A Self-Help Crash Course for Traders


53 ratings



Brett Steenbarger

12 Jan, 2006

in Psychology and 1 more

A large number of traders that I work with express the feeling that they are somehow sabotaging themselves: repeating the same mistakes day after day, giving back valuable profits in a fraction of the time it took to earn them.  Their intuition is that there is some kind of pattern to what they’re doing; they’re repeating the same mistakes again and again.  They realize that they’re not mentally ill and don’t have a history of out-of-control behavior, so they are understandably confused as to why they can’t stop shooting themselves in the foot.

In this article, I will summarize a few ideas central to brief therapy, a discipline which uses very active techniques to accelerate change processes that might otherwise take months or years.  Brief therapies have been subjected to considerable research scrutiny, and the consensus is that they are highly effective in changing emotional and behavioral patterns over a period of weeks, especially among people who do not have chronic, diagnosable mental health problems.  A summary of this research, as well as a thorough description of the how-to’s of brief therapies, is included in a text for beginning therapists that I recently co-edited.  Applications of brief therapy to trading can be found on my free website and in my book The Psychology of Trading.  All of those sources are linked below.  This article will focus on ways that traders can serve as their own brief therapists.

Step One:  Regaining A Sense of Control

By the time traders seek help, some are angry and frustrated; others are depressed, anxious, or confused.  The common denominator is that they experience the sense of a loss of control over their trading.  Think of it this way: If you feel in control of something in your life, there's no way that thing will make you feel depressed or anxious.  If I'm in control of my health, an illness will neither depress nor worry me.  If I have control over my family budget, an unexpected expense will not prove upsetting.  What turns stress into distress is the perception that we no longer control something that is important to our well-being.  If I feel that I have lost control over my marriage, my health, or my career, the first result will be anxiety: I will become mired in doubt and uncertainty.  If I continue to perceive a lack of control over important aspects of my life, that anxiety will turn to depression.  The perception, "I don't think I can handle this" will become "I know I can't handle it." 

Our first goal in your turnaround is to regain a measure of control.  It won't happen all at once or in all areas of your life, but any movement in the direction of increased control will help you feel more optimistic, more energized.  Depression, as psychologist Martin Seligman pointed out, is grounded in learned helplessness: the sense that one is powerless.  Any constructive exercise of personal power helps dispel the helpless state.

A step-by-step strategy to regain control is far better than an unfocused, shotgun effort.  Many people, fired up to make grand changes at the start of a New Year, tackle large goals--only to find themselves frustrated by their inability to reach these quickly.  It is much better to define smaller, achievable goals that you can build upon than grandiose visions that will take months or years to realize.  Your effort to take control expresses your fighting spirit: your determination to not let events control you.  Even if that effort does not lead to a complete turn-around--and it usually won't--it is an important part of the psychological turnaround that precedes larger life turnarounds.

The research literature in brief therapy tells us that the very first thing to change is not behavior; it is mood.  People begin the change process by feeling greater well-being.  They become more optimistic, more hopeful.  This is because they have taken some concrete measures to regain control over their lives.

Take the example of Lance Armstrong in his book It's Not About the Bike.  He describes in detail his reactions to learning that he had testicular cancer just as his cycling career was blooming.  Each piece of news seemed worse than the last one: his cancer turned out to be late-stage; it metastasized to his brain.  Even the optimistic physicians gave him no better than even odds at survival and most assumed his career would be over, due to the toll that chemotherapy would take on his lungs.

Armstrong first took control by learning everything he could about his disease.  He became a partner in the treatment process, not just a passive patient accepting a doctor's advice.  The knowledge he gained helped him assemble a team of professionals to assist in his care, including some world-renowned physicians he would never have known about had he not educated himself.  When he was faced with a choice of who would ultimately guide his cancer treatment, he selected a physician who understood his patient's love of cycling and took the extra step of finding chemotherapy agents that would not devastate his lungs.  During the difficult chemo process, he refused to use the wheelchair offered to him, preferring to walk on his own.  When a nurse brought in a lung machine to test his capacity, he angrily blew into it as strongly as possible and told her to never bring the machine into his room again.  Staying in control of the small things helped him deal with the big ones—and sustained his fighting spirit.

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Re: A Self-Help Crash Course for Traders

Thought this was a great article. I know it's older but I thought I'd post to bump this up to the top of the forums so some of the newbies to the forum (such as myself) could take a look.

This not only helps in your trading but can be applied to all aspects of life. Thanks Brett!

Dec 10, 2010

Member (12 posts)

Great article. The key to using NLP techniques successfully is to understand that the mind thinks in pictures and to be *consciously* aware of it.

Sep 26, 2006

Member (98 posts)


Trading can be straightforward once you stop playing a conditioned game of winning and losing in your head.The main thing is to recognise the game,find out why you are playing it,identify the parts that are playing it and Isolate them from trading..
Once this is achieved which is not an easy task ,then you can trade succesfully ,if you still want to. :rolleyes:

PS All the rest is bullsh#t

Feb 06, 2006

Member (202 posts)