like trading profits instead of crops.
In a similar way, if we suffer loss, we are likely to take what little gains we come across more quickly the next time. Think about losing a girlfriend, or a loved one. It may traumatize you to the point that you want to “cling” to the next potential suitor more tightly than the last.
Unfortunately, the very thing that we are wired for can often times sabotage our intended outcomes. By clinging to the next lover too closely, we might actually push them away.
It’s not different in trading.
If we suffer a few debilitating losses, we are wont to “cling” to whatever gains we have the next time. The end result is that we cling to our profits too quickly and thereby continue “pushing” our lovers (potential gains) further and further away.
How to Fix the Issue of Fear and Emotions in Trading
Well, it isn’t as easy as one might think. It’s often quite painful actually. However, the antidote is often in the sickness itself — much like any disease.
Think about it this way. To become immune to something, what has to happen? Exactly, you have to get sick. You have to be exposed to something repeatedly in order for your body to build up immunity to it. It’s like this with viruses, bacteria, cold weather, callouses on our hands, etc.
The goal is to normalize the pain in an effort to make more sound decisions. In the case of the clingy boyfriend, the loss of your lovers will eventually teach you to let go a bit and give them some space. Jealousy is the cure for itself.
Trading losses will over time cure your habit of fear in one of two ways:
It will teach you that your fears are irrational with enough experience.
You will eventually find another line of work once your capital is completely expended.
One way or another, you’ll learn that fear isn’t profitable.
That being said, there are a handful of ways to proactively train yourself to mitigate the fears associated with trading.
1. Mitigating Fear and Emotion in Trading through Education
We humans have a big ego. Whether we realize it or not, we think we can jump right into something we know nothing about and become an overnight expert. Just like the little kid who sees his dad wielding a sledge hammer with ease, we think we can pick it up and do the same thing. “Go ahead, son….”
Little do we realize that more often than not, when we think we know something, we actually understand very little.
This is where education can help. Often times, awareness is the beginning of our enlightenment and path toward freedom. In trading, this can come through the help of books, courses, or free online content.
Trading Education Books
The great thing about pretty much any line of work is that usually someone has gone before us and made the mistakes. Not only have they made the mistakes, but many have documented their mistakes. And in this day and age, we have information at the tips of our fingers. So, why not take advantage of that?
The more you learn about technical analysis, other traders’ successes and failures, and the many pitfalls of the human mind, the more you’ll be prepared to face your own demons. We discuss a lot of topics in our blog here at TradingSim.com, but there are a ton of free resources on the web to help you as well.
2. Learn and Master a Single Strategy to Overcome Fear
Prop trading guru Mike Bellafiore is famous for teaching his traders to make “one good trade.” That’s all it really takes to get rich in trading. It’s so important, he framed it and hung it inside the prop firm.
From SMB Capital Prop Firm
Mastering a single strategy is a lot like getting married. You learn more about a person when you marry them, live with them day in and day out, commit to them for the long haul. Traders who don’t commit to a single setup often times suffer from “style drift.” Eventually, they begin to doubt their ability to succeed at trading.
Like a fickle relationship, they give up on the strategy when it isn’t doing well for them.
The problem with this, just like in relationships, is that you never find a deeper understanding of the strategy. You only stick around during the good times. But like life, the good and the bad always ebb and flow. Instead of becoming a master at something, you become mediocre at a lot of things.
Adapting with the Changes of the Market
Mastering a strategy isn’t an excuse for ignoring other opportunities for success, or variations to your strategy. It is simply an opportunity to reduce the amount of fear you have through deep familiarity.
By all means, study another strategy once you have mastered one. But understand that true confidence comes through mastery, and that can only be had through focus. It won’t come from mimicking another trader, or following an alert service.
It only comes from mastering something so well you could do it with one hand tied behind your back. (Assuming you could click the buy and sell button with the other hand….)
3. Practice Trading to Increase Confidence and Eliminate Fear
Practicing trading is akin to back-testing. Both have their place along the path to confidence in trading. There are two reasons for this.
Practicing trading builds situational awareness and pattern recognition
Back-testing (and outcome testing) provide statistical evidence of an edge
Both of these are the ingredients you need in order to eliminate fear. Why? Because you no longer have uncertainty about your edge probabilities.
We discuss how to find an edge in other posts, but suffice it to say that you need one in order to mitigate fear of trading. As humans, we want certainty in life. We want a paycheck. We want to know we’ll have food on the table, a roof over our head, etc.
“When you achieve complete acceptance of the uncertainty of each edge and the uniqueness of each moment, your frustration with trading will end.”
Mark Douglas
Trading is never certain. Period. Accept it.
Acceptance of the Risk Eliminates Fear and Emotions in Trading
An edge is a probable outcome that favors you over time. It doesn’t mean you’ll never suffer losses. Sometimes the best traders lose many more times than they win. However, they understand that their wins will far exceed the small losses that they take.
