Sharp Brains: Brain Fitness and Cognitive Health News

Neuroplasticity, Brain Fitness and Cognitive Health News


Enhancing Trader Performance and The Psychology of Trading: Interview with Brett N. Steenbarger

Today we are going to talk about the appli­ca­tions of cog­ni­tive neu­ro­science to trad­ing and neu­ro­fi­nance. Brett N. Steen­barg­er , Ph.D. is Asso­ciate Pro­fes­sor of Psy­chi­a­try and Behav­ioral Sci­ences at SUNY Upstate Med­ical Uni­ver­si­ty, active trad­er for over 30 years, for­mer Direc­tor of Trad­er Devel­op­ment for Kingstree Trad­ing, LLC, and author of The Psy­chol­o­gy of Trad­ing: Tools and Tech­niques for Mind­ing the Mar­kets(Wiley, 2003) and the new Enhanc­ing Trad­er Per­for­mance: Proven Strate­gies From the Cut­ting Edge of Trad­ing Psy­chol­o­gy (Wiley, 2007).

He writes fea­ture columns for the Trad­ing Mar­kets web­site and sev­er­al trad­ing pub­li­ca­tions, includ­ing Stocks Futures and Options Mag­a­zine.

Key take-aways

-Elite per­form­ers in any high­ly-com­pet­i­tive field fol­low struc­tured learn­ing and train­ing process­es to devel­op their skills, ensur­ing con­tin­u­ous feed­back and refine­ment.

- Traders would ben­e­fit to fol­low­ing this exam­ple. Tools at their dis­pos­al include books, sim­u­la­tion pro­grams, biofeed­back pro­grams for emo­tion­al man­age­ment, and coach­es.

- Spe­cif­ic skills to train are brain speed and work­ing mem­o­ry (for short-term traders), ana­lyt­i­cal skills (long-term ones). For both, man­ag­ing emo­tion­al-dri­ven impul­sive behav­ior.

Books on Trad­ing and Peak Per­for­mance

Alvaro Fer­nan­dez (Alvaro): Wel­come, Prof. Steen­barg­er. Why don’t you start by pro­vid­ing us some con­text on your inter­est in trad­ing per­for­mance and how it led you to your new book?

Brett N. Steen­barg­er (Brett): Thanks, Alvaro, for hav­ing me here. I real­ly enjoyed your last inter­view with Prof. Gopher. My main inter­est is how to enhance cog­ni­tive and emo­tion­al devel­op­ment among traders to help them become more suc­cess­ful. My first book, The Psy­chol­o­gy of Trad­ing, focused on emo­tion­al and stress man­age­ment, and tried to help traders (both pro­fes­sion­al and ama­teur) over­come emo­tion­al dis­rup­tions of trad­ing. My new book, Enhanc­ing Trad­er Per­for­mance, helps traders devel­op their own train­ing pro­grams or, we may even call them, “brain gyms”, to build their skills, strength­en their men­tal capac­i­ties, and improve their per­for­mance.

Alvaro: please tell us about your new book. What is the premise, and what are you try­ing to get at?

Brett: The premise is that elite, per­form­ers in high­ly com­pet­i­tive fields share com­mon traits. This includes peo­ple in such fields as ath­let­ics, per­form­ing arts, chess, the mil­i­tary, and med­i­cine. I review the research regard­ing what makes peo­ple suc­cess­ful in a those fields, find the com­mon fac­tors behind their suc­cess, and then apply the find­ings to traders.

Alvaro: what are those com­mon fac­tors for top per­form­ers? And what dif­fer­en­ti­ates elite per­form­ers from the rest?

Brett: The elite per­form­ers are dis­tin­guished by the struc­tur­ing of their learn­ing process. From a rel­a­tive­ly ear­ly age, they are engaged in an inten­sive learn­ing process that builds upon their nat­ur­al tal­ents. They find a niche—a field that makes use of these talents—and become absorbed with a delib­er­a­tive and sys­tem­at­ic learn­ing process that pro­vides them with con­tin­u­ous feed­back about their per­for­mance. The recipe for suc­cess seems to be tal­ent, skill, hard work, and oppor­tu­ni­ty. In con­trast, many peo­ple who don’t end up per­form­ing at a high lev­el were dri­ven most­ly by prac­ti­cal rea­sons to enter that field and are not moti­vat­ed to fol­low the same lev­el of inten­sive and sys­tem­at­ic train­ing. (What Brett is say­ing reminds me of the Learn­ing Cycle that Pro­fes­sor Zull out­lined a few weeks back).

