The Daily Trading Coach: 101 Lessons for Becoming Your Own Trading Psychologist

The Daily Trading Coach: 101 Lessons for Becoming Your Own Trading Psychologist

by Brett N. Steenbarger

ISBN: 9780470398562

Publisher Wiley

Published in Business & Investing/Finance, Business & Investing/Investing

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Book Description

Every trader is an entrepreneur. And just as a new business must capitalize upon the strengths of its founders, a career in the markets crucially hinges upon the assets - personal and monetary - of the trader. As an active trader and a coach of traders in hedge funds, proprietary trading groups, and investment bank settings, author Brett Steenbarger has helped others see the personal assets they have possessed all along: those that can pay a lifetime of dividends.

In The Daily Trading Coach, Steenbarger provides the tools to help you prioritize both your trading goals and your life - and become your own trading psychologist.

There are 101 lessons in The Daily Trading Coach, each averaging several minutes in length. Each lesson follows the same general format: identifying an everyday challenge that traders face, an approach to meeting that challenge, and a specific suggestion for implementing that approach. The lessons cover a range of topics relevant to trading psychology and trading performance, including detailed instruction for utilizing psychodynamic, cognitive, and behavioral brief therapy methods to change problematic behavior patterns and instill new, positive ones. In addition, the book includes insightful self-coaching perspectives from 18 successful trading professionals who share their work online.

While the aim of the book is to help you become your own trading coach, its broader purpose is to help you coach yourself through life. The challenges and uncertainties you face in trading - the pursuit of rewards in the face of risks - are just as present in careers and relationships as in markets. The Daily Trading Coach provides a road map, and a practical set of insights and tools, for discovering and implementing the best within you.


Sample Chapter

Chapter One


The Process and the Practice

The mind has exactly the same power as the hands; not merely to grasp the world, but to change it. -Colin Wilson

You are reading this book because you want to coach yourself to greater success in the financial markets. But what is coaching? At the root of all coaching efforts is change. When you are your own trading coach, you are trying to effect changes in your thoughts, your feelings, and your behavior. Most of all, you are trying to change how you trade: how you identify and act upon patterns of risk and reward, supply and demand.

There is a rich literature regarding change, grounded in extensive psychological research and practice. If you understand how change occurs, you are better positioned to act as your own change agent. In this chapter, we will explore the research and practice of change and how you can best make use of its sometimes-surprising conclusions. Coaching is about making change happen, not just letting it happen. It's about making the commitment to being a change agent in your own life, your own trading.

First, however, let's learn about the process and practice of change.


For some of us, the status quo is not enough. We experience glimpses into the person we're capable of being; we yearn to be more than we are in life's mundane moments.

That yearning starts with the notion of change. We desire changes in our lives. We adapt-we grow-by making the right kinds of changes. All too often, however, we feel stuck. We're doing the same things, making the same mistakes again and again. Do we wait for life to change us, or do we become agents of our own life changes?

The easy part is initiating a change process. The real challenge is sustaining change. How many times does an alcoholic take the initial steps toward sobriety, only to relapse? How often do we start diets and exercise programs, only to return to our slothful ways? If we focus on starting a change process, we leave ourselves unprepared for the next crucial steps: keeping the flame of change burning bright.

The flaw with most popular writings and practices in psychology and coaching is that they are designed to initiate change. These writings and practices leave people feeling good-until it becomes apparent that different efforts are needed to sustain change. Successful coaching doesn't just catalyze change: it turns change efforts into habit patterns that become second nature. The key to successful coaching is turning change into routine; making new behaviors become second nature.

That's where emotion comes in.

For years I had attempted-unsuccessfully-to sustain a weight loss program. Then, in the year 2000, I was diagnosed with Type II diabetes. My diet had to change; I needed to lose weight. If I didn't, I realized with crystal clarity, I could lose my health and let my wife and children down. Literally that same day I began a dietary regimen that continues to this day. My weight dropped 40 pounds (I shed the pounds so quickly that friends were concerned that I had a wasting illness) and I regained control of my blood sugar.

What was the catalyst for the change? Years of telling myself to eat differently, exercise more, and lose weight produced absolutely no results. A single emotional experience of the necessity for change, however, made all the difference. I didn't just think I needed to change: I knew it with every fiber of my being. I felt it.

So it is with traders.

Perhaps you've told yourself that you need to follow your rules, that you need to trade smaller, or that you should avoid trading during certain market conditions or times of day. Still you make the same mistakes, lose money, and build frustration. Like my initial efforts at weight loss, your attempts at change fail because they lack emotional force.

