Trading psychology. Tools and methods of decision making. Brett Steenbarger

Preface to the Russian edition
Psychology plays a huge role in achieving maximum results in any field. In a big sport, whether it be fencing or weightlifting, at a critical moment, excellent physical shape and impeccable technique may not be enough if the athlete has not been able (or his mentors have not been able) to properly tune in to the decisive performance.

In the army, the level of so-called "morale" of the soldiers often determines the outcome of the battle, and a handful of weakly armed but staunch brave men can defeat and rout the troops of an outnumbered enemy.

Trading is the same war, only with yourself.

Dozens of books have been written about the role of psychology in trading and hundreds of aphorisms have been invented. Most luminaries are unanimous in their opinion that it is in the jungle of a trader's psychological attitudes that both the reasons for success and the roots of systematic failures lie.

“Many economists have tried to trade the futures markets using the fundamental approach, and usually they have lost in the end. The problem here is that the markets operate based more on psychology than on fundamental factors, argues Al Weiss in Jack Schwager's book The New Market Wizards. “Markets are completely based on human psychology, and by charting markets, you are only converting human psychology into graphical form.”

When trading becomes a part of your life, your life inevitably begins to influence trading. All the experiences that fall to your lot will inevitably affect the results of your trading. You find yourself under the power of emotions, and "an emotional game is the scourge of losers" (A. Elder). The ability to adequately assess the market situation and make cold-blooded decisions suffers - and now you are already repeating the same mistakes.

Psychotherapy is very popular in the United States - if something “breaks down” in life, people rush to a specialized specialist for help. And rightly so - you should not expect that you are able to solve all your problems alone. But where to go to someone who chronically fails to trade?

You don't have to go anywhere. Знакомьтесь - Brett Steenbarger, доктор философии, профессор Медицинского университета штата Нью-Йорк в WITHиракузах, специалист в in psychiatry and behavioral sciences, co-director of Kingstree Trading, LLC (Chicago), and author of the book you are holding in your hands. It contains a unique fusion of the experience of a psychotherapist and a practicing trader. Recounting in plain language anecdotes from his medical practice, Dr. Steenbarger points out obvious parallels to stock trading. But most importantly, the author shows how to use in trading the same principles of psychological assistance that helped his patients find a way out of difficult life situations. In a certain sense, this book can be considered a "reference guide to traders' nervous breakdowns." Brett Steenbarger не был бы доктором, если бы не испытал свои методы лечения на самом себе, произведя перед этим безжалостный анализ своего поведения в торговле. Reading this part of the book, no, no, yes, and you will smile: “as written from me.”

Read this book - the time spent will definitely pay off. Even if you defeated your own dragon a long time ago and trade for your own pleasure, you will simply love the style of presentation. And some of Dr. Steenbarger's thoughts are worth embellishing any trader's quote book: “Psychologically literate traders create models of themselves in the best shape and then consciously strive to follow them. A great man, Nietzsche once said, is an actor playing his own ideal. It's a great formula for both life and market success—become an actor in a play based on your highest aspirations."

Oleg Burtsev,
head of analytical department
MFH FIBO Group
Foreword
We find the true measure of our wealth

in our debt to others.

The epigraph to this book could be the words: “Trading is life in miniature”[1]. In trading, as in life, we pursue certain values. In trading and in life, we manage risk in the process of this pursuit, missing opportunities and taking losses. How we pursue values ​​and manage risk determines our personal and professional success.

Often, our reaction to the uncertainty of the outcome interferes with the achievement of goals. In careers, relationships, and trading, we ourselves repeat harmful patterns: cutting off promising situations and clinging to unprofitable ones. It does not matter that we are virtuous, industrious and in all otherwise successful people. It doesn't matter that we have attended all the latest seminars, read the most popular books and bought all the best trading tools. By failing to manage risk, we will weaken our efforts to achieve our goals and fail to achieve the success that might otherwise be ours, both as traders and as individuals.

