As soon as I published my first post here on Sunday, I realized I didn’t know exactly what my follow up was going to be. The tweet that most directly got me to actually writing the blog was one somewhat idly musing on writing reviews/responses to Steady Trade episodes as I re-listen to them after having gone through the whole backlog over the past few months.
And I do plan on doing that, but I wanted to start with something a bit smaller, something more definitely achievable (which ties into the theme of today’s post, as we’ll see below!). Steady Trade has several episodes in their “Steady Trade Book Club” podcast series, and the first one I heard was Tim and Stephen reviewing Brett Steenbarger’s The Daily Trading Coach: 101 Lessons For Becoming Your Own Trading Psychologist. As I was still very new to even the basics of trading, and knowing that my psychology can be something I struggle with, this seemed like a great book for me to pick up. So I bought it, and it sat on my shelf along with all the other new trading books I was buying. Like those other books, I’ve flipped through it, read a few pages here and there, but not committed to working my way through it.
That changes now.
Dr. Brett’s book is made up of, as its title suggests, 101 lessons divided evenly across 10 chapters (the 101st lesson is by itself as a sort of Afterword for the whole book). Each lesson is at most, 10 pages, and are meant to be read as meditations of sorts, before the trading day begins. While 101 trading days might be a small fraction of a trader’s career, the lessons, short as they are, are packed with enough content that, depending on the day, the season, the state of the market, you might take away a completely different lesson each time you read it. At least, I think I might. And I also think maybe what I take away from the lessons might be helpful to you, the reader. So I’m going to blog my way through the 101 lessons, to help myself improve 1% for each one, and hopefully help you improve 1% as well.
The first section of the book is called Change: The Process and the Practice, and Dr. Brett’s approach to it can be summed up in this sentence from his introduction to the section:
Coaching is about making change happen, not just letting it happen.
He’s asking us, as the reader, to be an active part of our own journey, rather than a passenger who’s just along for the ride. And he dives right into this idea in the first lesson:
- Lesson 1 - Draw on Emotion to Become a Change Agent
- Lesson 2 - Psychological Visibility and Your Relationship With Your Trading Coach
Lesson 1: Draw on Emotion to Become a Change Agent
To me, the main point of this lesson is that, while it’s easy to start making change, the hard part is sustaining that change. This speaks to me because I know this firsthand. There have been many things I’ve started, only to fail to develop a lasting habit and let it fall by the wayside: learning a new language, a weightlifting program, any number of side projects, …blogs…
The problem that so many of us face, according to Dr. Brett, is that we are thinking that we want this change, not feeling that we need it. This passion for a new project only lasts until that initial feeling starts to fade. If we truly need to make the change, because the consequences are unacceptable, we will, no matter how hard it is.
Dr. Brett gives the example of trying and failing to lose weight, only to be confronted with a medical reality that turned that desire into a true need. The alternative: losing his health, both for himself and his family, wasn’t an option.
When I first read that story, I thought I had discovered a contradiction. After all, hadn’t he said in his introduction that coaching is making change happen, not letting it happen? And here he was saying that, for all his attempts to keep to a weight loss program, it took an external event, something that happened to him, to make the change stick. Had I caught a renowned psychological coach, PhD., and many-times-over published author in a logical flaw?
Of course I hadn’t.
It took me a couple minutes to realize where I had gone wrong. Yes, the medical diagnosis was an external event, out of his control, but the real lesson is how Dr. Brett responded to it. He actively drew on the emotional force of the diagnosis to shift “wanting to lose weight” into “needing to lose weight”. It’s how we respond to our emotions, not the thing that causes those emotions in the first place, that is the goal of coaching.
Like a medical diagnosis, things outside of our control happen in the markets all the time. Maybe your setup plays out exactly the opposite of how you expected, maybe a spike runs too quickly and you miss your entry (completely random examples, of course, certainly not things that I’ve had happen to me recently…). And even bigger than that, Nassim Taleb’s Black Swan events, unpredictable outliers with massive consequences, can disrupt any plan, no matter how experienced you are.