Research into the process of successful versus unsuccessful therapy finds that emotional experience-not talk-powers change. No one ever felt valuable and lovable by standing in front of a mirror and reciting self-enhancing statements. The experience of a meaningful romantic relationship, however, yields the deepest of affirmations. Yes, you can tell yourself you're competent, but experiencing success in the face of challenge provides a lasting sense of efficacy. Pleasure, pain: nature hardwires us to internalize emotional experience so that we can pursue what enhances life and avoid what harms us. That ability to internalize our most powerful emotional experiences helps us to sustain the changes we initiate.

Are you going to work on yourself as a trader today? Are you going to use today as an opportunity to learn and develop yourself, regardless of the day's profitability? If so, you'll need a goal for the day. What are you going to work on: Building a strength? Correcting a weakness? Repeating something you did well yesterday? Avoiding one of yesterday's mistakes?

An important first step is to set the goal. We cannot succeed as change agents if we don't perceive a clear path from the person we are to the person we wish to become. A valuable second step is to write down the goal or talk out loud into a recorder. This step helps cement desired changes in your mind. But will the pursuit of your goal truly possess emotional force? Will it transform you from one who thinks about change to one who truly becomes a change agent?

The secret to goal setting is providing your goals with emotional force. If your goal is a want, you'll pursue it until the feeling of desire subsides. If your goal is a must-have-a burning need, like my dietary change-it becomes an organizing principle, a life focus. You won't become a better trader because you want to be. You will only coach yourself to success when self-improvement becomes your organizing principle: a must-have need.

Try this exercise. Before you start trading, seat yourself comfortably and enter into a nice slow rhythm of deep breathing. Imagine yourself-as vividly as you can-starting your trading day. Watch the market move on the screen; watch yourself tracking the market, your day's trading ideas at your side. Then turn your goal for the day into part of your visualization: imagine yourself performing the actions that concretely put that goal into practice. If your goal is to control your position sizing, vividly imagine yourself entering orders at the proper size; if your goal is to enter long positions only after a pullback, imagine yourself patiently waiting for the pullback and then executing the trade. As you visualize yourself realizing your goal, recall the feeling of pride that comes from realizing one of your objectives. Bask in the glow of living up to one of your ideals. Let yourself feel proud of what you've accomplished.

It's important not just to have goals, but also to directly experience yourself as capable of reaching those goals. Psychologists call that self-efficacy. You are most likely to experience yourself as a success if you see yourself as successful and feel the joys of success. You don't need to imagine yourself making oodles of money; that's not realistic as a daily goal. But you can immerse yourself in images of reaching the goals of good trading and experience the feelings of self-control, mastery, and pride that come from enacting the best within you.

Many traders only get to the point of self-coaching after they have experienced harrowing losses. The reason is similar to my experience with my diagnosis: it was the vivid fear of consequences-the intense feeling of not wanting to ruin my life-that drove my dietary change. Similarly, after traders lost a good deal of their capital, they never want to experience that again. They trade well, not because they talk themselves into discipline, but because they feel the emotional force of discipline's absence.

Contrary to the teachings of proponents of positive thinking, fear has its uses. Many an alcoholic maintains sobriety because of the fear of returning to the pain of drinking's consequences. Emotion sustains the change.

With guided imagery that you feel as well as see, you can create powerful emotional experiences-and catalyze change-every single day. That's when you become a change agent: one who sustains a process of transformation. The key is adding emotional force to your goals. Your assignment is to take those lifeless goals off the piece of paper in your journal and turn them into vivid, powerful movies that fill your mind. Try it with one goal, one movie in your head, before you start trading. It is not enough to set goals; you must feel them to live them.


To each of your goals, add an or else scenario. Vividly imagine the consequences of not sustaining your change. Relive in detail specific failure experiences that resulted from the faulty behavior you want to change. When you add an or else condition to your goal setting, you turn fear into motivation. The brain is wired to respond first and foremost to danger; you will not gravitate toward the wrong behaviors if you're emotionally connected to their danger. To this day, my diet is firmly in place. Fear has become my friend.


If you are to be your own trading coach and guide your trading development, we have to make you the best coach you can possibly be. That means understanding what makes coaching work-and what will make it work for you.

Research informs us that the most important ingredient in psychological change is the quality of the relationship between the helper and the person receiving help. Techniques are important, but ultimately those techniques are channeled through a human relationship. Studies find that in successful counseling, helpers are experienced as warm, caring, and supportive. When helpers are seen as hostile or disinterested, change processes go nowhere. There's a good reason for this: relationships possess magic.

