Today, I had a bad trading day. I knew I shouldn’t buy a NVDA breakout impulsively, but did anyway. I couldn’t help myself. My inner self had lost control. I’m in a drawdown, and am acting in an impulsive way, with much too much size. I need to stop. On my dog walks, I’ve been listing to a Trading Psychology book: The Daily Trading Coach­ – 101 Lessons for Becoming Your Own Trading Psychologist – Written by Dr. Brett Steenbarger. I thought I would summarize the main points, and learn them before tomorrow’s trading. I need to stop being impulsive and follow my process!

Practical Lessons for Trading

From: The Daily Trading Coach: 101 Lessons for Becoming Your Own Trading Psychologist

by Dr. Brett Steenbarger

Chapter 1 – Change: The Process and the Practice

• Understand how change occurs so you can act as your own change agent. Coaching is about making change happen, not just letting it happen.
• The enemy of change is relapse: falling back into old, unproductive ways of thinking and behaving. Without the momentum of emotion, relapse is the norm.
  • Cue: For each goal, add an “or else.” Use fear as your friend to motivate change.
• Many traders don’t really know their strengths, but trading goals should reflect trading strengths.
  • Cue: Reflect on your trading journal and ensure there are as many positive phrases as negative ones. A balanced view is essential for a healthy relationship with your coach (yourself).
• It’s mental routines and the mental environment that most need to change to break unwanted and unprofitable patterns of thought and behavior.
• Keep yourself aware of your emotional state throughout the day. Both frustration and overconfidence lead to poor trading decisions and violations of trading rules.
• Emotional self-control begins with physical control. Consider breathing exercises to develop physical control during the trading day.
• Setting goals isn’t enough; you need ways to track your progress toward those goals and feed that information into future goals.
  • Cue: Ensure that your goals are relative to your past performance vs. absolute goals. This creates a mirror of self-development rather than comparing yourself to an abstract, unrealistic goal.
  • Cue: When you think about P&L during trading, call a time out, take a few deep breaths, and focus on the market. Control negative thought patterns related to P&L.
• Consider taking on a student/trainee or a peer mentorship role. Motivation to live up to your best for your trading buddies will help you access your best behavior patterns.
• You control how you trade, but the market controls how and when you get paid.
• Confidence doesn’t come from being right all the time. It comes from surviving many occasions of being wrong and knowing you can handle the worst.
• Your losing trades and losing periods build resilience and confidence.
  • Cue: After a blowup, write a detailed memo explaining what went wrong, why it went wrong, and what you will do to avoid the problem in the future. Share it with a trading buddy to hold yourself accountable.
• Successful coaching means working as hard at maintaining changes as initiating them.
  • Cue: Strengthen your inner coach by developing action plans for personal goals outside of trading. Mastering change across all spheres of life enhances self-coaching in trading.

Chapter 2 – Stress & Distress: Creative Coping for Traders

• Stress mobilizes mind and body and can facilitate performance. Our interpretations of situations can turn normal stress into distress.
• Position size limits, trading plans, and stop-loss levels are like snow tires. They help deal with adverse conditions even if they don’t seem helpful when things are going well.
• Our emotions are barometers of how well we are meeting our expectations.
• A good trading day is one where you follow sound trading practices, regardless of profits.
  • Cue: Ask yourself, “What would make my trading day a success today, even if I don’t make money?” Focus on process goals, which you can control.
• Be aware of your patterns:
  • Behavioral patterns: How you act in given situations.
  • Emotional patterns: Your moods in reaction to events.
  • Cognition patterns: Your thinking patterns in response to situations.
• Repeating patterns that consistently lose money or opportunity likely replay outdated coping strategies from an earlier phase of life.
• Psychological journal format: Document situations in the markets, thoughts, feelings, actions, and consequences. Recognize patterns and their consequences to develop motivation to change.
  • Cue: Focus your psychological journal on situations where mindset led to rule-breaking. This builds your internal observer and allows you to notice situations as they occur, giving you a chance to change the script.
• Make a list of your most important trading rules and review them before, during, and after trading.
  • Cue: Start with the most important rules: entry rules, position-sizing rules, and exit rules. Don’t try to internalize too many rules at once.
  • Cue: If other parts of your life generate distress, it will eventually compromise your focus, decision-making, and performance.
• Expert performers are wholly absorbed in the act of performing. Positive or negative thoughts about performance outcomes interfere with the process.
• Overtrading takes you outside your niche and performance zone. Identify your niche to avoid overtrading.
  • Cue: Knowing the average trading volume for your stock or futures contract helps gauge the day’s volatility and adjust your trading accordingly.

