The Daily Trading Coach Read online




  Table of Contents

  Title Page

  Copyright Page

  Epigraph

  Preface

  Acknowledgements

  Introduction

  CHAPTER 1 - Change The Process and the Practice

  LESSON 1: DRAW ON EMOTION TO BECOME A CHANGE AGENT

  LESSON 2: PSYCHOLOGICAL VISIBILITY AND YOUR RELATIONSHIP WITH YOUR TRADING COACH

  LESSON 3: MAKE FRIENDS WITH YOUR WEAKNESS

  LESSON 4: CHANGE YOUR ENVIRONMENT, CHANGE YOURSELF

  LESSON 5: TRANSFORM EMOTION BY TRACE-FORMATION

  LESSON 6: FIND THE RIGHT MIRRORS

  LESSON 7: CHANGE OUR FOCUS

  LESSON 8: CREATE SCRIPTS FOR LIFE CHANGE

  LESSON 9: HOW TO BUILD YOUR SELF-CONFIDENCE

  LESSON 10: FIVE BEST PRACTICES FOR EFFECTING AND SUSTAINING CHANGE

  RESOURCES

  CHAPTER 2 - Stress andDistress Creative Coping for Traders

  LESSON 11: UNDERSTANDING STRESS

  LESSON 12: ANTIDOTES FOR TOXIC TRADING ASSUMPTIONS

  LESSON 13: WHAT CAUSES THE DISTRESS THAT INTERFERES WITH TRADING DECISIONS?