It’s all a game of risk management and knowing the outcome will take care of itself over time.
Without accepting the risk involved, or knowing the statistical edge you have, you’ll remain mired in fear. You’ll take losses much bigger than you need to, and you’ll take profits much sooner than you want. It’s that simple.
Practice trading in order to train your mind and develop your statistical edge.
4. Start with Smaller Size to Decrease your Anxiety in Trading
Improper sizing is often the #1 culprit for destroying your account. It’s true. You want success so badly that you think you’ll get there faster if you just “size up.”
Ironically, the very thing you want becomes your Achilles heal. It’s like the old adage of wanting to run before you walk. You have to start slow and incrementally increase your size as your account, consistency, and most importantly, knowledge, begin to grow.
In a recent SimCast interview, we spoke with Kris Verma about how he uses the Kelly Criteria to properly calculate a position or stake. If you haven’t had a watch, it’s really eye opening.
But whether you use an R factor for your positioning, or calculate a 1% account stop loss for your stake, the more you respect this, the more you’ll overcome fear.
Size up too much and the volatility of your account becomes too big for your emotions to handle, as shown in this chart:
Kelly Criteria for Optimal Position Sizing
As you can see, as you increase your Kelly stake from a full “1.0” size, the more your returns diminish and your volatility increases. Take the goldilocks approach and start out conservative. Prove to yourself the right to earn more size based upon your back tested data and performance consistency.
For a basic formula to calculate your Kelly Criteria, click on Kris’s free spreadsheet:
5. Trust Yourself. Let the Game Teach You to Overcome Fear and Emotions in Trading
This sounds simple, but it’s not. As a new trader you’re going to have your eyes all over the place: on twitter, on a guru, in a chat room, on your charts, etc. The best place to have your eyes is on the market and on yourself.
Learn to trust your personality. Trade in sync with it. If you need fast gains, then maybe scalping is your jam. If you are a slower mover who needs big wins, then maybe swing trading or longer day trades will work for you.
Whatever your personality, fine tune it with what the market is telling you. It’s ok to study gurus in your spare time, in fact it is recommended, but allow the market to teach you in real time or in simulation. You’ll be amazed at how much more confident you become when you stop the distractions and get a “feel” for the market.
To that end, you must eventually trust your trading instincts. By this, we don’t mean your whimsical guesses. No, when your education is complete, and your practice is sound, you will have confidence in your own ability to read the market.
Be in tune with it, and trust yourself.
Conclusion
If you find yourself struggling with fear and emotions in trading, by all means do something about it. Realize this is a long game, not a short game. Learn to enjoy the process of education and mastery. Many of the most successful traders took 5-10 years before they ever began making wealth in the markets.
To help along your journey, jump into the simulator here at TradingSim and find your confidence!
As traders, there are so many facets of our lives that can affect how we perform. In fact, if you didn’t already know, trading is just that, a performance sport. It’s akin to professional gaming in a lot of ways. To that point, a lot of your performance rests upon your mental edge and how well you cultivate it.
The Mental Edge in Trading
There are many aspects to building a strong mental edge in trading. In fact, there are many that you probably haven’t even considered.
Building Blocks of the Mental Edge slide from Créde Sheehy-Kelly
To help us visualize this, our friend Créde Sheehy-Kelly from Créde Performance has created a number of resources in her practice to help traders build their mental edge. She was kind enough to share one of her slides with us. Not only that, but she’s made time for us to discuss some of the inner workings of this important performance piece in the trader’s process.
Créde Sheehy Kelly
Créde is a Chartered High Performance Psychologist who has worked with professional athletes, singers, fighter pilots, and traders throughout her career. She regularly works with trading prop firms and other organizations to bring value through performance coaching to floor traders and driven retail traders.
She is highly qualified to speak on the subject. Be sure to check her out at CrédePerformance.com. Also, if you want to learn more about performance coaching with Créde, be sure to check out our recent podcast with her.
So without further adieu, we welcome Créde and her wisdom on the topic of “building the mental edge” today.
Building Blocks of the Mental Edge Interview with Créde
TradingSim
Hi Créde! Great to speak with you again. How are things going with you? How’s the baby doing?
Créde
Hi John, it’s always a pleasure to chat with you! Everything is going great thanks. Kaia has figured out how to stand but not how to sleep through the night yet so I’m hoping that’s the next thing she masters lol
TradingSim
Ahhh! Gotta love those early years! That’s great to hear and glad everything is going well for you! Thanks for making time for us.
We’d like to start with a more general question about the building blocks and their importance in trading. As a performance coach, why is this piece so relevant to trading — after all, we’re just pushing buttons, right?
Créde
I guess if trading was just about pushing buttons there would be many more millionaires in the world! The real challenge in trading, especially in retail day trading, is being able to master yourself. Learning the technical aspects of trading takes a while but this can be perfected with time and practice. Mastering yourself however is not guaranteed, even over decades.