Spe­cif­ic Learn­ing and Train­ing Advice for Traders

Alvaro: What spe­cif­ic advice do you pro­vide to traders in your book?

Brett: Traders typ­i­cal­ly devote lit­tle time to prac­tice and a struc­tured learn­ing process. I want to encour­age them to see that “learn­ing on the job” is not a sub­sti­tute for break­ing down skills into com­po­nents, drilling these, receiv­ing feed­back about per­for­mance, and mak­ing con­tin­u­ous mod­i­fi­ca­tions and improve­ments. In every field of per­for­mance, elite per­form­ers devote more time on prac­tice than per­form­ing. You need to pro­tect and opti­mize that prac­tice, learn­ing time. The aver­age trad­er doesn’t do that, and the result is that many traders lose their trad­ing cap­i­tal with­in 7 months of trad­ing. To devel­op them­selves, I sug­gest traders struc­ture their learn­ing process­es.

There are sev­er­al ele­ments to this devel­op­ment:

- Tools: There are already very good sim­u­la­tions out there that can help traders become more sen­si­tive to pat­terns in the mar­ket and inter­nal­ize these. The abil­i­ty to play and replay mar­ket days pro­vides traders with enhanced screen time to accel­er­ate and deep­en learn­ing. Anoth­er set of tools includes biofeed­back pro­grams that help traders man­age their emo­tions. Biofeed­back is espe­cial­ly help­ful in reduc­ing emo­tion­al arousal that can dis­rupt our exec­u­tive func­tions: judg­ment, plan­ning, ana­lyz­ing, and rea­son­ing.

- Reflec­tion and feed­back: Traders who uti­lize pro­grams to pro­vide them with met­rics on their trading—analyses of their win­ning and los­ing trades—have con­sid­er­able data at their dis­pos­al. The pat­terns revealed by these met­rics help traders fig­ure out both strengths and weak­ness­es. Many times, build­ing on suc­cess­es is more impor­tant than try­ing to change weak­ness­es. Con­stant feed­back on trad­ing results will show traders what they do best—and help them do more of it.

- Role of men­tors and coach­es: In many per­for­mance fields, such as music and ten­nis, coach­es help stu­dents break down their per­for­mance into com­po­nent skills and then sys­tem­at­i­cal­ly work on these and com­bine them. The men­tor is some­one who can struc­ture the learn­ing process for the devel­op­ing per­former and help them move along the path from being a novice to being com­pe­tent to being expert.

Alvaro: inter­est­ing anal­o­gy. Who would be a good “trad­er coach” and where does one find one?

Brett: Ide­al­ly, you need an expe­ri­enced and suc­cess­ful trad­er who is famil­iar with the kind of trad­ing that you will be doing. The book con­tains an appen­dix with dif­fer­ent resources that can help you find edu­ca­tion­al and men­tor­ing resources. For emo­tion­al devel­op­ment, you can coach your­self with prac­ti­cal cog­ni­tive and behav­ioral tech­niques and build new, pos­i­tive ways of think­ing and behav­ing. The last two chap­ters of the book pro­vides read­ers with self-help man­u­als for uti­liz­ing these tech­niques.

Alvaro: let’s talk about some of the key com­po­nents of top per­for­mance in trad­ing, and what skills traders can devel­op.

Brett: First, we must dif­fer­en­ti­ate whether we are talk­ing about short-term or long-term traders. For short-term traders, the pri­or­i­ty would be the abil­i­ty to process large amounts of infor­ma­tion and quick­ly see pat­terns that lead to effec­tive deci­sion-mak­ing. They need speed, and good work­ing mem­o­ry. For long-term traders, ana­lyt­i­cal skills are para­mount.

For both, I would add, know­ing how to deal with “the emo­tion­al fac­tor” is very impor­tant. Many traders get very frus­trat­ed when bets don’t go the way they expect­ed, and become par­a­lyzed or make non-log­i­cal deci­sions. Oth­ers may lose con­cen­tra­tion and focus when they get fatigued, and make impul­sive deci­sions. But I would stress that there is more to trad­ing suc­cess than con­trol­ling emo­tions. It takes tal­ent, skill, and a con­stant learn­ing process. I would also empha­size that, yes, we can train and get bet­ter at many things, but it is equal­ly impor­tant to ensure an opti­mal fit between our trad­ing tal­ents and inter­ests: the mar­kets we trade and the ways we trade them. There has to be a fit between what we’re good at and the oppor­tu­ni­ties afford­ed by a par­tic­u­lar mar­ket and trad­ing style.