Chapter 3 – Psychological Well-Being: Enhancing Trading Experience

• Emotional well-being fuels cognitive efficiency. We think best when we feel good.
  • Cue: Balance contentment with progress by setting short and long-term goals. Celebrate immediate objectives while staying motivated for larger ones.
  • Cue: Take short breaks from the trading screen to renew concentration, leading to more effective trades.
• A trading career is a marathon, not a sprint. Winners pace themselves.
  • Cue: If personal life issues wear you down, your trading efficiency suffers. Aim for a balanced life to maintain energy, concentration, optimism, and effort.
  • Cue: Structure your trading preparation like a workout routine. Diligent preparation conditions you to make extra efforts when it counts.
• The aversion to boredom is a source of many trading problems. A still mind is key to accessing intuition.
• Keeping your mind in shape is essential. Just as you prepare for the trading day by studying market action, engage in mental preparation to build the mindset needed to capitalize on your ideas.
  • Cue: If placing trades is stimulating, you’re bound to overtrade.
• Building emotional resilience involves experiencing repeated drawdowns and learning to overcome them.
• It’s easier to stick with a trade when there’s a firm target. Without a predefined target, it’s easy to act on fear and greed.
• Traders often mistake premature exits for trade management. They’re managing their thoughts and feelings, not the trade.
  • Cue: Think of your best and worst coping patterns as sequences of actions, not isolated strategies. Develop mental blueprints for challenging market conditions to ensure stress does not turn into performance-robbing distress.

Chapter 4 – Steps Toward Self-Improvement: The Coaching Process

• Self-monitoring is the foundation of all coaching efforts. In the best traders, self-mastery is a core motivation.
• Keep your trading journal doable. Many self-monitoring efforts fail because they become onerous.
  • Cue: Watch for common patterns among traders:
    • Impulsive, frustrated trades after losing ones
    • Risk-aversion and missed good trades after losing periods
    • Overconfidence during winning periods
    • Anxiety about performance and cutting winning trades short
    • Oversizing trades to make up for prior losses
    • Working on trading when losing money, but not when making money
    • Getting caught up in market moments instead of managing trades
    • Losing motivation after losing trades
    • Trading for excitement rather than profit
    • Taking trades out of fear of missing a market move
• The drive for self-improvement is rare but more important than the desire to make money.
  • Best practice: Summarize the patterns of your best and worst trading. Write down and visualize the costs of negative patterns and the benefits of positive ones.
  • Cue: Efforts at change fail when people make exceptions and revert to old ways. Cultivate an attitude in your journal, not just summaries.
  • Daily work: “What did I do better this week than last week?” guides efforts. Focus on doing more of what works.
• Traders usually have one or two problems manifesting in multiple ways. Ask yourself, “What is the common denominator behind my trading mistakes?”
• Talking aloud about your thoughts and feelings separates you from them. When you describe behavior, you’re no longer identified with it.
  • Cue: Recording yourself while trading can reveal emotional and behavioral patterns. Seeing recurring cycles sensitizes you to them during real-time trading.
  • Cue: One enemy in self-coaching is procrastination, often a defense against anxieties related to change.
  • Cue: Address yourself before market days, stressing your plans and goals. Tape-record the address and review it mid-day to stay focused.
• Pursuing goals with others adds motivation. Commitment to others helps sustain change efforts.
  • Cue: Online trading rooms can be powerful learning tools, especially when connecting with others using the same tools/systems.

