The Psychology of Trading

Posted by J

The Psychology of Trading by Brett N. Steenbarger

http://www.amazon.com/Psychology-Trading-Techniques-Minding-Markets/dp/0471267619/sr=8-1/qid=1158890793/ref=pd_bbs_1/102-2114092-4768951?ie=UTF8&s=books

After reading "Trend Following" which focused on a specific type of trading and it's practitioners, I thought the title of this book would give a different angle on trading. I was right. While it may not be a masterpiece, as a motivational book that realistically covers the core elements of self-control that a trader needs, I thought this was an excellent book. I recommended it to my wife as well as a generally great self-help book.

Steenbarger's basic thesis is simple: to succeed in trading as in life one needs to learn how to achieve self-mastery. What he does is elucidate that from several different angles from his work both as a professional psychologist and a trader. Sometimes he veers off into slightly weird angles: attaching ones' self to all sorts of electrodes or encouraging one trader to "have a stroke". But even there it's mostly just getting a bit over-enthusiastic as he does a good job of driving home some basic points about how to recognize ones' mental state, identify patterns that drive us to act against our own best interests', experience or create "wake up calls" to get out of them, and (most importantly) how to build new patterns of behavior and healthy habits.

He uses story-telling (altered to protect identities) from his psychology practice to great effect. Also he uses numerous examples from his own life and his own trading. He spends a fair amount of time (though not as much as on the self-control and psychology themes) discussing how markets are patterned. Frankly some of his market theories I'm not so sure about, but he doesn't dwell on them as much and in any case he freely acknowledges there are many ways of approaching markets and what works for one person does not necessarily work for another.

I'd recommend this book to anybody who feels they need to overcome self-defeating habits, minor or major. For traders especially, but for people more broadly as well.