Most traders will reach a point in their journey where they know exactly what they should be doing from a technical perspective, but in the heat of the trade they just don’t follow the plan. This is a prime example of someone’s psychology tripping them up.
It takes conscious and deliberate focus to understand how your mind and emotions are impacting your trading and to cultivate the mindset that will support you in achieving your trading goals. It’s not something that just happens on its own.
Créde sheehy-Kelly
The best way to approach this is to systematically level up each aspect of your mental edge piece by piece. This is why representing your mental edge as a jigsaw puzzle or a series of building blocks makes a lot of sense. Your mental edge is the outcome of having perfected all these individual skills and techniques on the psychology side of your trading.
TradingSim
Alright, so we were definitely playing devil’s advocate there. But your point is well taken.
You do raise an interesting thought, though, that proper mindset doesn’t just happen on its own and can even take many years to develop.
In your years as a performance psychologist, what are the most common building blocks that seem to be the peskiest to overcome in your athletes, traders, etc.? Is it a varied gamut or do you find more condensed patterns in people?
Créde
That’s a really great question!
I can definitely say that confidence is something that nearly all of the people I have worked with have wanted to improve. So the flip side of that is that people are experiencing feelings on inferiority or self doubt at every level of performance.
But in terms of being the peskiest to overcome? I think that would be the skill of focusing on the process rather than the outcome. Whether someone is a professional athlete or a day trader, everyone is invested in the end result.
Unfortunately when people are focused on the outcome while actually trying to perform, it really heaps on the pressure and ultimately causes people to deviate from their plan. It seems like a simple skill to build – “focusing on the process” – but in reality it is one of the hardest skills to actually perfect.
Tradingsim
That’s really interesting, Créde. I’ve heard this before from a famous football coach, Nick Saban. He’s known for preaching “the process.” And in recalling some of his old speeches, he often talks about players needing to “buy in” to the process and the coaching.
That being said, how do you, as a performance coach, get your clients and traders to “buy in” to the process instead of focusing on the outcomes, the intangibles. Are there other building blocks of the mental edge that help cultivate process focus?
Créde
To answer your question properly it might be helpful to clarify exactly what I mean by the “process” versus “the outcome”.
The process refers to all of the things that you need to do well in order to produce the outcome that you want. The outcome is usually a very concrete and incontestable thing. In football so, the process would be accurate passes, maintaining discipline in a match, having a clear understanding of the plays etc. And the outcome is just the score.
Process Focus for Mental Edge
In trading, process refers to things like entering trades at the right time, only taking trades that match your A+ setup, only exiting a trade when you have hit your target or have a technical reason to do so, etc. The outcome is the P&L.
As you correctly suggested, there is no one way of getting a trader to focus on the process. It really depends on the specific challenges that the trader is experiencing and also, the root causes why they are experiencing these challenges.
Mental Edge Building Blocks associated with process
That being said, there are a number of building blocks of the mental edge that can be really helpful to assist with this. From the diagram above, the most useful building blocks to put in place if you are trying to cultivate a process-focus in your trading would be:
Practising getting into the flow state
Cultivating self-compassion
Seeking only internal validation
Effective short term and long term goals
Self-awareness
Having a mental preparation routine
Conducting a daily review
Understanding how emotions impact trading
If I had to boil it down to a few key building blocks, the key ones to focus on would be:
Self-awareness (this is basically the foundation of the mental edge)
Effective short term and long term goals (these help you to hold yourself accountable to aspects of your trading other than the P&L)
TradingSim
That’s really eye-opening. And it all makes sense. The more you focus on the here and now like practicing awareness, being present in the flow state, not worrying about external validation (success theatre), etc., the more you become process-centered and less concerned with outcomes.
I think that’s really important for new and struggling traders to hear.
And to build on that, taking the two most important mental edge building blocks that you’ve mentioned — self-awareness and effective short/long-term goals, what advice would you give to someone struggling with these two?
Maybe this trader has an “idea” of wanting to be financially free someday, but lacks concretely structured goals. Or maybe another trader has great goals, but struggles to be aware in the moment that he’s sabotaging his efforts.
Créde
That’s exactly it. The struggle with seeking external validation is a significant one for most people.
Mental Edge Self Awareness
In terms of self-awareness, I would say that even people who are not necessarily struggling in this area can benefit from understanding themselves to a deeper level. There is no end to the amount of benefits this can bring to your trading.
Self-awareness is really just about gaining a greater understanding of how your own beliefs and thoughts are influencing your emotions, and how your emotions are influencing your actions.
So, any technique that helps you to understand this pathway better in any aspect of your trading could be considered a technique that helps to build your self-awareness.
