The Daily Trading Coach

by Brett N Steenbarger

  “C’mon, you’re a better trader than that! Remember last month when you put together a string of winning days? You never needed to put on big size to do that. Let’s see if we can get back to that great trading.”

  The first interaction mirrors a sense of failure; “I’m so disappointed in you!” is the tone of the message. The approach also focuses on the negative, emphasizing the worst-case scenario.

  The second scenario doesn’t avoid the problem, but starts from the premise of good trading. It mirrors encouragement and a reminder of the trader’s strengths.

  Imagine that these interactions occur day after day, week after week. It’s not difficult to see how the first approach would undercut a trader’s security and confidence, leading to further bad trading. The second interaction would likely help a trader get back to trading well. It would coach success, not just the avoidance of failure.

  All traders inevitably coach themselves: they always talk to themselves about performance, take action to improve performance, and keep track of results. The only question is the degree to which this self-coaching is purposeful, guided, and constructive. From a psychodynamic perspective, your self-coaching is no different from a relationship with a professional coach: the dynamics of that relationship will serve as a mirror, and you’ll tend to internalize what is reflected.

  Our self-talk is our self-coaching.

  What this means is that how you focus on your problem patterns from the past is crucial to the success of your self-coaching. You are going to fall back into old patterns sometimes; you are going to miss opportunities to enact new, positive patterns. There will be occasions in which you work hard to avoid one pattern, only to fall into another one. All of these situations can be discouraging and frustrating. Yet, as your own coach, you are tasked with the responsibility of maintaining a constructive relationship with you, your student.

  “Comfort the afflicted and afflict the comfortable,” is the way I described my approach to working with people in The Psychology of Trading. It’s not a bad formulation for coaching oneself. When you’re afflicted—suffering, hurting, losing—you want to be your own best support. When you’re winning, you want to be afflicting yourself by doubling down on your discipline, alert to any overconfidence that might allow old habits to reenter your trade.

  A great exercise is to cull through your trading journal and examine the emotional tone of your writings. Do they sound like positive coaching communications, or are they negative, frustrated, and blaming? Do they place equal emphasis on your progress and achievements, or do they harp on what you didn’t do right?

  The worst thing you can do as a trading coach is reenact old personal patterns by adopting the voice of a past figure who was part of the destructive cyclical conflicts that you’re trying to move beyond. If you had a parent who was hostile and critical, one who couldn’t be pleased; if you had a spouse who could not acknowledge your achievements or a resentful sibling, you don’t want to replay their voices in your own self-coaching. How you treat yourself may well be part of the very pattern you’re trying to change: working on your coaching voice is a great way to move that work forward.

  Perfectionism is often a hostile, rejecting set of self-communications that masquerades as a drive for achievement.

  One trader I work with actually talks to himself in the third person when he is in his self-coaching mode, reviewing his goals and performance in tape recordings that he then replays during breaks in the day. He might say, “Bill, today you need to be alert for your temptation to overtrade this market. That got you into trouble last week. We’re coming up to a Fed announcement and it’s unlikely that the market is going to move much until that’s out of the way. Let’s make sure you do it right this week!”

  Day after day, listening to messages such as this, turns intentional coaching talk into internalized self-talk. After a long period of saying the right things, you’ll start to feel them and repeat them to yourself automatically. The coaching role, at that point, has truly become part of you. Conversely, if your self-coaching voice is one of frustration, you are cultivating a relationship with yourself that can only rob you of motivation and confidence over time. Many traders think they are pushing themselves to succeed when, in fact, all they are doing is replaying critical, hostile voices from past relationships.

  One trader I worked with would make significant money with many more winning trades than losing ones, but you would never know it from the way he talked. He always focused on the losing trades, the trades that he could have left on longer for greater profits, and the trades he could have exited sooner. The basic message of his talk was that anything he did was not good enough. When it came time for him to increase his risk and pursue larger profits, he hit the wall and could not make the change. Days, weeks, and months of telling himself that his trading was not good enough undercut his ability to be confident trading large size. He thought he was coaching himself for success by refusing to be content with his gains, but in reality he was wounding his self-esteem.

  A far different approach to self-coaching was exemplified by the trader who set challenging, but reachable, performance goals and then promised himself (and his wife) a long-awaited vacation abroad if he reached those goals. When he recruited his spouse into his efforts to improve his trading and chose an incentive that meant a great deal to both of them, he was able to sustain a positive motivation. This made their trip especially rewarding, as it was a tangible reminder of his success. In this situation, he cultivated a relationship with himself that fed self-esteem and mastery.

  The central message of the psychodynamic approach is that we are the sum of our significant relationships. None of our relationships is quite so central as the one that we have with ourselves. In coaching ourselves, we take control over our relationship to our self; the voice that we use as coach will be the voice that enters our head when we tackle the risk and uncertainty of markets.