Chapter 5 – Breaking Old Patterns: Psychodynamic Frameworks for Self-Coaching

• Overreactions often reflect themes from the past. The first goal of psychodynamic work is insight into one’s patterns and their limitations.
• As your own trading coach, dig beneath the surface to discover the origins of problems. Review personal history and map it against recent experience to find common themes linking life and trading.
  • Common themes: Adequacy, rebellion, boredom, achievement, recognition, contentment, safety, danger.
• If markets evoke feelings from life’s valleys, recognize repetitive conflict and coping patterns to change them.
  • Cue: Identify recent conflicted relationships and their thoughts, feelings, and behaviors. Compare these with recent trading difficulties.
• Conflicts with parents and lovers are emotionally powerful and likely to affect trading.
  • Cue: Identify patterns by noting the most frequent and costly departures from trading plans, then observe when these feelings appear in other life areas.
• Change involves doing what doesn’t come naturally and refraining from old coping methods.
• Observing behavior from outside prevents cycles from consuming you. Acknowledge feelings out loud to separate from them.
  • Cue: Video tape or record yourself while trading for self-observation. Reviewing technical basis at entry helps with reflection.
  • Cue: Procrastination is a pattern to battle as it robs you of the power to change.
  • Cue: Coaches address teams before games to build motivation. Consider addressing yourself before market days, recording and reviewing the address mid-day.
• Pursuing goals with others adds motivation. Online trading rooms can be learning tools, especially when connecting with others using the same tools/systems.

Chapter 6 – Remapping the Mind: Cognitive Approaches to Self-Coaching

• Cognitive coaching is relevant if battling negative thought patterns that interfere with motivation, concentration, and decision-making.
• Identify automatic thoughts during trading. Managing risk properly means no single trade or day’s trading should be overly threatening.
• Negative thought patterns are learned habits. Unlearn them and replace them with more constructive ways of processing events.
  • Cue: Track worst trades and associated feelings to alert to ways automatic thoughts sabotage best trading.
• Keep a cognitive journal documenting situations, self-talk, and consequences. Be specific to avoid missing crucial details.
  • Cue: Include thoughts when trading well to take a solution-focused approach. Watch for hope schemas, leading to violation of stop loss rules.
• Thought stopping can be dramatic (cold water, slap in the face) for a radical mind shift.
  • Cue: Keep in touch with trusted peers during market hours. They may pick up on negative thinking before you do.
• Add a trading voice to your cognitive journal. What would you say to someone else in your situation?
  • Cue: Challenge negative thoughts emotionally. Personalize thoughts to create powerful emotional experiences.
• Include positives in your cognitive journal and reinforce them with self-talk and trading outcomes.

Chapter 7 – Learning New Action Patterns: Behavioral Approaches to Self-Coaching

• Negative behavior patterns occur due to positive or negative reinforcement. Many destructive trading behaviors result from pain avoidance.
  • Cue: Identify painful emotions and track their occurrence during trading. Recognize negative reinforcement at work.
  • Cue: Track physical well-being against trading results. Fatigue, tension, and ill health contribute to lapses in concentration.
• Social learning multiplies experience and shortens learning curves. Learn from emotional experiences, including those of others.
• Sustain work on trading by finding positive reinforcement. Shape trading behaviors by rewarding small, incremental progress.
• Market returns are not normally distributed and create a high degree of psychological challenge for traders.
  • Cue: Identify trading highlights from the past week and frame positive goals for the coming week based on strengths.
• Traders often exit good trades when aiming not to lose, rather than to maximize profits.
  • Cue: Formulate best trading practices as specific, concrete rules to rehearse during trading.
• Visualize worst-case scenarios and how to handle them. Worry reinforces a sense of hopelessness.
  • Cue: Worry signals larger concerns about trade ideas. If glued to the screen, something is wrong. This can indicate discomfort with the position.

Chapter 8 – Coaching Your Trading Business

• A developing trader expecting to outperform seasoned money managers year after year substitutes fantasies for business plans.
  • Cue: Examine what happens to trades after entry and following exit. Track execution skills and exit criteria value.
• Consistent edge, not a large edge, is key to a successful trading business. Variability in returns correlates with emotional variability.
• Clearly defined targets and stop-losses are essential. Place stops at levels indicating your trade idea is wrong.
• Trade management requires active engagement, not passive watching.
  • Cue: Track trades where you exit before stops are hit. Understand management practices and their value to the business.