About 130 people have come to me for psychotherapy services every year for the last 20 years. Almost all of them led an active lifestyle and worked in areas with high demands on professional qualities. Over the years of practice, I realized that the problems of doctors, managers, students and traders are remarkably similar. These stereotypes arise when emotional risk management strategies—efforts to minimize pain and maximize pleasure—do not successfully navigate the risk-reward matrix of life. Every typical problem we face is the result of trying to replicate some past success that has outlived its value. On the contrary, behavior patterns created in response to the new challenges of life lead to success. We are most likely to achieve our goals when we can break away from the mindless repetition of the past and come up with fresh solutions to vital problems.

The purpose of this book is to help you identify your patterns of success and failure and learn how to better control them. It is my sincere hope that the specific examples, studies, and ideas contained in these pages will equip you with the intellectual and emotional capacity that will enable you to analyze yourself and change your approach to life's risk and reward.

The following pages can help you develop new ways of thinking, perceiving, and acting; but they will not help to work miracles. No psychological help can replace a trader with specific trading plans tested in various markets. As Robert Krautz so aptly pointed out in his interview with Jack Schwager in New Market Wizards,[2] self-improvement techniques alone can no more make you an outstanding trader than they can make you a great chess player or baseball star. You can only learn how to deal with the markets when you immerse yourself in the markets.

Indeed, in In some ways, the process of developing and testing market strategies is the best of all methods for developing a positive trading psychology. Many traders fail with mechanical systems simply because they cannot bear the inevitable periods of drawdown or no results. By creating and testing your own approaches to the market, you develop an internal understanding of how these methods work. When the market rolls around, your confusion is quickly displaced by the feeling that "we've been through this before." Nothing can replace the confidence born of experience.

However, it is hard to underestimate the extent to which traders using identical trading methods can achieve incredibly different results. Having the right tools is a necessary but not sufficient condition for success. As Krautz pointed out, traders inexplicably reproduce destructive emotional stereotypes in their trading over and over again. Such actions can derail even the most carefully built and verified systems.

One of the important goals of this book is to help you approach trading the way a psychologist approaches his patients. I call it “couch trading”, which means the ability to use your thoughts, feelings, impulses and behavior patterns as market data. Trading from the couch entails a significant departure from conventional thinking. Instead of trying to overcome or eliminate emotions, this mindful trading encourages you to learn from your own reactions. Your goal is to turn yourself into a finely calibrated tool that can detect patterns of behavior in both the trader and the trade and act accordingly.

Note that developing this receptivity does not mean that you should simply follow your feelings when placing orders! As you will see in the pages that follow, this often means the opposite: being able to use overconfidence and risk aversion as valuable counter-indicators. Action contrary to the initial impulse surprisingly often - for both the trader and the therapist - results in a win.

Trading from the couch, you become your own psychologist. This is not an easy task in terms of both markets and everyday life. The reward, however, is significant. Trading, like sports, is a rigorous test that develops the emotional skills that are essential to success in life. In few areas of human activity, the pursuit of values ​​and the management of risk are as tangible and immediate. Nothing encourages self-discovery like a hard blow to the wallet.

Self-awareness trading also involves a vital symmetry: by battling the markets, you can improve as a person and thereby increase your trading success. By learning to extract the information contained in your emotional, cognitive, and behavioral stereotypes, you will be better equipped to identify and exploit the patterns that appear in the financial markets - and vice versa.

Brett Steenbarger
Fayetteville, New York
November 2002
Thanks
My understanding of the emotional complexity of trading multiplied when I began writing trading psychology columns for the WorldlyInvestor and MSN Money websites (www.moneycentral.com). These posts have generated a lot of response from traders around the world who have experienced difficulties strikingly similar to those I have experienced in my years of trading.

Some of my correspondents were newbies who traded intuitively, in a manner little different