  COACHING CUE

  Coaches typically address their teams before a game to emphasize important lessons and build motivation. Consider addressing yourself before the start of market days, stressing your plans and goals for the session. Tape record your address and then review it midday. Pay particular attention to how you speak to yourself: it’s much harder to lapse into negativity when you take the time to make your self-talk explicit and then approach that self-talk from the perspective of a listener.

  LESSON 46: FIND POSITIVE TRADING RELATIONSHIPS

  Why do people hire a personal trainer to help them get into shape when they already know which exercises they should be doing? Why does a hedge fund hire a coach to work with experienced portfolio managers, when those managers know far more about the business than the coach? Why do elite athletes who have more skills than anyone they could possibly hire still rely on performance coaches?

  An understanding of the psychodynamics of personal change makes the answers to these questions perfectly clear. In each case, hiring a coach or trainer takes an individual development process and turns it into an interpersonal process. This is one of the most powerful steps anyone can take toward accelerating their learning curves, but it is poorly understood.

  When you pursue a goal with other people, you add a new source of motivation to your efforts. We know from the research in psychology that the most important ingredient in counseling and therapy outcomes is the quality of the relationship between the client and the helper. This makes sense: when the helper is valued, the client wants to not only make changes for himself, but also for the counselor. You don’t want to let down someone you value and who’s working for you. If you decide to go to the gym every other day to work out and get into shape, it’s easy to skip a day here or there. But if you make that commitment with a close friend, you won’t want to disappoint that person. You’re more likely to stick to your plans.

  Making a commitment to change to others adds a layer of motivation and helps the other person motivate you.

  Bring another person
into change efforts and you will introduce a new source of mirroring. A good athletic trainer will provide you with feedback about how you’re doing and will keep your motivation up, even as you seem to plateau in your efforts. One of the helpers at a diet center will help you track your weight loss, providing you with positive feedback when you’re working the plan. Day after day, exposure to this encouragement makes it easier for you to generate your own encouraging self-talk. You become your own coach, in part, by internalizing the role of an actual helper.

  To achieve this benefit, it is not necessary that your mentor be professionally trained or that your relationship with them be a commercial one. Alcoholics Anonymous is a great example of a peer organization in which experienced members aid newcomers. The group meetings provide a supportive environment for change; the slogans and readings provide a shared set of beliefs and commitments; and the relationship with a sponsor provides the motivation of working with someone who cares about your life. The net effect is to mirror a new identity for the participant: an identity as a recovering person, not simply that of a failed addict.

  As a trading coach, I work hard to take money out of the equation with the traders and portfolio managers I work with. I routinely receive phone calls and e-mail from traders who update me on their progress. I wouldn’t think of billing for that. That’s not because I’m an altruist; it’s because I want to emphasize that this isn’t simply about the money. I want no impediments to a trader calling me, and I want the trader calling me because I care about what happens to them, not because I want to generate a billing. For me, it’s about the relationship and doing everything I can to aid the trader’s happiness and success, and my hope is that it becomes that way for the traders as well. Frequently, my motivation to see the trader succeed carries him through the rocky periods of self-doubt. It’s easier for me to see his strengths than it is for him at such times.

  A good coach is one who never loses sight of the best within you.

  As your own trading coach, you don’t need to hire someone like me in order to make meaningful change or to extend your change efforts to an interpersonal context. Rather, you can maximize your efforts at self-development by creating your own performance team—a group of like-minded, mutually concerned peers who help each other. If I were going into full-time trading, one of my first steps would be to scour blog comments, forum postings, conference attendees, and similar gatherings of traders to find people who trade my markets and take trading seriously. I wouldn’t need clones, just traders who are compatible with me in their trading instruments and time frames. I would then reach out to form what I call virtual trading groups: a group of peers who trade their own capital, but freely share ideas and help one another. The group would have to be chosen carefully, and all participants would have to share their trade ideas and trading results completely freely. In such an environment, the group members could cross-fertilize each other’s views, support one another during difficult periods, and learn from one another. A particularly valuable function within such a group would be peer mentoring, similar to the mutual assistance within Alcoholics Anonymous.

  StockTickr (www.stocktickr.com) has been active in facilitating trading groups and communities, with an eye toward improving performance.

  Even if you just find one or two supportive peers to share ideas and results with, you’ve taken an important step to create a fresh, interpersonal context for the changes you’re trying to make. If you choose your peers wisely, they will challenge you, support you, learn from you, and teach you. Because you value them and don’t want to let them down, you’ll be more likely to stick to your preparation, discipline, and goals.

  A little-appreciated piece of psychological wisdom is to find social contexts to be the person (trader) you want to be. Over time, the feedback and responses from others will mirror the best of you to you and that ideal self will become an increasing part of you. When you’re your own trading coach, you don’t need to do everything yourself. A cardinal principle underlying the psychodynamic framework is that the best changes are the result of powerful, emotional relationship experiences.

