Aug 9, 2021
Written by:
John McDowell
What is the best way to learn from and mitigate our trading stress? We feel as though this is a particularly important topic for traders, and especially newer traders. And along those lines, we know of no one more qualified to address this subject than Dr. Brett Steenbarger, Ph.D.
After all, Dr. Steenbarger has written the book, or should we say books, on the topic — particularly his last publication Radical Renewal (2019), which touches on this subject in depth and from a spiritual/life renewal point of view.
The ever-popular The Daily Trading Coach and Trading Pscychology 2.0, along with his other publications, offer a timeless approach to mindset awareness and training for anyone trying to tackle the markets.
Before we dive into the interview, perhaps the very few who are not acquainted with Dr. Steenbarger’s work should also know that he has been in the business of coaching traders, hedge fund managers, and the like for decades. He is a trader, himself, who got started in the 70s. Through the years he’s been a mentor to many trading legends.
To that end, rest assured that he is very in tune with the markets, traders, and the struggles that traders face. In essence, he’s seen it all. And his recommendations on “learning from our trading stress” may actually surprise you.
We are very thankful he is willing to take time out of his busy schedule for us.
On that token, what do you say we get kicked off here with a discussion of the common emotions that you find inherent in trading, Dr. Steenbarger? You’ve mentioned in your writings before that the big 5 are typically “nervousness, tension, stress, fear, and worry.”
Why do you think trading solicits these emotions so easily? Are there any specific triggers in the markets that produce these feelings of “trading stress” within us?
Thanks for the opportunity to share ideas with the TradingSim community, John!
I would add two common emotions to that list: overconfidence and neediness.
Indeed, it’s often because of our need to make money and our overconfidence that we pursue shortcuts in our learning processes as traders and take too much risk. That leads to volatility of P/L and losses, which in turn trigger our nervousness, tension, stress, fear, and worry.
What I’ve long liked at TradingSim is the focus on learning trading–and doing that in safe ways where we can’t trigger and traumatize ourselves.
Think about every performance field: athletics, acting, music. In none of those do we start out by following people online, doing some reading, and then trying to make a living from our performance. Rather, we recognize that it takes years of practice and mentoring to become a professional athlete, movie star, or recording artist.
When we take shortcuts in the development process, our unrealistic expectations set us up for disappointment, frustration, and pain.
Dr. Brett Steenbarger, Ph.D.
Many, many times the answer to emotional disruptions in trading is to work on our trading.
As I recently emphasized in an online post, the only losing trade is one that we don’t learn from. Our job is to keep our capital intact while we’re learning new things, and often that means starting out in simulation mode. Only once we gain successful experience in practice are we ready for prime time.
All the work in the world on our mindset is not going to provide us with the skills we need to succeed in a competitive marketplace!
You raise some really interesting points there, Dr. Steenbarger. I, particularly, like the analogy of trading to “athletics, acting, and music.” We recently discussed this in a post that dealt with having realistic expectations to curb the disappointments in our trading journeys.
But what stands out to me the most is your emphasis on training until “we gain successful experience in practice….” I’d like to build on this topic with two questions for you.
To preface: many in this industry claim that simulated trades cannot prepare you for the emotions of real trading.
1. What is simulation actually good for, and how should traders actually “train”?
2. Can simulation create a false sense of success for traders?
After all, sparring in a sweaty gym in Brooklyn is all fun and games until you get socked in the mouth by Buster Douglas in front of thousands of spectators with your reputation on the line. Kudos if you get the reference. 😉
Well, John, I think you and Mr. Tyson have a great point. Having a plan in the calm of the moment is different from maintaining and acting on the plan once we get punched in the nose!
That doesn’t make simulated trading worthless, however. Even the best boxers practice in the ring away from formal competition to work on their movement, their combinations, etc. Similarly, basketball teams prepare for the next game by scouting the opponent and then practicing against the offense and defense that the opponent are likely to use.
And, of course, where would a Broadway actress or actor be without practicing lines away from the distraction of crowds.
Every performance domain relies on practice away from formal competition to build performance in the heat of the moment.
Dr. Brett Steenbarger, Ph.D.
That is what simulation accomplishes in trading. If we can’t be consistently successful in simulation mode, how in hell are we going to succeed with the pressures of real-time P/L??
Once we establish our consistency in sim, then, of course, we want to go live and tackle the pressures of actual gains and losses. This is why musicians and theater professionals conduct dress rehearsals. Simulation/practice is necessary for development, but not sufficient.
It’s a step in the learning process.
Fair enough. So simulation definitely serves a purpose for learning from our trading stress, and I get the comparisons. Point well taken.
I think for many traders, though, there is a struggle to maintain “discipline” within a simulated environment. Yet, what I wonder about this type of trader is whether or not they are actually disciplined while trading live.
To build on the point I’m trying to discover, my assumption is that the more successful traders, boxers, actresses, will take their training just as seriously as their live performances. And if that is true (again, I don’t know), then what we will likely see is that discipline in training is a key indicator of earlier success in the markets. In other words, those who take their training seriously are more prone to reach consistency faster, versus those who dismiss it as “play” and end up failing out of the markets because they are seeking the thrills associated with gambling (even if their intention isn’t to gamble).