  LESSON 14: KEEP A PSYCHOLOGICAL JOURNAL

  LESSON 15: PRESSING: WHEN YOU TRY TOO HARD TO MAKE MONEY

  LESSON 16: WHEN YOU’RE READY TO HANG IT UP

  LESSON 17: WHAT TO DO WHEN FEAR TAKES OVER

  LESSON 18: PERFORMANCE ANXIETY: THE MOST COMMON TRADING PROBLEM

  LESSON 19: SQUARE PEGS AND ROUND HOLES

  LESSON 20: VOLATILITY OF MARKETS AND VOLATILITY OF MOOD

  RESOURCES

  CHAPTER 3 - PsychologicalWell-Being Enhancing Trading Experience

  LESSON 21: THE IMPORTANCE OF FEELING GOOD

  LESSON 22: BUILD YOUR HAPPINESS

  LESSON 23: GET INTO THE ZONE

  LESSON 24: TRADE WITH ENERGY

  LESSON 25: INTENTION AND GREATNESS: EXERCISE THE BRAIN THROUGH PLAY

  LESSON 26: CULTIVATE THE QUIET MIND

  LESSON 27: BUILD EMOTIONAL RESILIENCE

  LESSON 28: INTEGRITY AND DOING THE RIGHT THING

  LESSON 29: MAXIMIZE CONFIDENCE AND STAY WITH YOUR TRADES

  LESSON 30: COPING—TURN STRESS INTO WELL-BEING

  RESOURCES

  CHAPTER 4 - Steps towardSelf-Improvement The Coaching Process

  LESSON 31: SELF-MONITOR BY KEEPING A TRADING JOURNAL

  LESSON 32: RECOGNIZE YOUR PATTERNS

  LESSON 33: ESTABLISH COSTS AND BENEFITS TO PATTERNS

  LESSON 34: SET EFFECTIVE GOALS

  LESSON 35: BUILD ON YOUR BEST: MAINTAIN A SOLUTION FOCUS

  LESSON 36: DISRUPT OLD PROBLEM PATTERNS

  LESSON 37: BUILD YOUR CONSISTENCY BY BECOMING RULE-GOVERNED

  LESSON 38: RELAPSE AND REPETITION

  LESSON 39: CREATE A SAFE ENVIRONMENT FOR CHANGE

  LESSON 40: USE IMAGERY TO ADVANCE THE CHANGE PROCESS

  RESOURCES

  CHAPTER 5 - Breaking OldPatternsPsychodynamic Frameworksfor Self-Coaching

  LESSON 41: PSYCHODYNAMICS: ESCAPE THE GRAVITY OF PAST RELATIONSHIPS

  LESSON 42: CRYSTALLIZE OUR REPETITIVE PATTERNS

  LESSON 43: CHALLENGE OUR DEFENSES

  LESSON 44: ONCE AGAIN, WITH FEELING: GET DISTANCE FROM YOUR PROBLEM PATTERNS

  LESSON 45: MAKE THE MOST OUT OF YOUR COACHING RELATIONSHIP

  LESSON 46: FIND POSITIVE TRADING RELATIONSHIPS

  LESSON 47: TOLERATE DISCOMFORT

  LESSON 48: MASTER TRANSFERENCE

  LESSON 49: THE POWER OF DISCREPANCY

  LESSON 50: WORKING THROUGH

  RESOURCES

  CHAPTER 6 - RemappingPsychodynamic Frameworksfor Self-Coachingthe Mind ...

  LESSON 51: SCHEMAS OF THE MIND

  LESSON 52: USE FEELING TO UNDERSTAND YOUR THINKING

  LESSON 53: LEARN FROM YOUR WORST TRADES

  LESSON 54: USE A JOURNAL TO RESTRUCTURE OUR THINKING

  LESSON 55: DISRUPT NEGATIVE THOUGHT PATTERNS

  LESSON 56: REFRAME NEGATIVE THOUGHT PATTERNS

  LESSON 57: USE INTENSIVE GUIDED IMAGERY TO CHANGE THOUGHT PATTERNS

  LESSON 58: CHALLENGE NEGATIVE THOUGHT PATTERNS WITH THE COGNITIVE JOURNAL

  LESSON 59: CONDUCT COGNITIVE EXPERIMENTS TO CREATE CHANGE

  LESSON 60: BUILD POSITIVE THINKING

  RESOURCES

  CHAPTER 7 - Learning NewAction Patterns Behavioral Approaches toSelf-Coaching

  LESSON 61: UNDERSTAND YOUR CONTINGENCIES

  LESSON 62: IDENTIFY SUBTLE CONTINGENCIES

  LESSON 63: HARNESS THE POWER OF SOCIAL LEARNING

  LESSON 64: SHAPE YOUR TRADING BEHAVIORS

  LESSON 65: THE CONDITIONING OF MARKETS

  LESSON 66: THE POWER OF INCOMPATIBILITY

  LESSON 67: BUILD ON POSITIVE ASSOCIATIONS

  LESSON 68: EXPOSURE: A POWERFUL AND FLEXIBLE BEHAVIORAL METHOD

  LESSON 69: EXTEND EXPOSURE WORK TO BUILD SKILLS

  LESSON 70: A BEHAVIORAL FRAMEWORK FOR DEALING WITH WORRY

  RESOURCES

  CHAPTER 8 - Coaching YourTrading Business

  LESSON 71: THE IMPORTANCE OF STARTUP CAPITAL

  LESSON 72: PLAN YOUR TRADING BUSINESS

  LESSON 73: DIVERSIFY YOUR TRADING BUSINESS

  LESSON 74: TRACK YOUR TRADING RESULTS

  LESSON 75: ADVANCED SCOREKEEPING FOR YOUR TRADING BUSINESS

  LESSON 76: TRACK THE CORRELATIONS OF YOUR RETURNS

  LESSON 77: CALIBRATE YOUR RISK AND REWARD

  LESSON 78: THE IMPORTANCE OF EXECUTION IN TRADING

  LESSON 79: THINK IN THEMES—GENERATING GOOD TRADING IDEAS

  LESSON 80: MANAGE THE TRADE

  RESOURCES

  CHAPTER 9 - Lessons fromTradingProfessionals Resources and Perspectiveson Self-Coaching