Some great examples of practical ways to do this would be journalling bullet points about what you were thinking or feeling after you complete a trade. Or even just starting out your trading session by rating your physical, mental, and emotional state out of 10.
This helps you become aware of what mindset and energy levels you are bringing to your trading on any given day.
Mental Edge Goal Setting
Goal-setting is absolutely crucial for every trader too.
Without clear short, medium and long-term goals you are trading in a vacuum. You have no way of knowing whether you are on track with your overall vision. So this lends itself to having very harsh or unrealistic expectations of yourself and also to trading from your emotions as opposed to from your trading plan.
To start off with, just try to nail down some concrete targets that you know you want to achieve in your trading. Then, try mapping them against a realistic timeframe. And lastly, make sure that the targets are concrete and measurable.
The trader in your example would start by first defining what “financially free” actually means to them. Is it replacing a salary of X dollars? Or paying off X amount of debts?
The more specific the target, the easier it is to achieve it.
Mental Edge Performance Goals
For the other trader with great medium and long term goals, who struggles in the moment.
This trader would benefit from setting some key “performance” goals (for example 90% or more of all trades taken fit my A+ setup criteria). Then, tracking their performance against these targets every single trading day.
With this level of awareness, most likely the trader will start to see patterns as to when they tend to deviate more from their trading plan. As in, what additional factors influence their discipline.
When they have a greater understanding of the context within which they tend to break their rules more, it’s much easier to start to isolate the root causes of the self sabotage.
TradingSim
That’s incredible insight, Créde. Really love how you create tangible building blocks to foster effective processes in trading.
So often, as traders, we are wont to simply jump in and fly by the seat of our pants. This really emphasizes the need to slow down, think about what we’re actually doing, and put structure to often overlooked variables of ourselves and our performance.
With that, we really appreciate you taking the time to share a small portion of your wisdom and framework for helping traders. If we can end with one more question, what would you say is the amount of time it takes for a budding trader to develop these habits, and judging from your experience, who are the traders most likely to succeed at this?
Créde
Great question! By putting in focused effort to building your mental edge you can really accelerate the learning curve.
Cultivating your mental edge is a two part process as I see it.
First you need to learn a system for actually working on your mindset and emotions. By this, I mean having a framework to apply to cultivating your mental edge and actually learning the techniques that can help you shift your mindset and transform limiting beliefs and habits. It is possible to get a good foundation in this in as little as 2-3 months.
The second part is where you actually consistently implement your mental training routine and these techniques in your day to day life. This is a process that never ends, as it is an integral part of your trading process. Typically in my experience, traders do see tangible results in terms of their trading stats within weeks of introducing this aspect to their trading. Obviously the longer you work on your mental edge the more impact the techniques will have on your performance.
I can definitely pinpoint the traders who see the greatest results from this. It’s those traders who are willing to really face themselves, be brutally honest, and to put their ego aside in order to level up who will ultimately succeed to the level of their true potential.
TradingSim
That’s awesome. It’s encouraging to know that these pesky habits can be overcome with diligent work.
Thanks again for stopping in and sharing with us, Créde!
Créde
My pleasure!
Practicing Your Mental Edge Building Blocks
Here at TradingSim, we believe in a holistic approach to training for the markets. For technical analysis, screen time, and simulation, we hope you find value in our application. However, there are obvious mindset issues that a simulator might not uncover.
We hope this conversation has benefitted you. Be sure to reach out to Créde and put forth the effort you need to build out your trading process, uncover hidden setbacks, and be the trader you want to be.
For more great articles based on Créde’s work, check out our blogs on the lifestyle and physical habits you should cultivate. And don’t miss our article on mitigating stress and anxiety in trading.
Are you struggling with overtrading? Overtrading is a common problem for the zealous trader doing her best to make it in the markets. It can even plague the most disciplined and successful traders. In this post, we’ll dive into a handful of reasons why, and tips for how, to combat the problem of overtrading.
The Typical Overtrading Scenario:
It’s 9:31am EST and the market has just opened.
You place your first short trade. You have a plan, or at least you think you do.
It’s a perfect premarket pattern for shorting; the stock is bound to go down. The first candle of the day was red and looked bearish. So, you short it.
You’re confident, even though the stock really didn’t confirm the right setup you’d been practicing for weeks. You know it’s going down regardless, and you don’t want to miss the boat.
Uh oh. The very next candle swipes against you nearly $0.50 per share.
You’re down 6% on the position, immediately.
Now what do you do? Do you average up? Stop out? Wait? The next candle forms and you are down nearly $1 per share. You stop out 3 minutes into the trading day.
The Top
As it turns out, that was the top.
The stock reversed right after you stopped out. Frustrated, you panic and enter the trade again, despite the price returning to your first entry point.
But wait, the stock rallies a second time and now you’re down an extra $0.40/share.
The Chop
You proceed to stop out and curse yourself for chasing the stock.