Chapter 9 – Lessons from Trading Professionals: Resources & Perspectives on Self-Coaching

• Cue: Successful work expresses who you are. Identify recent fulfilling market times and integrate those elements into regular trading.
• Cue: Highlight important lessons in your trading journal for future review.
• Interaction with successful people fosters personal success. Intensive review internalizes patterns and heightens sensitivity to their occurrence.
• Form a team to make trading rewarding and stimulate learning.
  • Cue: Focus on trade exits during reviews. Assess timing and factors affecting early or late exits.
  • Cue: Grade self-coaching efforts by time spent in self-coaching mode, clarity in goal setting, and sustained work toward goals.
  • Cue: Start your day with physical exercise and biofeedback to sustain calm concentration. Begin the day positively to prevent fatigue and distraction.

Chapter 10 – Looking for the Edge: Finding Historical Patterns in Markets

• No notes – I did not relate to this chapter or find it particularly useful in any way.

Conclusion

• Know your strengths and build on them. Never stop working on yourself or improving. Occasionally pursue wholly new challenges to avoid mediocrity.
• Select resources and lessons that support your self-coaching and focus on these.

As a trader, I often find myself navigating the unpredictable waters of the financial markets. Yet, despite years of experience and knowledge, I still make bad trading decisions. This past Thursday was a stark reminder of that reality.

I entered the market with high hopes and a confident mindset. However, as the day progressed, things quickly took a turn for the worse. By the end of the day, I had incurred a significant loss. Instead of accepting this setback and stepping away to reassess, I fell into the dangerous trap of revenge trading. This emotional response led me to chase my losses aggressively, resulting in a further $600 loss.

I was deeply upset with myself. How could I, with all my experience, fall into such a common trading pitfall? I made a solemn promise to stick to my daily loss limit of $400 moving forward, vowing never to repeat this mistake.

However, my resolve was short-lived. The very next day, I re-entered the market, still reeling from the previous day’s losses. My emotional state clouded my judgment, and I continued revenge trading, this time with larger positions. By the end of the day, I had lost another $700.

Losing $1,300 in two days is not just a financial blow; it’s a significant hit to my confidence and mental well-being. I was disappointed in my behavior and decision-making. I thought I knew better. This pattern of trading well for a month only to give back my profits in a couple of bad sessions is all too familiar.

It’s clear that I need to implement several changes to my trading approach to avoid repeating these mistakes:

1. Stick to Daily Loss Limits

Setting and adhering to a daily loss limit is crucial. It acts as a safeguard against emotional trading and significant drawdowns. For me, this limit is $400. When I reach this threshold, I must walk away from the market for the day. This discipline will prevent further losses and give me time to cool off and regain my composure.

2. Avoid Revenge Trading

Revenge trading is a destructive behavior driven by the desire to quickly recover losses. It’s a recipe for disaster. Recognizing when I’m engaging in revenge trading is essential. I need to develop the self-awareness to step back and take a break when emotions start to take over. This will help me make more rational and calculated decisions.

3. Set Accurate and Timely Stop Limits

Letting trades get away from me is another recurring issue. To combat this, I need to set accurate and timely stop limits. This involves learning how to use bracket orders, which automatically set stop losses at the time of entry. By doing so, I can protect my capital and prevent small losses from turning into significant ones.

4. Avoid Impulsive Trades with Market Orders

Impulsive trades are often made using market orders, which can lead to unfavorable entry points and increased slippage. To avoid this, I need to be more patient and disciplined, using limit orders to enter trades at more favorable prices. This will help me stick to my trading plan and reduce impulsive decisions.

Learning and Moving Forward

I still have a lot of work to do, and the journey to becoming a consistently profitable trader is ongoing. Starting Monday, I will rebuild my account with a renewed focus on discipline and risk management. Writing this post serves as a reminder of these difficult two days and the lessons learned.