  LESSON 81: LEVERAGE CORE COMPETENCIES AND CULTIVATE CREATIVITY

  LESSON 82: I ALONE AM RESPONSIBLE

  LESSON 83: CULTIVATE SELF-AWARENESS

  LESSON 84: MENTOR YOURSELF FOR SUCCESS

  LESSON 85: KEEP DETAILED RECORDS

  LESSON 86: LEARN TO BE FALLIBLE

  LESSON 87: THE POWER OF RESEARCH

  LESSON 88: ATTITUDES AND GOALS, THE BUILDING BLOCKS OF SUCCESS

  LESSON 89: A VIEW FROM THE TRADING FIRMS

  LESSON 90: USE DATA TO IMPROVE TRADING PERFORMANCE

  RESOURCES

  CHAPTER 10 - Looking forthe Edge Finding Historical Patternsin Markets

  LESSON 91: USE HISTORICAL PATTERNS IN TRADING

  LESSON 92: FRAME GOOD HYPOTHESES WITH THE RIGHT DATA

  LESSON 93: EXCEL BASICS

  LESSON 94: VISUALIZE YOUR DATA

  LESSON 95: CREATE YOUR INDEPENDENT AND DEPENDENT VARIABLES

  LESSON 96: CONDUCT YOUR HISTORICAL INVESTIGATIONS

  LESSON 97: CODE THE DATA

  LESSON 98: EXAMINE CONTEXT

  LESSON 99: FILTER DATA

  LESSON 100: MAKE USE OF YOUR FINDINGS

  RESOURCES

  Conclusion

  About the Author

  Index

  Founded in 1807, John Wiley & Sons is the oldest independent publishing company in the United States. With offices in North America, Europe, Australia and Asia, Wiley is globally committed to developing and marketing print and electronic products and services for our customers’ professional and personal knowledge and understanding.

  The Wiley Trading series features books by traders who have survived the market’s ever changing temperament and have prospered—some by reinventing systems, others by getting back to basics. Whether a novice trader, professional or somewhere in-between, these books will provide the advice and strategies needed to prosper today and well into the future.

  For a list of available titles, visit o
ur Web site at www.WileyFinance.com.

  Copyright © 2009 by Brett N. Steenbarger. All rights reserved.

  Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

  Published simultaneously in Canada.

  No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at http://www.wiley.com/go/permissions.

  Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

  For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993 or fax (317) 572-4002.

  Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. For more information about Wiley products, visit our web site at www.wiley.com.

  Library of Congress Cataloging-in-Publication Data:

  Steenbarger, Brett N.

  The daily trading coach : 101 lessons for becoming your own trading psychologist /

  Brett N. Steenbarger.

  p. cm. - (Wiley trading series)

  Includes index.

  eISBN : 978-0-470-45667-5

  1. Stocks-Psychological aspects. 2. Speculation-Psychological aspects.

  3. Investments-Psychological aspects. 4. Self-help techniques. 5. Personal coaching.

  I. Title. II. Title: Becoming your own trading psychologist.

  HG6041.S757 2009

  332.6’.4019-dc22

  2008041524

  .

  What? A great man? I always see merely

  the play-actor of his own ideal.

  —Friedrich Nietzsche

  Preface

  The goal of The Daily Trading Coach is to teach you as muchasp ossible about coaching, so that you can mentor yourself to success in the financial markets. The key word in the title is “Daily.” This book is designed to be a resource that you can use every day to build upon strengths and overcome weaknesses.

  After writing two books—The Psychology of Trading and Enhancing Trader Performance—and penning more than 1,800 posts for the TraderFeed blog (www.traderfeed.blogspot.com/), I thought I had pretty well covered the terrain of trading psychology. Now, just three years after the publication of the performance book, I’ve once again taken electronic pen to paper, completing a trading psychology trilogy by focusing on the process of coaching.

  Two realities led to The Daily Trading Coach. First, a review of the traffic patterns on the TraderFeed blog revealed that a large number of readers—about a third—were accessing the site during the hour or so immediately prior to the market open. I found this interesting, as most of the posts do not offer specific trading advice. Rather, posts deal with topics of psychology and performance—ones that should be relevant at any hour of the day.

  When I asked a group of trusted readers about this pattern, they responded that they were using the blog as a kind of surrogate trading coach. Reviewing the posts was their way of reminding themselves of their plans and intentions before going entering the financial battlefield. This was confirmed when I gathered statistics about the most popular (and commented upon) posts on the blog. The majority were practical posts dealing with trading psychology. Most were uplifting in content, even as they challenged the assumptions of readers. It seemed as though traders were looking for coaching and finding some measure of it in the blog.