A few minutes go by and you’ve done the same thing over and over again during the morning chop-fest that we call the market open.
You get sloshed around in the washing machine and before you know it, you’re already down $2 per share on a stock that really hasn’t gone anywhere but sideways for 15 minutes.
You’ve been hung out to dry.
The Setup
About 5 minutes later, the stock develops a beautiful shorting pattern with slightly lower highs. Coiling into the apex, volatility dries up and it drops hard and breaks the low of day.
It confirmed for you, finally!
The lack of demand was there right before the drop, the volume and price action were what they should have been, and the stock acted accordingly.
Only this time, you were too exhausted emotionally and mentally to enter.
The Despair
It went in the direction you’d originally planned — without you.
How many times has this happened to you?
This is just one hypothetical example of a struggle that many new traders face. It is the problem of overtrading, and it is driven by fear and lack of discipline.
Why You’re Struggling with Overtrading
Like with many discipline issues in trading, overtrading is a result of fear. But what is behind the fear that causes us to over trade?
…the novice trader: We start out carefree, then become scared, and our fears continually diminish our potential.
MARK DOUGLAS
Well, I am glad you asked. There are three reasons why.
The fear of :
missing out
being wrong
of loss
You start out afraid the stock will leave without you. As soon as it goes against you, you cut your loss afraid that you were wrong.
Then, you enter again and again in a vicious cycle until you are afraid of losing one last time when the trade is actually primed and ready.
It is no wonder that the market confounds those who think they are wise.
Sadly, it proves us right, long after we have become insolvent on a position and depleted of the emotional courage we had at the beginning of the trade.
All that’s left in the wake of your overtrading are a bunch of green and red entry and exit arrows on a chart, which don’t really make sense in hindsight.
It becomes tough to even review the trade. We wonder, “what was I thinking?”
Examples of too many entries struggling with overtrading
So how do we overcome this vicious struggle with overtrading?
Thankfully, there at least 4 reasons we can discuss to make us more aware of this common problem. Let’s take a look at each one and the action points with them.
Four Methods to Fix Your Struggle with Overtrading
1. Double-Check Your Edge
Too often we over trade because our edge, or trading plan, isn’t really there. We want it to be, but it isn’t.
You’ve probably heard it said before that the best trades usually go in your favor quickly. There is something to that. The goal of an edge is to have a high probability of success.
That being said, if you think your edge is there, but are finding yourself getting chopped up and overtrading, it’s time to put on the brakes and head back to the lab.
To that point, here are quick tips to consider when analyzing the efficacy of your edge:
Let’s dig a little more in depth on these tips:
Checklist
Write out a checklist that will keep you accountable for your entries. This way, if you don’t find the confirmation, or the setup, it keeps you out of the trade.
Maybe it looks like this:
Bias (short/long)
Plan (size/risk/target)
Setup (head and shoulders / bull flag / MACD cross)
Confirmation (lower high / moving average support)
Entry (best price)
As you watch the market, have this handy and check off your criteria before you actually take the trade. This can help you create a solid trade plan and have more confidence in the trade.
Time Period
Are there periods of the trading day where your edge fails to materialize? Maybe trying to force trades in the middle of the day isn’t working? Is the general market in your favor?
Similarly, are you expecting momentum when momentum isn’t there? Maybe it is time to set some rules for “when” your edge is tradable, and what kind of volume and range the stock needs to have.
We’ve got some great articles on trading at certain times of the day, like the market open. Identifying and practicing during these times may keep you from struggling with overtrading.
Data
Have you actually tested your strategy enough to know its probability for success? If not, try taking a 20-trade sample size of the same trade, then you’ll at least know the percentage of times it is a winner.
Personality
Does your edge fit your personality? Are you better with slower moving stocks? Are you better at shorting afternoon faders rather than morning pop and drops?
Do you prefer to go long rather than short? Should you be a swing trader?
These are just a handful of suggestions to consider if you’re struggling with overtrading. If you can’t define your edge, you really shouldn’t be trading real money. Otherwise, you’re just gambling.
Trading is not about being right or wrong. It’s a probability game.
Mark Douglas
Take the time to create your TradeBook, test your strategy, and hone your “chart eye” to see when it’s really there.
Once you understand your probability for success with a specific strategy, it will boost your confidence on when to take a trade, and when to avoid one.
This is how we combat the fear of missing out and avoid impulsive trades.
Hmmmm. That sounds counterintuitive doesn’t it? Maybe at first glance. But let’s run with it.
Imagine that part of the problemyou have is a fear of losing. Take that fear away, and you’ve made a step in the right direction.
Now, we’re not saying you want to be a bag holder, or that you should try to lose in the market. Every smart trader respects his/her stops.
Deliberate Practice
What we are suggesting is that we can train our minds to accept the emotions of losing, or going “in the red.” Losing is inevitable, right? Not all of our trades are going to be green the moment we click the buy or sell button.
