Developing a New Trading Psychology

Written by: Brett Steenbarger | Trading coach, psychologist, Ph.D.

It’s not well appreciated, but trading psychology is a form of developmental psychology. The challenges we face as novices differ significantly from those we encounter as experienced traders striving for consistent profitability. Similarly, the issues faced after years of success are entirely different. We evolve, and our challenges—both emotional and in trading—grow with us.

Yesterday, I reviewed a list of the traders, portfolio managers, and analysts I’ve met with over the past month. Almost all are part of teams at very successful hedge funds, managing portfolios worth hundreds of millions of dollars, if not more.

None spoke to me about FOMO, emotional trading, or issues of discipline or mindset. None.

Shifting Focus with Experience

Please hear me out: It’s not that those issues are unimportant. Rather, they are not dominant issues for those who are well along their expertise curves. For example, beginning medical students are quite nervous about interviewing patients and performing even simple procedures. Their emotions can interfere with developing a good rapport with patients. Experienced residents in medicine no longer deal with that kind of nervousness. They struggle to sort out complex diagnoses and unexpected reactions to treatments. As they move along the path to expertise, their issues are less about themselves and more about mastering their work.

So it is in trading. Once we achieve a high degree of self-mastery, our next challenges involve market mastery. We learn to sort out supply and demand, risk and reward, across different time frames. We learn to use the movements of other markets to help us understand our market. Most of all, we learn who we are and what we do best, becoming better and better at applying our strengths to our trading.

As beginners, we struggle with the inevitable negative psychology that accompanies risk, reward, and frequent losses. As experienced traders, we wrestle with our positive psychology and discover who we are and how we perform at our best.

That is why the book I’m writing is about positive trading psychology. It’s about finding our unique, distinctive strengths and applying them to how we process market information and find superior risk/reward opportunities.

Greatness is more than the absence of mediocrity. Success is more than the absence of mistakes. Expertise is more than a positive mindset. Our challenge is to uncover who we are at our best and leverage that in the marketplace. As we grow, we move from a focus on negative psychology to one of positive psychology.

Written by: Brett Steenbarger