Key Trading Concepts From Dr. Brett Steenbarger:

If you’ve been studying trading online for any amount of time… and especially if you’ve been researching trading psychology…then Dr. Brett Steenbarger  is probably a familiar name.

That’s because his diverse and daily writings about trading psychology are of immense value to traders and investors of all shapes and sizes. For me at least, his blog is a daily stop.

And in particular, Dr. Brett has done an incredibly wonderful job consistently providing his readers with thought-provoking ideas that challenge the status-quo. So that’s I want to talk about today.

Because upon reflection, there are 7 key lessons (at least!) that I’ve learned from his blog. And taken together, these ideas have radically transformed my approach to better managing and deploying my capital.

So do you want to know what they are?

Well, I will certainly do my best to summarize these 7 core concepts. But wherever possible, I’ve linked out to Dr. Brett’s own writing on the topic so you can go straight to the master for that undiluted wisdom. Sound good?

Great. Then let me show you the first key lesson I learned from reading Dr. Brett.

Disclaimer: I wrote this article on my own. I hope I’ve not misinterpreted anything Dr. Brett has published. But please, Dr. Brett, let me know if you’d like anything changed or clarified.

7 Key Trading Psychology Lessons From Dr. Brett:

What follows are the seven key trading lessons I’ve learned from Dr. Brett… so far!

And by the way…

If you’re somehow not familiar with this Doctor of trading psychology, I strongly encourage you to bookmark his TraderFeed blog and follow @steenbab on Twitter.

Now let’s discuss these 7 key trading psychology lessons I promised you.

#1 – Diversify and Balance Your Life:

Trading Psychology with Dr Brett Lesson 1

Trading isn’t everything! I know the excitement of fast-moving prices and the intensity that comes with studying market patterns can be all-encompassing. But Dr. Brett very clearly states again and again that the best traders are those with balanced lives, and inspirations outside of the market.

And if you think about it, this makes sense. That’s because when you have diversified sources of meaning and purpose in your life, trading losses are easier to cope with.

Personally, this is why I set goals and build habits that help me attain success in all areas of my life. While I certainly have goals related to my trading, I also have fitness goals, social goals and other personal goals. By pursuing meaning in a variety of different ways, I’m less dependent on a single source.

It’s like having multiple streams of income vs. being solely dependent on a day job. And for me, trying to live a more balanced life doesn’t just improve trading performance, but it also makes me happier. I think it could do the same for you too.

Further reading from Dr. Brett:

#2 – Model Your Winning Trades to Reliably Replicate Success:

Trading Psychology with Dr Brett Lesson 2

There is a lot of good trading advice about learning from your mistakes. But you know what’s better advice? Learning from your winners!

Every self-proclaimed trading psychology expert advises you to keep a journal of your trading. But most of these trading coaches focus on improving your mistakes. While there isn’t anything wrong with this, Dr. Brett goes a step further.

It was on his blog that I first read about modelling your winning trades. And to be honest, this has made a huge impact for me. I immediately created a Google doc and screen-shotted in my best trades over the last 12 months. Then, I looked for patterns and similarities.

Sure enough, I quickly realized that I could consistently find big winners in the market, if I knew what to look for. I’ve found the common denominators and am now intensely focused on repeating that success in a reliable way.

This tip alone has absolutely transformed my trading. It’s also more fun to focus on what you’re doing right!

Further reading from Dr. Brett:

#3 – Deliberate Practice Makes Perfect:

Trading Psychology with Dr Brett Lesson 3

I mentioned in tip #1 that in addition to trading goals, I set fitness goals. That’s because I’m actually a pretty committed endurance athlete. In addition to regular long runs, I’m in the pool a couple times a week. And that’s where I came to appreciate the importance of deliberate practice.

With swimming, a big part of success comes down to technique. The more efficiently you can slip through the water, the faster and longer you can keep going. That’s where the drills come in.

Even though I’ve been swimming for decades, I still consistently try to improve my stroke technique with specific exercises and drills. If I’m having trouble with a particular part of a stroke, I’ll fervently research training videos until I find a way to address it.

There’s always something to work on.

And by the way, to this day, I’m perpetually impressed when I notice my swim times improving as a direct result of this deliberate practice.

So it should be no surprise the same principles apply to trading. By being aware and diligent about your performance technique, you can identify strengths, weaknesses, and deviations from best practice. It’s this detailed and mindful practice that can really compound your skill over time.

If you study top performers in other fields, you’ll find the best of the best practice more persistently and methodically than anyone else. Robert Greene does a great job documenting this in his book Mastery.

Further reading from Dr. Brett:

#4 – Use Unique Information to Get a Unique Edge:

Trading Psychology with Dr Brett Lesson 4

You know that old saying, garbage in, garbage out? Well… simply put… this lesson is telling you to do the opposite!

