The Psychology of Trading: Interview with Brett N. Steenbarger-Part 1

Copyright (c) 2007 Alvaro Fernandez

Brett N. Steenbarger, Associate Professor of Psychiatry and Behavioral Sciences at SUNY Upstate Medical University, active trader for over 30 years, former Director of Trader Development for Kingstree Trading, LLC, and author of The Psychology of Trading: Tools and Techniques for Minding the Markets(Wiley, 2003) and the new Enhancing Trader Performance: Proven Strategies From the Cutting Edge of Trading Psychology (Wiley, 2007), is kindly going to share his research and insights with us today.

He writes feature columns for the Trading Markets website and several trading publications, including Stocks Futures and Options Magazine.

Books on Trading and Peak Performance

Alvaro Fernandez (Alvaro): Welcome, Prof. Steenbarger. Why don't you start by providing us some context on your interest in trading performance and how it led you to your new book?

Brett N. Steenbarger (Brett): Thanks, Alvaro, for having me here. I really enjoyed your last interview with Prof. Gopher. My main interest is how to enhance cognitive and emotional development among traders to help them become more successful. My first book, The Psychology of Trading, focused on emotional and stress management, and tried to help traders (both professional and amateur) overcome emotional disruptions of trading. I wrote my last book to encourage and support traders who want to train and improve their abilities and improve their results"brain gyms", to build their skills, strengthen their mental capacities, and improve their performance.

Alvaro: please tell us about your new book. What is the premise, and what are you trying to get at?

Brett: The premise is that elite, performers in highly competitive fields share common traits. This includes people in such fields as athletics, performing arts, chess, the military, and medicine. I review the research regarding what makes people successful in a those fields, find the common factors behind their success, and then apply the findings to traders.

Alvaro: what are those common factors for top performers? And what differentiates elite performers from the rest?

Brett: The elite performers are distinguished by the structuring of their learning process. From a relatively early age, they are engaged in an intensive learning process that builds upon their natural talents. They find a niche-a field that makes use of these talents-and become absorbed with a deliberative and systematic learning process that provides them with continuous feedback about their performance. The recipe for success seems to be talent, skill, hard work, and opportunity. In contrast, many people who don't end up performing at a high level were driven mostly by practical reasons to enter that field and are not motivated to follow the same level of intensive and systematic training. (What Brett is saying reminds me of the Learning Cycle that Professor Zull outlined a few weeks back).

Specific Learning and Training Advice for Traders

Alvaro: What specific advice do you provide to traders in your book?

Brett: Traders would benefit from structuring better their learning and training. I want to encourage them to see that "learning on the job" is not a substitute for breaking down skills into components, drilling these, receiving feedback about performance, and making continuous modifications and improvements. In every field of performance, elite performers devote more time on practice than performing. You need to protect and optimize that practice, learning time. The average trader doesn't do that, and the result is that many traders lose their trading capital within 7 months of trading. As I said before, traders would benefit from more structured learning and training.

There are several areas to consider here:

- Tools: Some simulation programs are very helpful to allow traders recognize patterns in the market faster. The ability to play and replay market days provides traders with enhanced screen time to accelerate and deepen learning. Another set of tools includes biofeedback programs that help traders manage their emotions. Biofeedback is especially helpful in reducing emotional arousal that can disrupt our executive functions: judgment, planning, analyzing, and reasoning.

- Reflection and feedback: Traders who utilize programs to provide them with metrics on their trading-analyses of their winning and losing trades-have considerable data at their disposal. The patterns revealed by these metrics help traders figure out both strengths and weaknesses. Many times, building on successes is more important than trying to change weaknesses. Constant feedback on trading results will show traders what they do best-and help them do more of it.

- Role of mentors and coaches: In many performance fields, such as music and tennis, coaches help students break down their performance into component skills and then systematically work on these and combine them. The mentor is someone who can structure the learning process for the developing performer and help them move along the path from being a novice to being competent to being expert.

To be continued in Part 2...

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