  Your assignment is to find just one person to be part of your team: someone whose developmental efforts you can support, and someone who will support your own. Out of that relationship may spring many more—a network of dedicated professionals mentoring and motivating each other. When you turn trading into a relationship experience, you gain role models, become a role model, learn from others, and benefit from teaching others. You add fresh ways to experience your strengths, even as you build on them.

  COACHING CUE

  Online trading rooms are excellent venues for meeting like-minded traders, and they can be powerful learning tools. Several long-standing ones are Linda Bradford Raschke’s trading room, which emphasizes technical trading across multiple markets (www.lbrgroup.com); the Market Profile-oriented Institute of Auction Market Theory room run by Bill Duryea (www.instituteofauctionmarkettheory.com); and the trading room run by John Carter and Hubert Senters (www.tradethemarkets.com). Also take a look at the Market Profile-related educational programs run by Jim Dalton and Terry Liberman (www.marketsinrprofile.com) as possible venues for connecting with like-minded traders. Two well-known trading forums are Elite Trader (www.elitetrader.com) and Trade2Win (www.trade2win.com). Both can be ways of sharing information with other traders and connecting with peers. For those developing trading systems, the community that has developed around the TradeStation platform (www.tradestation.com) is worth checking out. Indeed, if you have a favorite trading platform or application, connecting with others who are using the same tools can be quite valuable. Market Delta (www.marketdelta.com) runs educational programs for users and maintains a Web presence for users, as does Trade Ideas (www.trade-ideas.com); these are two trading applications I’ve found useful.

  LESSON 47: TOLERATE DISCOMFORT

  An important insight from psychodynamic psychology is that our defenses—the ways we cope with the pain from past patterns of conflict—can take a physical manifestation. Consider a trader who is caught in a losing position. He watches, tick after tick, as the trade grinds against him. Gradually, he becomes tenser: he hunches over the screen, tightens his neck and forehead muscles, and grips his mouse tightly. This physical tension can be seen as a defensive strategy. This strategy cuts off other, threatening physical and emotional experiences. Perhaps the trader would love to yell and curse, but is afraid to lose control. Perhaps the trader just wants to cry, saddened by a series of needless losses. Not wanting to seem weak, he holds back the tears with his tension.

  There are many other physical manifestations of defense. Consider the trader who is conflicted about acting on a well-researched trading signal. As his anxiety mounts, he tells himself that the market is too uncertain and he walks away from the screen, only to find that his signal was valid after all. His avoidant defense—leaving the situation—temporarily defuses his nervousness, but it also keeps him from figuring markets out and acting on opportunity.

  Still another physical defense occurs when traders act out of frustration, pounding a table, throwing their mouse, or cursing loudly and blaming unseen others for their losses. By venting their feelings, they avoid introspection and self-responsibility. Their defense is against the guilt and the awareness that they have been hurting their portfolios.

  Often we use our bodies to keep our feelings out of sight, out of mind.

  One of my subtle defenses is that, when I sense a position isn’t going my way, I’ll begin a frantic scan of information to validate my idea. Of course, I’m defending against the feeling of being wrong and I’m looking desperately for reasons to stay in the trade and undo the loss. This reaction generally makes the situation much worse. I’ve learned that if I’m behaving frantically in a trade, there’s usually good reason for my feelings and I need to listen to them.

  Recall that in psychodynamic theory defenses are coping strategies that protect us from the emotional pain o
f past conflicts. One of the most basic defenses is repression: keeping thoughts, feelings, and memories out of conscious awareness so that they cannot trouble us. The problem with repression, of course, is that a conflict repressed is a conflict that remains unresolved. We can’t overcome something if we remain unaware of its presence. Many traders use their bodies to repress their minds: their physical tension binds them, restricting the physical and emotional expression of feelings. I’ve met traders who were quite tight physically and yet who had no insight into the degree and nature of their emotional stresses. In an odd way, getting tense was their way of coping: they were always mobilized for danger, tightly keeping themselves in control. It is difficult to stay in touch with the subtle cues of trading hunches—the implicit knowledge we derive from years of pattern recognition—when our bodies are screaming with tension and even pain.

  In your self-coaching, it takes more than a willingness to interrupt these defensive patterns to make the most of them. What is also needed is the ability to focus on the feelings being defended against. The questions you want to ask yourself are: “What feelings am I holding off when I’m tensing my muscles?” and “What am I trying to avoid by blaming others or by walking away from the screen?” The idea is to hold off on that defense—purposely relax the muscles, turn the focus inward, stay in front of the screen—and simply experience the feelings that are threatening.

  In psychodynamic work this is known as facing or confronting one’s defenses. In counseling, for example, a client might begin talking about her painful relationship experiences and then suddenly change the topic and begin talking about her children and how they are doing in school. I might gently point out the change of topic to the client, explaining that it’s perhaps easier for her to talk about her children than about herself. She then resumes discussing her relationship, and new information—and a flood of feelings—comes forth, followed by memories of her bad relationship with her father. Breaking through the defenses leads to an emotional breakthrough: she becomes aware of suppressed and repressed feelings and their depth.