The magic of relationships is that they provide us with our most immediate experiences of visibility. I recently took a phone call from a reader of the TraderFeed blog. Many readers have provided valuable feedback about the blog, but this caller went far beyond that. He read every single post and then explained to me why he was drawn to the site. He put into words the very values that have led me to publish some 1,800 posts in the space of less than three years: the vision that, in cultivating our trading, we develop ourselves in ways that ripple throughout our lives.

At the end of that conversation, I felt understood: I was visible to another human being. When my mother died, I kept my composure until I approached her gravesite; then I lost it. My two children instinctively reached out to comfort me. It's something I would have done for another person in that situation. At that moment, I saw a bit of myself in my children. Once again, I was visible.

An unfulfilling relationship is one in which we feel invisible. We can feel invisible because we're misunderstood or mistreated. We feel invisible when the things that matter most to us find no recognition among others. I recall one particularly unfulfilling relationship with a woman. We were on the dance floor at a club and I suddenly stopped dancing altogether. She didn't notice at all. She was in her own world. It was a perfect metaphor for everything I was experiencing at the time: I was there as a kind of prop, a rationale for being on the dance floor. No one was really dancing with me. The profound, wrenching emptiness that I felt at that time was a turning point; never again would I settle for invisibility.

In Iggy Pop's classic song, invisibility is a kind of "Isolation." But if there's anything worse than being isolated-crying for love-when you're with someone, it's being isolated from yourself. We are truly lost when we're invisible to ourselves.

All of us have values, dreams, and ideals. How often, however, are these explicitly on our minds? To live mired in routine, day in and day out, estranged from the things that matter most to us: that's a form of invisibility. To compromise the things you love in the name of practicality, to settle for second best out of fear or convenience: those, too, leave us in isolation-from ourselves. Strange as it may seem, we spend much of our time invisible to ourselves. The day-to-day part of us dances away, oblivious to the other self, the one that thrives on purpose and meaning.

It's a real dilemma: How can we possibly coach ourselves to success if the very strengths that would bring us success are invisible to us? After all, the single best predictor of change is the quality of the helping relationship. What, then, is our relationship to ourselves? If we are to be our own trading coaches, the success of our efforts rests on our ability to sustain visibility and draw on the magic of a fulfilling relationship with ourselves.

To coach ourselves successfully, we must be visible to ourselves and sustain the vision of who we are and what we value. But how can we do that? There's a simple strategy that can build a positive, visible relationship with your inner trading coach: identify a single trading strength to express as a goal for the coming day's trading.

One way I do that when I coach others (and when I work on my own trading) is to ask traders to identify what they did best in yesterday's trading that they want to continue today. Set a positive goal, based on strengths, to keep you in touch with the best within you. It affirms your competencies and keeps these visible, even during challenging market times. Too many of our goals are negative: we declare that we won't do X or that we'll do less of Y. Instead, frame a goal for today that says: "Here is what I'm good at, here's what I did best yesterday, and here's how I'm going to make use of that strength today."

In the relationship between you the trader and you the coach, the quality of the relationship will play an important role in your development. The best relationship is achieved when goals are linked to values and express distinctive strengths. Relentlessly identify, repeat, and expand what you do best-even (and especially) after the worst of trading days. Only through repetition can we turn positive behaviors into habit patterns. When you are in the habit of identifying and building strengths, you will then be truly visible to you. The magic of that relationship-and the confidence it brings-will sustain you through the most challenging times.


Review the last week's entries in your trading journal. Count the number of positive, encouraging phrases in your writings and the number of negative, critical ones. If the ratio of positive to negative messages is less than one, you know you aren't sustaining a healthy relationship with your inner coach. And if you're not keeping a journal, your coach is silent. What sort of relationship is that?


The notion of change is a challenge and a trap. It challenges us to aspire to more than who we are, but it can also trap us in self-division. When we entertain the notion of change, we divide ourselves into qualities we like and those we don't. We parcel ourselves into strengths and weaknesses, good and bad, acceptable and unacceptable.

Once we make such a division, it is only natural to embrace the good and avoid the bad. We dismiss our shortcomings as mistakes, bad luck, or exceptions. That helps us identify with a partial image of ourselves and keep our frailties from our conscious awareness. Thus banished from the front of our minds, those frailties cannot guide our learning. We do not sustain the motivation to grow, because we only contact the parts of ourselves that are relatively whole.


Excerpted from "The Daily Trading Coach: 101 Lessons for Becoming Your Own Trading Psychologist" by Brett N. Steenbarger. Copyright © 0 by Brett N. Steenbarger. Excerpted by permission. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher. Excerpts are provided solely for the personal use of visitors to this web site.
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