But what if we were to take our position in a trade with small enough shares that we could allow the market to naturally fluctuate as it is wont to do?
We suggest doing this deliberately. Yes, enter a trade with the sole purpose of experiencing the emotions it will bring. Albeit, with small enough size that it matters, but doesn’t hurt.
Let’s re-imagine the scenario at the beginning of this blog post.
There was an expectation of what the stock was going to do before the entry. The plan was to short it, and the stock would go down.
There was also a hope of making money.
Now imagine putting a smaller amount into the trade — or using a simulator — with the same idea, but deliberately letting it work. No expectations, just observation.
You’re probably thinking, “But how will that change my bad habit?”
Psychology
If we deliberately practice exercising our emotions by sitting in a trade and becoming mindful of the natural tendency of stock price fluctuation — quite literally facing our fears — it can re-train bad habits.
In the world of psychology, they call it Cognitive Behavioral Therapy. You introduce a stimulus, starting with smaller exposure, then increase it over time as the fear begins to subside.
True deliberate practice is a significant predictor of success.
Brett Steenbarger, PH.D.
Instead of being rigid in your belief in a trade and your expectation of the result, practice being more flexible. Watch the ups and downs of that trade with your position dancing red to green to red, until price discovery is made.
If you can’t sit through the normal undulations of the market, then you need to go back to redefining your edge, understanding trading ranges, and deciding if what your are doing is in sync with your trading personality and skill level.
7 Steps to Deliberately Practice:
Think about it this way:
Without expectation, there is no fear of being wrong on a trade. In the absence of expectation, it is harder to become disappointed.
3. Size Down
One easy way to combat fear of loss is to lower the amount of money you can actually lose in a trade. It’s a really simple concept. Yet it is profoundly difficult for new traders who want to size up their account quickly.
Too often, using big size in a trade that has little or no edge can lead to dramatic losses, even if they are small cuts over time. Heck, even seasoned traders experience this.
Just keep this in mind: you will either learn to size down on your own, or the market will size you down. Wow…that sounds foreboding and scary.
But, it’s true.
Strangely enough for most people, sizing down of your own accord is harder to do. Being humbled by the market is the typical, and more painful, route.
On the same token, a lot of traders jump into trading expecting to earn an income quickly. This is dangerous. It can place too much pressure and emotion on your performance.
If this describes you, consider finding another source of income while you learn to trade part-time, or in a simulator. It will preserve your hard-earned capital, and save you a lot of heartache in the long run.
4. Think about the Big Picture
If you’re already sizing down, not afraid of losing, and have a stellar edge, then there is one more thing to consider if you’re still struggling with overtrading: not having a big enough picture for the trade.
This doesn’t mean that scalping isn’t a good strategy. Don’t get us wrong. There are plenty of millionaires in the market that scalp for pennies. But if this isn’t your goal or strategy, then you aren’t seeing the big picture.
It’s kind of like this old expression:
In day trading, there are nearly 7 hours for normal market trading. There are plenty of opportunities for big moves in that amount of time.
To be in and out of a trade multiple times in a matter of minutes without the specific skill of being a scalper or without a reason to exit the trade is utter nearsightedness!!
This, again, is where deliberate practice comes in handy. The key is to develop your strategies by discovering the biggest opportunities each day. Your edge should give you the biggest reward for the smallest risk.
Big opportunities take time to unfold.
You might say, “I don’t want to be in the market from 9:30am to 4pm EST everyday.” That is perfectly fine. But whatever your time frame, keep the big picture trade in mind.
If it is a 1R/3R trade you want, make sure you give the trade time to develop. Define your risk and size with enough balance to keep you in the trade for the bigger move. Just respect your stops if it goes against you!
Example
Let’s look at an example of this with SYPR. Notice the choppy action off the open. The stock bounces between $3.85 and $3.45 a handful of times between 9:30am and 11:00am. You could easily get chopped in this action if you are not a skilled scalper.
SYPR choppy action
Now, zoom out from the trees, and take a look at the forest. Imagine if you could keep this “bigger picture” in mind without getting lost in the minute by minute:
SYPR bigger picture trade
More often than not, nearsightedness blinds a novice trader with the minute ups and downs of a trade.
Try the following tips to overcome this pesky habit:
8 Big Picture Strategies to Beat Overtrading
Create your plan for the trade based on a higher time frame like the 30m, 1hr, or daily charts.
Identify areas of support and resistance that could be targets for profit taking, or areas for risk management and stop loss.
Analyze the volume and momentum for the stock to determine whether or not it could be an “outlier” big day.
Determine a responsible position size for the trade that will allow you to sit through the ups and downs.
Be willing to lose on the trade if your stop is hit and you followed your rules and plans.
Only exit the trade and take profits according to your plan, or when given a reason for the exit.
Identify your reasons for exiting the trade before the trade is taken.