Many traders only get to the point of self-coaching after they have experienced harrowing losses.
No one likes to lose, and when you suffer a large enough loss, you will do anything you can to avoid feeling that same feeling again. Maybe you let a losing position run too long, hoping it would turn around, turning a small loss into a large one. Or maybe you succumbed to FOMO (Fear Of Missing Out) and chased an entry higher than your plan, turning a neutral, cash position into a loss (again, these are random examples, not things I’ve done recently…).
Maybe you’ve done these things before, and each time you tell yourself it’s the last time, but then it happens again. You haven’t found that emotional need to change. Sometimes people just need to put their hand on the stove once or twice (or more) to learn that it’s hot. Fear can be a very powerful, and effective, motivator. But sometimes, Dr. Brett says, you can harness your emotions more actively and positively to shift your way of thinking about the change. He suggests this exercise in the morning:
Imagine yourself — as vividly as you can — starting your trading day…Then turn your goal for the day into part of your visualization: imagine yourself performing the actions that concretely put that goal into practice…As you visualize yourself realizing your goal, recall the feeling of pride that comes from realizing one of your objectives…Let yourself feel proud of what you’ve accomplished.
That goal can be as small as “not chasing spikes if you miss your planned entry,” but should be something you are capable of. A goal like “make a million dollars before lunch” is unlikely to happen for you, and the inevitable disappointment you will feel at lunch time is not an emotion we are looking to work with here. (If that is a realistic goal for you, then please start your own blog telling me how to achieve that. Thanks!)
The important thing is that, rather than relying on fear of failure to be the motivating emotion, you can use pride of success to guide yourself. Imagine that spike running faster than you can submit your order, and instead of changing your order price, you just let it go. Another stock will match your setup, later today, or tomorrow. And you’ll be ready for it, because you won’t be beating yourself up for chasing this trade and losing.
Will reading my blog, or Dr. Brett’s book, protect you from a potential massive loss? Of course not, and neither will anything else. No one enters the market without taking losses from time to time, “and anyone who says differently is selling something.” — The Princess Bride
Even people like Timothy Sykes and Tim Bohen, who are selling something, acknowledge their own losses, so that we can learn that we don’t need to win 100% of the time to be successful. But if we improve 1% each day, maybe that means we also become a little less likely to make a mistake that will cause us a loss. And that’s all we can control.
This post and the rest that will follow in this series are not meant to be a substitute for reading Dr. Brett’s book. As I said above, there are many lessons to take from each of his single lessons, and what speaks to me might not be the most important lesson for you. So, please, do yourself a favor and buy a copy for yourself, then join me on Twitter to let me know what lesson spoke most directly to you.
Thanks for reading!
Because, as I discuss above, Dr. Brett’s lessons can be read in very different ways depending on the mood in which you approach it, it feels important to provide the context in which I read them, and wrote this post. It’s impossible to give a complete accounting of my day, but the three most important elements for me, in determining my mood, are how I slept, what I’m listening to, and, for the purposes of this blog, how I traded during the day. So, for yesterday, Feb 24, when I wrote the first draft of this post:
~7 hours. Not fully rested after not getting enough sleep this weekend, but not exhausted enough to sour my mood.
- Nick Cave & The Bad Seeds - From Her To Eternity
- Nick Cave & The Bad Seeds - The Firstborn is Dead
- Hans Abrahamsen - Schnee
A note on my current trading habits: I will talk more about my trading strategies in another post, but for now you should know that I am only paper trading, and working with very small position sizes (50-200 shares) while I grow more comfortable with placing orders, the different order types, and managing my risk. Because of this, the PnL on trades I list in this blog, for the present moment, will be very small.
- Two trades on $TOCA, 100 shares at an average loss of $0.15/share: ($15.00)
- Two trades on $GNPX, 100 shares an average gain of $0.34/share: $34.00
Total for the day: $19.00