When it comes down to it, trading and investing are all about interpreting information and patterns, then acting on it. But the thing is, if you do the same thing as everyone else, shouldn’t you expect the same results?

And by extension, if you’re really trying to be a stand-out trader, then you can’t do what the average person is doing or you’ll get average results.

So in practice then, how do you find unique sources of edge?

Well, Dr. Brett provides a couple of different options. Essentially, you can look for new data points that others are missing. Or, you can simply examine existing information in novel ways. By applying a different lens you can see patterns that others might miss. Dr. Brett has some great material and examples of this topic on his blog.

Further reading from Dr. Brett:

#5 – Know Thyself… and Then Play To Your Strengths:

Trading Psychology with Dr Brett Lesson 4

Nobody is good at everything; but, everybody’s good at something!

I know that cute sayings like this can sound contrite. But in this case, it really is true. You need to do what works best for you.

Personally, I don’t know how discretionary day traders do it. I truly can’t imagine trading like that:

Instead…

I prefer to sit back in the calm, collected confines of my office after the market closes. I analyze changes in price, draw up my battle plans for the next day, and then enter my orders after hours.

Easy!

On the other hand…

There are a big cohort of people who thrive off real-time market data. They can instantly scan level 2 quotes, spot opportunistic patterns and pounce in the blink of an eye. While I’ve tried this approach before, it almost always results in bigger than expected losses and a feeling of lost control. Not fun.

But the bigger point here is: you need to know yourself.

Reflect on your past experiences and identify when you’ve been in the zone, and what that looks like. Think of the circumstances that led to your excellent performance.

And then compare it to the times you were unhinged, unsure, and deviating from your trading plan. What was different?

Why did you do better in one environment than the other?

Learn which circumstances set you up for success, and then maximize your exposure to those circumstances. The exact answer here will vary for each individual, and that’s a good thing!

And remember, these lessons all intertwine with each other. So find your strengths in all areas of life, which you’re pursuing independent of your trading for balanced fulfillment and meaning.

Further Reading from Dr. Brett:

#6 – Markets Oscillate Between Trending and Mean Reverting:

Trading Psychology with Dr Brett Lesson 6

A lot of debate between traders and investors is about to what extent markets trend. As a trend follower myself, this is something I was always concerned with. As it turns out, Dr. Brett once again opened my eyes with a new way to think about this apparent dichotomy.

Basically, he’s come up with some pretty compelling data points supporting the narrative that markets oscillate between periods of trends and periods of consolidation (or mean reversion).

By recognizing if the market is in a trending mode (and on what time frame), you can better position yourself to profit. Conversely, you can also step aside or bet smaller when you notice conditions aren’t in your favour.

This latter point can also help you avert frustration by recognizing when the odds are not in your favour. By adjusting your expectations you can also preserve emotional capita, which is incredibly important toons-term trading success.

Further reading from Dr. Brett:

#7 – Growth Happens Outside Your Comfort Zone:

Trading Psychology with Dr Brett Lesson 7

Pain can be a source of gain. That’s the final lesson of Dr. Brett’s that I want to share. And it’s had a huge impact on me in a couple of important ways.

First of all, it serves as a great affirmation when you’ve been pushing yourself and are starting to feel a little dejected. I try to remind myself that making progress isn’t easy, and earned rewards feel best. This trading axiom really helps bring that point home when I’m feeling overwhelmed or run-down.

It also applies to other areas of life like exercise, or uncomfortable social outings where pushing yourself is often in your best long-term interest even though it feels painful in the moment.

Additionally, this lesson in psychology works the other way, too. For example, if I find I’ve been lazing around on the couch for a full weekend, I often use this ideas as motivation to get moving.

I remind myself that while it feels good right now to be comfortable, it’s not a sustainable long-term strategy. While I like to recharge as much as the next guy, I know that recharging in and of itself isn’t very fulfilling over any extended period of time.

This can be a challenging lesson to apply day-after-day. But over time, these small changes can compound, and end up making a big difference.

Plus, like most of Dr. Brett’s trading psychology advice, this lesson can also be applied to other areas of your life. Developing this kind of resilience to keep pushing yourself is sure to results in dividends.

Further reading from Dr. Brett:

Summarizing Dr. Brett Steenbarger’s Lessons in Trading Psychology:

As you can clearly see, Dr. Brett shares a ton of thought-provoking content. His daily insights on trading psychology are unparalleled. So…

While I’ve done my very best to summarize what I perceive to be the key trading psychology lessons that I’ve learned from this experienced expert, it’s by no means an exhaustive list.

Therefore I’ve posted some additional resources below for further reading (and listening). As you can appreciate by now, we are lucky Dr. Brett has been so generous with his wisdom over the years. Therefore if you want to learn more, I encourage you to check out these links:

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