As someone who has worked with 1000s of traders over the years, have you observed any connections with traders who lack discipline in both “training mode” and “live mode”?
If what an actor is interested in is applause, he won’t be particularly motivated to practice on an empty stage. If what a trader is interested in is profits, he/she won’t be particularly motivated to practice in simulation.
It’s not simply a matter of discipline. It’s about the underlying motivation driving performance efforts.
If you’re motivated to learn and master markets, you’ll enjoy simulation and playing with trading ideas. If you’re motivated by making money and showing off pictures of your new cars on social media, simulation won’t hold much appeal.
When surgeons learn new techniques, they practice on models and cadavers before “going live”. If a surgeon told me he didn’t think such practice was important, I’d likely look elsewhere for my procedure….
Wow. Process over outcomes. I need to review that a few more times to let it really sink in. There’s so much there.
The underlying driver of trading performance is motivation “to learn and master markets.” That’s brilliant. And you compare that to ego: Ego vs. Enjoyment/Diligence.
To that point, a lot of motivation research is centered around the attitude of the learner toward the subject matter. It sounds like trading is no different.
Can proper motivation and attitude in trading be fostered? How about self-efficacy? This reminds me of some of your great work on visualizing the ideal self, and setting goals and concrete “efforts at improvement.”
Yes, I see that in training programs, such as at prop firms like SMB and at hedge funds where there is mentoring.
The motivation and attitude are modeled for new traders and they learn the right activities and mindset.
The key is emphasizing professionalism and sound process, rather than P/L.
That makes sense: proper modeling and mentorship leads to right actions and mindset.
And circling back to the topic of the interview, “Learning from our Trading Stress,” I assume it is within this setting of training programs that traders receive the ongoing mentoring and feedback they need to overcome the hurdles they may not have expected. Perhaps they are pushed to move beyond their comfort zones, or the thinking that markets are “easy,” and to then take the steps necessary for practice and refinement of their craft.
Is this the only way to progress? You and I spoke briefly before about the concept of suffering and how that can sometimes bring about the cessation of bad habits. Are many of us without these resources and training just prone to learn the hard way?
I do think that learning curves are accelerated when working in team environments.
There are online trading communities that serve this function, where you can learn from the experience of others–including their mistakes.
If you look at most performance fields, it’s only a small percentage of participants who can make their living from their craft and those that do are those that receive mentoring in dedicated training environments.
Dr. Brett Steenbarger, Ph.D.
We can learn a lot by seeing how Olympic athletes, military special forces, and other elite groups develop their talent.
In this context, I don’t think the challenge is learning from our suffering. Rather, much of the suffering comes from trying to develop expertise in suboptimal learning environments.
That’s an interesting perspective that suffering, or trading stress, stems from “trying to develop expertise in suboptimal learning environments.”
To that end, would it be beneficial for new traders to explore communities and mentors until they find their own niche? Their own “team,” as you say?
And one other follow up, if I may. Do traders have to reach “elite” status to make it in this business? Is there an in-between that can still afford a living?
If I were a new trader, I would look for a formal training program with a solid track record of training talent. That would maximize the odds of success.
And, yes, I would say that making a living from trading *is* an elite level of success. I think that’s true in chess, golf, acting, music, creative writing, etc.
I suppose that explains the 90% failure rate we often hear about.
Are there any other ways to learn from our trading stress that we may not have touched on? We’ve discussed teams, mentors, training, simulation, motivation, attitude.
Perhaps exercise and balance of life? Some stimulus from outside of trading?
My most recent blog post is relevant to the topic: https://tinyurl.com/4ypkmmm7 .
Hey, that’s a great one! Thanks so much for sharing that link.
It is important to step away from trading to refresh our views of markets and rejuvenate.
Dr. Brett Steenbarger, Ph.D.
Thanks so much for your time and wisdom, Dr. Steenbarger. It has been a pleasure and an honor to have this discussion with you. Learning from our trading stress is such an important topic, and I know it will be a huge boon to the community here at TradingSim.
It is quite clear that Dr. Steenbarger is a firm believer in quality training. After all, he’s seen the effect it has on traders who succeed in learning from their trading stress, and those who eventually succumb to it.
To that end, we hope those of you reading will take home some key reminders when confronted with the emotional struggle of trading. Here are a few of our favorites:
For those of you who are interested in more great content and resources from Dr. Steenbarger, be sure to check out his blog at traderfeed.blogspot.com.
You’ll notice a search bar in the upper left hand of his homepage that can be a great tool for searching the myriad of topics he discusses on the site.
Also, be sure to follow Dr. Steenbarger on Twitter. His handle is @steenbab.
Lastly, if you are looking for a great place to test your strategies in the market, we hope you’ll give TradingSim a try. With over three years of intraday, tick-by-tick market data and L2 replay, along with a dynamic market scanner, there is no better place to build your confidence in trading.
Here’s to good fills!
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