Set a vertical line at 4:00pm market closing time and zoom out on your charts. This can help remind you that there is a lot of trading left in the day.
Putting It All Together
Hopefully this equips you with a handful of ideas to add to your process of becoming a consistently profitable trader. Overtrading is very common, and not something to beat yourself up about.
Keep in mind that it’s just one of many discipline issues that all traders must overcome. Awareness is the first step, then deliberate practice.
Try putting your strategies to the test in our simulator if you’re struggling with overtrading. Perhaps this could be what you need to retrain your bad habits?
Dr. Brett Steenbarger, Ph.D.
In this post we’ve compiled 40 of our favorite Dr. Brett Steenbarger quotes organized into a handful of themes. Dr. Brett Steenbarger, Ph.D. is one of the most prolific and well-respected psychologists in the world of finance and stock trading. He’s worked as a performance coach for hedge fund managers and proprietary trading firms for many years, and is a professor at SUNY Upstate Medical University in Syracuse, NY.
Thankfully, Steenbarger also shares his wisdom in a handful of his popular books like:
Very active on Twitter as @steenbab, and sharing his nuggets of wisdom on YouTube and his blog, Dr. Steenbarger is a must follow for any trader, beginner or pro.
Steenbarger consistently covers topics from “innovation” in trading, to “self-sabotage,” and everything in between. Plus, his 3-minute Trading Coach playlist videos are fantastic!
You can be sure that if a topic affects your trading life or well-being, Dr. Steenbarger has some concise, actionable wisdom to share. So be sure to spend time working on your trading mindset by checking out Dr. Steenbarger and all of his wonderful resources.
Great Steenbarger Quotes for Trading Encouragement
We are big fans of Dr. Steenbarger here at TradingSim, and there is nothing like a great “pick-me-up” quote from the man himself during a rough patch of trading.
To that end, we’ve hand-picked 40 of our favorite Brett Steenbarger quotes to help encourage you.
We’ve organized them into 7 quote categories:
Avoiding Bad Trading Habits
Resilience
Self-Sabotage
Focus
Burnout
Discipline
Success
, so we hope you’ll find as much wisdom in them as we do, and share them with your trading community!
Every trade should be accompanied by a very specific idea of what would tell you you’re wrong and how much you’re willing to lose on the trade. It’s when losses surprise us and become too large that they’re likely to create disruptions in our mindset.
BRETT STEENBARGER, PH.D.
Too much size creates unusual P/L volatility and that leads to emotional volatility. Your goal is to be consistently profitable and then grow your size while you retain your consistency.
BRETT STEENBARGER, PH.D.
If you *need* to be profitable, that creates undue performance pressure and emotional distraction.
BRETT STEENBARGER, PH.D.
…the best traders sustain self-awareness. They know they have flaws and they want to be aware of those flaws, so that they can minimize those. They are also aware of their strengths and seek to stay grounded in those.
BRETT STEENBARGER, PH.D.
Successful traders spend as much time studying themselves and their trading as studying markets. In the patterns of your best and worst trades is the information that can make you the best trader you can be.
BRETT STEENBARGER, PH.D.
Resilience
If you are not continuously keeping score and taking concrete action on the scores you receive, you can’t be continuously learning and improving.
BRETT STEENBARGER, PH.D.
Writing in a journal is a great first step, but ultimately matters little if the journal entries don’t guide concrete goal setting and efforts at improvement.
BRETT STEENBARGER, PH.D.
By adopting a mindset that anticipates dry spells, the trader achieves a kind of psychological inoculation.
BRETT STEENBARGER, PH.D.
Lesser traders become mired in discouragement and frustration, spinning their wheels by venting (or acting out) their emotions or by avoiding trading altogether. I find that a competitive spirit is a key part of this resilience: the successful trader uses this drive to draw upon motivation during slumps.
BRETT STEENBARGER, PH.D.
The flexible mindset also enables the resilient trader to not take slumps and losses personally.
BRETT STEENBARGER, PH.D.
Many traders, surprisingly, are not competitive at all: they’re drawn to trading because of a perceived easy lifestyle. These are among the least resilient traders. As soon as it becomes clear that trading out of a hole means real work, they lose motivation and interest.
BRETT STEENBARGER, PH.D.
It is stressful enough to go through a trading slump; to have to worry about making mortgage payments or supporting a family is too much pressure. The resilient traders prevent the pressures from becoming too great by maintaining healthy cash reserves for those dry periods and by having secondary sources of income wherever possible.
BRETT STEENBARGER, PH.D.
Self-Sabotage
The way in which we often sabotage our trading is through our automatic, negative thought patterns…. When we focus on our negative thoughts, we internalize negativity. Ironically, we end up using our magnifying glass to accentuate the very thinking that sabotages us: in trading, and in life.
BRETT STEENBARGER, PH.D.
