6/4 – Steenbarger Psychology Text – Chapter 2

Key Points:

all eggs one basket

1. Importance of having a balanced life – People and time with them (relationships, family, friends), Passions (sports, eating, drinking, museums, travel, foreign languages, films, books, history) – if trading is the only thing in my life then I am literally putting all of my eggs into one basket – a risky endeavour!  It puts a huge amount of pressure on my shoulders.  If there are a lot of other things in my life that I really enjoy and care about, then there should always be something that is going well at any point in time.

=> The Proficient Trader has a balanced life – trading is high on the list of his priorities but it is not his sole pursuit

2. Higher levels of uncertainty, on the whole/on average, produce negative impacts on analysis and decision-making – the financial markets are uncertainty on tap!!


3. My ability analyze the market and the charts depend on my emotional state and/or state of mind. I can intentionally change my emotional state to one(s) in which I trade best – this can be done via “mood-changers” using resources such as music, visualizations and metaphors.  Ideally this should be done at the start of each trading session in order to “neutralize” the trader, or to re-neutralize during the session.  The markets effectively always work against the trader by flushing the trader with uncertainty and volatility – tempting the trader to deviate from his (her) plans that were devised in calm, pre-market conditions.  => The Proficient Trader uses tools to neutralize himself, to set his mood into optimal trading capabilities, at the start of the trading session and keeps a check on himself throughout the session.

4.  My performance-damaging habits are my enemies (see Examples of Bad Trading and ‘This is how the Destructive Trader trades’) – distinguish between a “troubled trader” and a “trader with troubling habits” – I am fighting my habits in order to achieve success – I am not fighting myself.   => The Proficient Trader sees his bad trading habits as his enemies, as the behaviors that are holding him back from trading successfully.

5. High states of arousal/excitement/anxiety are more likely to produce paradigm shifts (this reminds me of the 7 Habits of Highly Effective People, one of the first self-help books I ever read!) – useful for therapy – how can I use this insight?  E.g. use rigorous exercise coupled with speaking trading ideas out loud to evaluate trading ideas and tactics.  => The Proficient Trader uses creative tools and approaches to review and design his trading tactics

6.  What is my ultimate motivation for trading?  Why is it important for me to know that?  (This is already listed as one of the questions to answer in the April Psychology post)


7.  When things go horribly bad, traders can go into shut-down mode and be paralyzed from making further decisions.  If the trader has open positions then “holding and waiting” can often be the worst path of action.  Personally I went into shut-down mode in mid November and early December.  In these situations, humans have the tendency to hold on and hope rather than crystallize a definite losing result.

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One Response to 6/4 – Steenbarger Psychology Text – Chapter 2

  1. Pingback: 15/4 – K7 Strategy Update – 100 trades completed | George's FX trading blog

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