Tuesday, May 29, 2007

The Most Important Step in Becoming Your Own Trading Coach

Before you read this post, I'm going to ask that you review my previous post on "The Devon Principle". It is very, very relevant to a question recently asked of me by a trader: "I know I can't afford to hire a private trading coach. What do I need to do to coach myself for success?"

The Devon Principle states that we are what we eat and that, psychologically, we are always digesting our experience. Internalizing our experience makes us who we are.

If we have negative experiences, we internalize that and develop a loss of confidence and motivation. If we have positive experiences, these become part of our outlook on ourselves and our world.

To mentor yourself, your most important step is to create positive learning experiences that will sustain your motivation, interest, and sense of efficacy.

Every trading session should involve working on a specific, doable goal and making progress toward that goal.

We can't control how markets move, so we can't control whether any single trade we make will be profitable or not. But we can control how we make trades: how we enter, how we size positions, how we exit, and how we contain losses. Having rules about all of those helps us set specific goals about the process of trading, rather than about the outcome.

The goal of your learning is to trade well, just as the goal of a pitcher is to make a good pitch. If you do that often enough, you'll win your share of outings.

But the equally important reason for setting attainable, concrete goals is that--as your own coach--you are creating the experiences that you'll be digesting. By setting yourself up for success, you build a positive identity as a trader, day by day.

Without goals, there can be no sense of attainment. Without the sense of attainment, there can't be an internalization of competence and confidence. You generate your own sense of control by--trading session by trading session--controlling your own pursuit of trading goals.


Becoming Your Own Trading Coach

Letting Profits Run: Becoming Your Own Coach


The Dude said...

Hi Brett,

What do you think some realistic trading goals are? To they shouldn't be profit-based, but based more on trading smart and trading well.

Unfortunately we can still trade well and lose money. Even with a 90% probability of success, and a 3 to 1 risk/reward ratio, there is the possibility we could lose 5x in a row hitting our stop each time. Not likely, but a possibility.

Could you possibly share some of your own goals for trading, past or current, or generic ones, so I can see how you approach them?


Brett Steenbarger, Ph.D. said...

Hi Matt,

Good question; I might do a future post on that topic to illustrate one of my own goals. A simple goal that I set for myself a while back was to hold 1/4 my max position size for certain projected market moves (ones in which I showed a high probability of taking out R2 or S2 pivots). Normally, I'm more aggressive about taking profits, but can leave money on the table. My goal was to extend my holding time with a fraction of my position and wait until that piece either hit my target or my stop.