  The second reality shaping this book involves digital publication and the rapid changes sweeping the publishing world. To this point, relatively few electronic books (e-books) have been offered to traders. When those books are available, they are little more than screen versions of the print text. Despite the allure and convenience of electronic publishing, few traders I consulted actually sought out or used e-books. The most common complaint among traders was that they did not want to spend hours devouring information in front of a screen after a full day of trading. I quickly realized that participants in the financial markets don’t use the electronic medium in the same way that they engage print text. That led me to think about writing a different kind of book, one better suited to publishing’s electronic frontier, but also useable in print.

  When you overlay these two observations, you can appreciate the vision that led to this text: a “trading coach in a book” that can be as easily read on the screen as on paper. The goal was to integrate blog and book content by creating practical “lessons” that help traders become their own trading coaches. There are 101 lessons in The Daily Trading Coach, averaging several pages in length. Each lesson follows a general format, identifying a trading challenge, an approach to meeting that challenge, and a specific suggestion or assignment for working on the issue. The chapters are independent of one another: you can read them in order, or you can use the table of contents or index to read, each day, the lesson that most applies to your current trading. Unlike a traditional book, the idea is not to read it through from front to back in a few sittings. Rather, you take one lesson at a time and apply it to guide your development as a trader. Like the blog, it’s an on-screen reminder of what to do when you’re at your best, but—more than the blog—it’s also a roadmap (and practical set of insights and tools) for discovering and implementing the best within you.

  My ambition has been to pack into these 101 lessons more useable information and practical methods than might be found in any number of expensive seminars and coaching sessions, at far less expense. Too often, the goal of the seminar providers and coaches is to convert you into ongoing clients. The intent of this book is just the opposite: to give you the tools to become your own coach, so that you can guide your own professional and personal growth. In other words, this is a manual of psychoeducation: a how-to guide for improving yourself and your performance.

  One thing I particularly like about the electronic format is that it enables a writer to link the book content to a vast array of material on the Web. I will be adding material to The Daily Trading Coach via a dedicated blog called Become Your Own Trading Coach (www.becomeyourowntradingcoach.blogspot.com), so that this book will grow over time. You will need only to click the e-book links to access free updated information and methods on the Become Your Own Trading Coach site. There is one master page on the blog for each chapter of this book containing the links relevant to that chapter’s material. At the end of each chapter, there is also a resource page that alerts readers to further links and readings. I will be adding audio and video content to the new blog over time, which should be particularly helpful for those who learn best by seeing and hearing ideas. Once publishing becomes electronic, there’s no reason that every text can’t be a multimedia learning experience.

  You’ll notice from the table of content
s that each of the 10 chapters contains 10 lessons. Those chapters cover a range of topics relevant to trading psychology and trading performance, including specific lessons for utilizing psychodynamic, cognitive, and behavioral brief therapy methods to change problematic behavior patterns and instill new, positive ones. The final two chapters are especially unique: Chapter 9 consists of self-coaching perspectives from 18 successful trading professionals who share their work online. Chapter 10 fulfills a long-standing promise to TraderFeed readers, walking traders through the basics of identifying historical patterns using Excel. Each lesson is accompanied by homework activities and suggestions (“Coaching Cues”) to help with application of the ideas. Major ideas are set apart within the text for quick review and scanning. At the end of each chapter is a list of resources to guide your further inquiry into the book’s topics and ideas.

  Yes, the aim of the book is to help you become your own trading coach, but a glance at the chapter and lesson titles reveals that the broader purpose is to help you coach yourself through life. The challenges and uncertainties we face in trading—the pursuit of rewards in the face of risks—are just as present in careers and relationships as in markets. Techniques that help you master yourself as a trader will serve you well in any field of endeavor. In that sense, the goal is not just to make money in the markets, it is to prosper in all of life’s undertakings. I will be gratified and honored if this book is a resource toward your own prosperity, in and out of financial markets.