Pro­grams: now and in the future

Alvaro: let’s now talk about the tools you men­tioned ear­li­er. What train­ing pro­grams are avail­able now and which ones can you fore­see will be avail­able in the future?

Brett: First, I find that Dr. Elkhonon Goldberg’s metaphor of a gym­na­si­um for the brain is very appeal­ing. We will be see­ing more and more tools for cog­ni­tive and brain fit­ness. Dr. Gold­berg cites con­sid­er­able research that indi­cates we can improve the func­tion­ing of our frontal cor­tex — home of our exec­u­tive func­tions such as our rea­son­ing, plan­ning, judg­ment, analy­sis, and prob­lem-solv­ing -, through struc­tured exer­cis­es, much as we can build our mus­cles in the gym.

Today, traders have very real­is­tic sim­u­la­tion pro­grams that can help them iden­ti­fy mar­ket pat­terns and improve deci­sion-mak­ing. True, as Pro­fes­sor Gopher said in your inter­view with him, what mat­ters is the cog­ni­tive fideli­ty of those sim­u­la­tions, and how they will help traders see new, non-his­tor­i­cal, pat­terns. But, at the very least, exist­ing sim­u­la­tion pack­ages help traders learn very quick­ly how to iden­ti­fy a wealth of recur­ring pat­terns in mar­kets.

Final­ly, I work with many traders on their emo­tion­al reac­tions—espe­cial­ly new traders. Behav­ioral tech­niques can be very help­ful to devel­op calmer, open-mind, atti­tudes. You linked my blog post that stressed the need to keep an open mind and avoid miss­ing unex­pect­ed “Goril­las in the mar­ket”; we need to be aware of and man­age the nar­row­ing of our atten­tion that usu­al­ly fol­lows hyper­fo­cus. For the many peo­ple out there who become angry and frus­trat­ed after trad­ing loss­es, I rec­om­mend exer­cis­es such as deep breath­ing and visu­al imagery, which, after a peri­od of prac­tice, can be applied very quick­ly to our work when we need it. These tech­niques can be rein­forced by the use of biofeed­back pro­grams that pro­vide real-time visu­al feed­back on the trader’s “inter­nal per­for­mance”, reveal­ing whether they are in the Zone of opti­mal learn­ing and per­for­mance or becom­ing stressed, anx­ious and impul­sive.

It is impor­tant to under­stand the role of emo­tions: they are not “bad”. They are very use­ful sig­nals. It is impor­tant to become aware of them to avoid being engulfed by them, and learn how to man­age them.

Alvaro: Prof. Steen­barg­er, many thanks for your very illu­mi­nat­ing com­ments, both on trad­ing and on improv­ing per­for­mance over­all. Any part­ing thoughts for our read­ers?

Brett: let me go back to the key find­ings of my new book. One, peo­ple who aspire to be top per­form­ers in any field must build on what comes nat­u­ral­ly to them, in order to be tru­ly moti­vat­ed and absorbed in con­stant learn­ing. Two, they will need to struc­ture pro­grams to devel­op their skills and work these pro­grams dili­gent­ly. Because elite per­form­ers do what comes nat­u­ral­ly, they become absorbed in the devel­op­ment of their skills. If you have to moti­vate your­self to work at some­thing, it’s prob­a­bly not your call­ing.

Alvaro: Brett, many thanks.

Brett: a plea­sure.


Leave a Reply...

Loading Facebook Comments ...

Leave a Reply

Categories: Cognitive Neuroscience, Education & Lifelong Learning, Health & Wellness, Neuroscience Interview Series, Peak Performance, Professional Development

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Search in our archives

About SharpBrains

As seen in The New York Times, The Wall Street Journal, BBC News, CNN, Reuters,  SharpBrains is an independent market research firm tracking how brain science can improve our health and our lives.

Follow us and Engage via…

RSS Feed

Watch All Recordings Now (40+ Speakers, 12+ Hours)