The full interview (and transcript) with Dr. Brett Steenbarger, Dr. Doug Hirschhorn, and Dr. Gary Dayton has been made available for free, so click through to check it out anytime.
Here are a few key insights from Tim's discussion with these trading MDs. Now, not all of the interviewees agree on each and every Q+A topic, but there are some very interesting common threads running through each of the 3 interview segments.
- The interview begins with Tim asking Brett Steenbarger why some traders may have problems "pulling the trigger" on their trade ideas. Dr. Brett points out that we must first correctly diagnose the problem before offering a solution. In his view, there are likely two main reasons, one being a trader's lack of confidence (setup ideas haven't been tested, etc.).
- Paper trading and simulation with real market data, followed by live trading with small amounts of money, may offer the proper testing and experience-building trials a trader needs to build his skills and confidence (Steenbarger's view).
- Performance anxiety is the 2nd problem highlighted by Steenbarger. He mentions some visualization exercises which can prepare athletes and traders for the anxiety of performing in a high-pressure environment. You should also focus on the process of trading, rather than the outcome of each individual trade.
- Dr. Doug Hirschhorn tells us that a lack of personal trust is behind a trader's failure to pull the trigger on trades. He does not favor paper trading, but says traders should trade smaller sizes to practice building their skills and get comfortable with their market and style.
- Traders who get over the fear of failure more quickly tend to look at the larger statistical picture. They begin to see beyond the individual trades immediately at hand and instead look out to the next 100 trades, the collective picture of their longer-term trading process.
- Increasing one's trade size, getting bigger in a winning position, is another major theme in improving trading performance. Dr. Hirschhorn briefly offers his perspective here, and this is an area we may want to explore and study further.
- Tim's talk with Dr. Gary Dayton delves into the issue of dealing with fear and emotions in trading. As Dr. Dayton points out, we cannot remove our thoughts and feelings from our daily work. He discusses the idea of practicing "mindfulness", which teaches us to defuse our emotions and be aware of what the mind is telling us (since our thoughts are impermanent and often inconsistent).
These are issues I've had to deal with (and continue to work on) in my return to trading. What we can do, as businesslike speculators, is focus on defining our method/style and our edge.
We also need some sort of learning process to help us begin to get comfortable with our chosen trading style. Whether it's some sort of realistic simulation or a "start small" process that has us trading real money with smaller position sizes, it seems some form of real-time trading education is key to building confidence and overcoming the fear of pulling the trigger.
Have you faced these problems in trading? What have you done to overcome your fears? Share your experiences with us.
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Photo credit: Student Archer, via U of Iowa digital library.
Related articles and posts:
1. Zen and the Art of Trading.
2. Mark Minervini interview: define and refine your approach.
3. What Makes a Great Trader? Managing Risk