…If you harbor multiple traders within you–some careful, some impulsive, some successful, some losing–your first task is to avoid labeling these traders and instead take an Observing stance. You need to figure out why these lousy traders within you are trading! The chances are good that they are trading to achieve something other than a good return on equity: a sense of excitement, a feeling of self-esteem, or an imposed self-image.
…if we make one decision after another without pause, our behavior becomes random. It is during pauses that we can reflect, and it is reflection that enables us to make sense of markets and adapt our trading accordingly.
BRETT STEENBARGER, PH.D.
Our triggers distract us from our best ideas and taking advantage of these. Truly, we cannot accomplish big things if we’re distracted by little things. When we fear our triggers more than we fear missing market movement, we’ve taken a huge step toward gaining self-control and consistency in our trading.
BRETT STEENBARGER, PH.D.
The central psychological challenge for trading is that frustration and doubts over losses and missed opportunities can lead to self-doubt, and self-doubt can lead us to tinker with trading to the point of veering from our greatest talents.
BRETT STEENBARGER, PH.D.
Focus
Without focus, any thoughts and intentions are part of our ordinary flow and cannot transform us.
BRETT STEENBARGER, PH.D.
Quite simply, normal human consciousness is optimized for normal human functioning, but is subnormal for achieving goals beyond the ordinary.
BRETT STEENBARGER, PH.D.
…the quality of our focus mediates the quality of our access to intuition and prior learning.
BRETT STEENBARGER, PH.D.
…if we’re operating in the flow state–in the zone–we are absorbed in market action and understanding what markets are doing. It’s the presence of focus that provides us with emotional distance.
BRETT STEENBARGER, PH.D.
When traders become self-focused rather than market focused, perhaps out of a fear of losing or a concern over making money, they no longer remain receptive to market patterns. This results in missed opportunities and the forcing of trades when opportunity is not present.
BRETT STEENBARGER, PH.D.
Burnout
By recognizing that burnout is a potential occupational hazard, traders can take a preventive stance by keeping expectations realistic and getting plenty of time away from work, in activities they enjoy and can control.
BRETT STEENBARGER, PH.D.
I am consistently impressed with how the most successful traders find work-related rewards outside of P/L. Many of them work in teams and thus reap the psychological rewards of developing junior talent and contributing to others.
BRETT STEENBARGER, PH.D.
Balance in daily activities–and in life overall–ensures that no one setback in life will overwhelm us.
BRETT STEENBARGER, PH.D.
If setbacks are treated as learning experiences, they are unlikely to generate stress and distress. If we view setbacks as failures and reflections on our competence, then we generate our own stress.
Loss of discipline is not the problem. Loss of discipline is the result of a problem, and we have to diagnose that problem to figure out how to address it.
BRETT STEENBARGER, PH.D.
Try to change who you are and you will fight yourself all the way and then wonder, amidst the resistance, why you lack discipline.
BRETT STEENBARGER, PH.D.
We become what we consistently do.
BRETT STEENBARGER, PH.D.
These are the three legs of the performance stool: (1) your talents and interests, (2) your trading style, and (3) markets and their personalities. The meshing of your qualities with your trading style will help determine your ability to trade that style with consistency and discipline.
BRETT STEENBARGER, PH.D.
The key to sustaining discipline is to identify the specific short-term needs that are occasionally overshadowing trading rules. Traders who overtrade, for example, often have problems during quiet market times. Their needs are for stimulation. By creating stimulating activities during the trading day that don’t take them away from their screens, they can avoid using unwanted market activity as their stimulation.
BRETT STEENBARGER, PH.D.
While the idea of planning your trade and trading your plan sounds wonderful as an ideal of discipline, what I find among successful traders is an ability to alter plans in real time as market conditions dictate.
BRETT STEENBARGER, PH.D.
Success
Show me how a trader utilizes their time outside of trading and I’ll show you the odds of their long-term success.
BRETT STEENBARGER, PH.D.
This is why so many traders who experience long-term success display unusual intellectual curiosity. They are driven, not just by money, but by the process of discovery.
Starting out with a drive to make money is, if anything, associated with greater odds of failure and emotional upheaval. There *is* an association between dedicated effort and success, but it’s the ability to channel motivation into constructive effort that is key to success. The louder the trader professes passion and motivation, the more I dig to look for substance. I generally come away with very little.
BRETT STEENBARGER, PH.D.
We hope you enjoyed these Brett Steenbarger quotes. As you can see, Steenbarger is very much in tune with the trader mindset and the issues that plague the industry. Be sure to check our interview with him on avoiding trading stress.
There are a lot of educational services in the trading world, but there is no set curriculum on mindset development.
With deliberate practice, we often assume this just means finding patterns on a chart. But the hard part is learning how to develop positive psychological strengths to keep us in the game for the long haul.
Feel free to share these quotes and spread the love!
