Steenbarger - Trading psychology 2.0 from best practices to best processes

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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.

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Copyright 2015 by Brett Steenbarger. All rights reserved.

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

Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data

Steenbarger, Brett N.

Trading psychology 2.0 : from best practices to best processes / Brett N Steenbarger, Ph.D.

pages cm.(Wiley trading series)

Includes index.

ISBN 978-1-118-93681-8 (hardback)ISBN 978-1-118-93683-2 (ePDF)

ISBN 978-1-118-93682-5 (epub)

1. StocksPsychological aspects. 2. SpeculationPsychological aspects.

3. InvestmentsPsychological aspects. I. Title.

HG6041.S762 2015

332.6401'9dc23

2015016663

Cover Design: Wiley

Cover Images: Business growth graph iStock.com/Violka08; Black Chess King and lying

Pawns on board iStock.com/Dominik Pabis

John Wooden

Successful efforts to master markets lead us down paths of self-mastery. This book is one guide to those paths.

Market participants have traditionally defined self-mastery as disciplinecontrolling the emotions that all too often distort information processing and trigger impulsive behavior. To be sure, discipline is required for any great undertaking, whether it is pursuing an Olympic medal, a business startup, or a medical breakthrough. But discipline, while necessary for success, is never sufficient. Discipline does not substitute for skill, talent, and insight. Strict, disciplined adherence to mediocre plans can only lock in mediocre results. If it were otherwise, there would be no losing automated trading systems.

I've followed and traded markets since the late 1970s. During the past decade, I have served as a full-time performance coach at two trading firmsKingstree Trading in Chicago and Tudor Investment Corp. in Greenwich, Connecticutand worked with many other trading organizations on a consultative basis. Through the TraderFeed blog and three prior trading books, I've had the honor of interacting with thousands of traders around the world. If there's one thing this whirlwind of experience has taught me, it's that there is far more to market mastery than controlling emotions and impulses. Sustained success requires the cultivation of a host of positive performance elements: creativity, productivity, adaptation to change, and psychological well-being. The good news is that recent research in psychology and related fields has profoundly deepened our understanding of these contributors to human performance. The bad news is that most of us in the money management world, immersed in the day-to-day challenges of keeping up with news flows and market movements, have little opportunity to sift through and apply this knowledge. As a consequence, we tend to work hard, but not smart. From the organization of our daily routines to our reviews of performance, we rarely optimize learning, independent thought, and productivity.

The unfortunate tendency to substitute quantity of effort for quality ensures that we will face a yawning gap between our real and ideal selves: between who we are and who we're capable of becoming. Trading Psychology 2.0 seeks to bridge that gap by breaking trading success down to four essential processes. In the coming pages, you will learn a simple ABCD:

1. A How to dynamically Adapt to changing market conditions
2. B How to identify and Build on your distinctive trading strengths
3. C How to Cultivate creative processes and generate fresh market perspectives
4. D How to Develop best practices that help you sustain productivity and effectiveness in your work routines

Most of all, this book is about taking best practicesthe ingredients of your trading successand weaving them into best processes. The goal is not to change you but to help you more consistently tap into the drivers of your success.

In hindsight, it's not difficult to see that Trading Psychology 2.0 is a natural extension of my previous books. The first of these, The Psychology of Trading, focused on the emotional problems faced by traders and how these mirror common life challenges. It introduced a solution-focused framework to trading: identifying the patterns that underlie our success and becoming more consistent in enacting those. My second book, Enhancing Trader Performance, adopted a developmental view of trading success, emphasizing expertise development as an ongoing process of deliberate practice that matches skills, talents, and challenges. An important implication of that work was that there are many forms of trading, each requiring unique skills and learning processes. I continue to find that many of the emotional problems faced by developing traders are the result of bolting generic learning processes onto very specific performance domains, creating frustration and suboptimal performance. Finally, my most recent text,