A lesson in trading psychology
Back in 2004, I joined Kingstree Trading, LLC, a proprietary
trading firm in Chicago. There, I had the good fortune to get to know–and
observe–many successful traders at work.
One lesson particularly stands out in my mind. A trader saw
buying come into the market, and he quickly jumped on board. He saw that the
odds of taking out a recent high were good, given the size of the buying. To
his surprise, however, the trade stalled out before the target and reversed. He
quickly exited with a tick loss.
He turned to me and said, “I just paid for information.”
When the market bounced higher a few ticks several minutes
later, the volume was weak. No big players were taking the long side. He
aggressively sold and quickly made a couple of points.
He placed a good trade, and it didn’t work out. He didn’t
view that as a threat, as a loss, or as a failure.
He viewed it as information. The market was telling him that
we weren’t going to take out the recent high.
How he entered the first trade and exited it and how he used
the loss to prepare himself for the winning trade: *There* was a clinic in
trading psychology.
If your setups are valid, there are only two kinds of trades:
Those that make you money and those that give you information.
Brett N. Steenbarger, Ph.D. is
Associate Clinical Professor of Psychiatry and Behavioral Sciences at SUNY
Upstate Medical University in Syracuse, NY and author of
The Psychology of Trading (Wiley, 2003). As Director of Trader
Development for Kingstree Trading, LLC in Chicago, he has mentored numerous
professional traders and coordinated a training program for traders. An active
trader of the stock indexes, Brett utilizes statistically-based pattern
recognition for intraday trading. Brett does not offer commercial services to
traders, but maintains an archive of articles and a trading blog at
www.brettsteenbarger.com and a
blog of market analytics at
www.traderfeed.blogspot.com. His book, Enhancing Trader Performance,
is due for publication this fall (Wiley).