I must do better. More importantly, I need to implement actionable items that will lead me in the right direction. Here are some specific steps I will take:

1. Daily Review and Reflection: At the end of each trading day, I will review my trades and reflect on my decision-making process. This will help me identify patterns of behavior and areas for improvement.
2. Mental and Emotional Check-ins: Before starting each trading session, I will check in with myself mentally and emotionally. If I’m feeling anxious, stressed, or overconfident, I will take a break or skip trading for the day.
3. Regular Education and Practice: I will continue to educate myself on trading strategies and risk management techniques. Additionally, I will practice these skills in a simulated trading environment to build confidence and proficiency.
4. Accountability Partner: Finding an accountability partner who understands trading can provide valuable support and perspective. This person can help keep me accountable to my goals and provide feedback on my trading decisions.

Conclusion

Trading is a challenging and often humbling endeavor. Despite my setbacks, I remain committed to improving and becoming a better trader. By adhering to my daily loss limits, avoiding revenge trading, setting accurate stop limits, and refraining from impulsive trades, I can reduce the likelihood of significant losses and build a more disciplined trading approach.

Remembering these difficult two days is crucial for my growth. It’s a reminder that even experienced traders can make mistakes, but it’s how we learn from those mistakes and implement changes that truly matters. I’m determined to do better, and I hope my journey resonates with others who face similar challenges in their trading endeavors.

Together, let’s strive for consistency, discipline, and success in the markets.

Last Friday started like any other trading day, filled with anticipation and excitement. Armed with a solid trade thesis, I eagerly dove into the market, ready to capitalize on what seemed like a promising opportunity. Little did I know that impatience would lead to a costly mistake, teaching me invaluable lessons about the importance of patience in day trading.

The Trade Gone Awry:

With AMD in my sights, I made the decision to short the stock by purchasing PUT options. The chart displayed a compelling setup—a deep pullback to a key resistance level, signaling a potential downward move. Confident in my analysis, I entered the trade without hesitation.

However, my impatience proved to be my downfall. Instead of waiting for a better entry point, I rushed into the trade, eager to ride the anticipated downtrend. As a result, I found myself stopped out prematurely, just before the stock made the expected move downward after hitting the very resistance level I had identified.

The Lesson Learned:

In hindsight, the lesson from this experience is clear and twofold:

1. Patience Pays Off: Once a solid trade thesis is established, it’s crucial to have the patience to wait for a better entry point. By avoiding initial in-trade drawdowns, traders can minimize risk and maximize potential returns. In my case, had I waited for a more opportune moment to enter the trade, I could have avoided being stopped out prematurely.
   
2. Stay the Course: Once in a trade, it’s essential to maintain patience and discipline, even in the face of uncomfortable drawdowns. In hindsight, I realized that I should have held onto my position, as the stock eventually moved in the expected direction. By sticking to my original thesis and resisting the urge to exit the trade prematurely, I could have potentially turned the trade into a profitable one.

Additional Ways to Exercise Patience in Day Trading:

Beyond waiting for better entry points and staying the course during drawdowns, there are several other ways day traders can practice patience:

1. Avoid Overtrading: Patience means being selective about the trades you take. Instead of jumping into every opportunity that presents itself, wait for high-probability setups that align with your trading strategy.
2. Practice Risk Management: Patience extends to managing risk effectively. Set appropriate stop-loss levels and position sizes, and resist the temptation to deviate from your risk management plan, even during volatile market conditions.
3. Embrace the Waiting Game: Day trading often involves periods of waiting for the right moment to strike. Embrace these periods of inactivity as opportunities to refine your strategy, conduct research, and stay focused on your long-term goals.
   
4. Cultivate Emotional Resilience: Patience also entails managing emotions such as fear, greed, and frustration. Develop strategies to cope with these emotions, whether it’s through meditation, journaling, or seeking support from fellow traders.

Conclusion:

In the fast-paced world of day trading, patience is indeed a virtue. My experience last Friday served as a harsh reminder of the consequences of impatience and the importance of exercising restraint in the face of uncertainty. By practicing patience—both in waiting for optimal entry points and staying the course during drawdowns—traders can increase their odds of success and avoid costly mistakes. So the next time temptation strikes, remember: patience pays off in the end.