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The Psychology of Trading: Tools and Techniques for Minding the Markets Hardcover – December 23, 2002
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From the Inside Flap
Behavior is patterned. Beginning with this premise, noted clinical psychologist and active trader Dr. Brett Steenbarger opens the therapists door, demonstrating how traders can identify, interrupt, and change the problem patterns that interfere with successful trading. In The Psychology of Trading, Dr. Steenbarger draws upon real-life case studies and offers hands-on techniques for emotional change to assist traders in becoming their own therapists. Themes that set The Psychology of Trading apart include:
- "Trading from the couch" by utilizing emotions as valuable market data
- Identifying and building solution patterns that capture hidden trading expertise
- Techniques for assessing and trading against the emotions of market participants
- Methods for building focus and concentration for more automatic and trustworthy trading decisions
- Creating shifts in states of consciousness to rapidly exit anxious, impulsive, depressed, and guilty frames of mind
In an engaging manner that provides practical solutions to real trading problems, Dr. Steenbarger walks you through the most common cognitive and emotional tendencies that distort efforts at identifying and trading market patterns. He then describes specific skills derived from years of brief therapy practice to help you become an effective observer of these tendencies and gain control over them. By blending state-of-the-art research from psychology and cognitive neuroscience with detailed case studies, The Psychology of Trading provides you with the intellectual and emotional ammunition to face yourself and transform your approach to risk and reward.
From the Back Cover
"The one, only, and by far the best book synthesizing psychology and investing. In addition to providing modern, scientific knowledge about psychology, this book provides a mirror into the mind and wide breadth of knowledge of one of the leading practitioners of brief and effectual cures. Will help to cure your trading and your life."
Victor Niederhoffer, Chief Speculator, Manchester Investments
Author, The Education of a Speculator and Practical Speculation
"How refreshing! A book that rises above the old NLP model of the 80s and provides insights on how our relationship with the market is indeed a very personal one. Not only has Steenbarger provided some fantastic tools for the trader to transform his mindset, but he has contributed unique trading ideas as well. Brilliant!"
Linda Raschke, President, LBRGroup, Inc.
"Investigate, before you invest was for many years the slogan of the New York Stock Exchange. I always thought a better one would be, Investigate YOURSELF, before you invest. The Psychology of Trading should help you increase your annual investment rate of return. Mandatory reading for anyone intending to earn a livelihood through trading. "
Yale Hirsch, The Hirsch Organization Inc., Editor, The Stock Traders Almanac
"This highly readable, highly educational, and highly entertaining book will teach you as much about yourself as about trading. Its Oliver Sacks meets Mr. Marketextraordinary tales of ordinary professionals and individuals with investment disorders, and how they successfully overcame them. It is a must-read both for private investors who have been shell-shocked in the bear market and want to learn how to start again, as well as for pros who seek an extra edge from extra inner knowledge. Steenbargers personal voyage into the mind of the market is destined to become a classic."
Jon Markman, Managing Editor, CNBC on MSN Money
Author, Online Investing and Swing Trading
"Dr. Steenbargers fascinating, highly readable blend of practical insights from his dual careers as a brilliant psychologist and trader will benefit every investor; knowing oneself is as important as knowing the market."
Laurel Kenner, CNBC.com Columnist, Author, Practical Speculation
Top customer reviews
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For all those who have read the negative reviews, I would think the discrepancy between what the good reviews and bad reviews are saying is the level of introspection one has. If you are an extreme introvert that is in love with his own thoughts more than what is happening around him (like me),this will be a huge help. If you are an insightful and introspective extrovert, this will help you. If you are the type who never knows what they are feeling or don't understand the social pressures imposed on them or can't appreciate silence (this book is not actually about all three of these), it may be a good read for you, but you have some learning of yourself to do.
If you can't see how trading brings the same psychological contexts as the rest of life, pay someone else to trade for you. What has happened to us in life shows up in our trading. What we struggle with in life shows up in our trading. We cannot compartmentalize these parts of our lives as well as we think.
This book helped me parse between me and my trading (they are not one and the same.... though my self talk told me otherwise). It taught me how to change my mood and perspective by using my body. And it works. It taught me that most of my knee jerk trading issues were not deep rooted psychological issues. They are common issues. They are easy to deal with and you don't need therapy or a trading coach to overcome them.
If you are profitable but not as profitable as you know you can be (1% and not 3% or more) you can learn how to challenge yourself to be better. If you are not profitable, this is not a trading system. If your trading system is valid, this will help you execute a working trading system. If your trading system is nonfunctional, that doesn't mean YOU are and this book will only help after your trading system has been back tested and verified.
Also check out his TraderFeed blog
What sets this book apart from other books is how he takes clinical examples and relates personality traits to success/failures/acceptance/rejection in life. Really goes a long way in helping fix those repetitive mistakes that many traders make.
Must buy for most traders.
First off, this book and its insights are very well thought out. You get the sense that this author is not some hot shot. He is a down to earth human and it is easy to emphasize with him in many of his stories of emotional swings in the market.
The author is able to take the psychology of trading and apply it to the real world. All too often new traders think of trading as one thing and life as another. As someone who has been on this path for awhile, things begin to merge as you find that your problems in life carry over to your problems in trading, and to be a good trader for long periods of time, you must also be good at living well in general.
I have read reviews complaining about the stories and their relevance. There is a inkling of truth to these statements, but they usually come from readers who are not well experienced in the markets. This book is very subtle in its own way and many of its pearls of wisdom are not "smack you in the face" statements. This book is definitely not for those who are brand new to trading because they will not have the experience that lets them understand how the stories this author tells are relevant to his trading.
So what is the use of this book if you have to already know what he is talking about to read it? Well the author definitely puts things that are already deeply understood into new context. Putting this market wisdom in new ways is always a great way to solidify your mental structure and sometimes be able to apply it outside of your previous focus.
All in all, I would tell any trader that they have to have this book on their shelf, but that it is a book to be read many times, chapter by chapter, not all at once. Like Market Wizards, Disciplined trader, or Rem. of a stock operator, this book requires patience and an understanding of subtlety. You will get new insights every time you leaf through it.
Concerning his last chapter and sometimes throughout the book, he is definitely on the leading edge of where trading is going. Before computers became very powerful, most good traders needed implicit knowledge and experience to trade. Now that computers have taken over quite a bit of the playing field with Quant funds and technical analysis, sometimes this old "seat of the pants" trading is called undisciplined hogwash. However, the best traders will be able to use the new psychological information about instinct, combined with the technology and discipline of systems, to become proverbial Michael Jordans of Trading. Very very interesting stuff.