WEBVTT - Interview With Brett Steenbarger: Masters in Business (Audio) 0:00:02.200 --> 0:00:06.800 This is Masters in Business with Barry Ridholts on Boomberg Radio. 0:00:07.760 --> 0:00:11.320 This week on the podcast, I have Dr Brett Steambarger. 0:00:11.440 --> 0:00:16.320 He is a clinical psychologist and a professional trading coach 0:00:16.800 --> 0:00:20.240 who has worked with the likes of Paul Tutor Jones 0:00:20.280 --> 0:00:24.159 and Tutor Investments and a number of other firms that 0:00:24.239 --> 0:00:28.080 are both storied and legendary. You know, this is one 0:00:28.120 --> 0:00:32.319 of those conversations where I know the person virtually. I've 0:00:32.360 --> 0:00:36.640 been reading him for many, many years. We've swapped emails 0:00:37.040 --> 0:00:39.360 over the years, but it was the first time we 0:00:39.520 --> 0:00:43.239 actually met and had a conversation, and I found it 0:00:43.479 --> 0:00:49.479 really quite fascinating. It the idea of performance coaching turns 0:00:49.479 --> 0:00:52.160 out to be somewhat different than you than you might 0:00:52.680 --> 0:00:57.120 have imagined. It's certainly different than is depicted and shows 0:00:57.240 --> 0:01:00.640 like Billions and and all the drama all the rest 0:01:00.640 --> 0:01:04.760 of that sort of stuff just isn't realistic. As he 0:01:04.840 --> 0:01:08.639 describes in the conversation, it's a lot of basic block 0:01:08.720 --> 0:01:12.880 and tackling and a lot of work on on fundamentals. 0:01:13.000 --> 0:01:18.200 Enhancing the positive minimizing the negative probably doesn't make for 0:01:18.400 --> 0:01:23.000 a fascinating uh television show, but the proof is in 0:01:23.040 --> 0:01:26.360 the pudding and the firms that hire him show an 0:01:26.400 --> 0:01:30.600 actual improvement not only in the process and the satisfaction 0:01:30.760 --> 0:01:33.880 level of traders, but ultimately in their P and L 0:01:33.959 --> 0:01:39.120 and that that seems to be the bottom line. What 0:01:39.200 --> 0:01:42.960 he does works uh for firms that have humans who 0:01:43.080 --> 0:01:48.080 have discretion over deploying capital. So if you are an investor, 0:01:48.080 --> 0:01:53.040 a trader, or someone who's just interested in human psychology, 0:01:53.080 --> 0:01:57.320 I think you will find this to be an interesting conversation. So, 0:01:57.520 --> 0:02:01.240 with no further ado, uh, my interview with Dr Brett 0:02:01.240 --> 0:02:07.360 steam Barger. This is Masters in Business with Barry Ridholts 0:02:07.480 --> 0:02:10.200 on Bloomberg Radio. This week on the show, we have 0:02:10.440 --> 0:02:14.480 Dr Brett steam Barger. He is a clinical psychologist and 0:02:14.560 --> 0:02:17.520 a trading coach, and he has worked with such storied 0:02:17.560 --> 0:02:23.120 firms as Kingstree Trading and Tutor Investments. Dr Brett stein Barger, 0:02:23.320 --> 0:02:26.519 Welcome to Bloomberg. Thanks for having me, Barry. So, you 0:02:26.880 --> 0:02:30.720 have a really interesting background. You graduate with a b a. 0:02:31.000 --> 0:02:33.919 In psychology from Duke and seventy six, You get your 0:02:33.919 --> 0:02:38.239 pH d from the University of Kansas two and then 0:02:38.280 --> 0:02:42.560 you begin what looks like a pretty typical academic career 0:02:43.200 --> 0:02:48.800 in clinical psychology New York City, Courtland, Cornell, Syracuse, and 0:02:48.800 --> 0:02:51.560 then all of a sudden you end up at a 0:02:51.639 --> 0:02:56.959 trading shop. How did how did that shift come about? Yeah? It, actually, Barry, 0:02:57.000 --> 0:03:01.320 looks more like a radical shift than it was in reality. 0:03:01.360 --> 0:03:06.320 I began trading myself in the late nineteen seventies while 0:03:06.360 --> 0:03:09.280 I was in graduate school, and so it was a 0:03:09.360 --> 0:03:13.280 parallel interest to the psychology and it helped keep me 0:03:13.320 --> 0:03:18.880 afloat as a poor, starving graduate student. And I maintained 0:03:18.880 --> 0:03:22.680 that interest throughout my training and throughout my early career 0:03:22.760 --> 0:03:26.919 as a psychologist. So what was the event that led 0:03:27.000 --> 0:03:31.160 you to start coaching traders. Well, up to that point, 0:03:31.400 --> 0:03:35.800 I had been doing counseling with college students at Cornell 0:03:36.440 --> 0:03:40.960 and with medical students and residence at SUNNI Upstate in Syracuse. 0:03:41.600 --> 0:03:46.680 So my main area of focus was working with very bright, 0:03:47.360 --> 0:03:53.520 very motivated students, professionals under who are under pressure and 0:03:53.640 --> 0:03:59.440 helping them perform to their maximum. When I started interacting 0:03:59.520 --> 0:04:03.520 with trade leaders, I noticed similar dynamics to the medical 0:04:03.560 --> 0:04:05.920 students and residents that I worked with. Not not a 0:04:05.960 --> 0:04:09.320 big leap that it was psychologically in terms of working 0:04:09.320 --> 0:04:11.480 with them as a psychologist. It was not a leap 0:04:11.560 --> 0:04:15.280 at all the same exact techniques that were helpful. Let's 0:04:15.280 --> 0:04:19.520 say to a surgical resident who's working eighteen hour days 0:04:19.680 --> 0:04:23.080 and working under pressure, not different than working with a 0:04:23.120 --> 0:04:26.440 portfolio manager, let's say at a macro hedge fund. So 0:04:27.000 --> 0:04:30.000 let's um, let's talk about some of the errors that 0:04:30.160 --> 0:04:34.120 traders make that are fixable coachable. I don't even know 0:04:34.200 --> 0:04:36.839 what what's the right phrase to do that? What? What 0:04:36.920 --> 0:04:42.160 are the typical problems that you see amongst traders, Well, 0:04:42.200 --> 0:04:43.800 there are quite a few, and some of them are 0:04:43.839 --> 0:04:47.360 trading problems and some of them are psychological problems. One 0:04:47.400 --> 0:04:50.120 of the things I emphasize with the traders and the 0:04:50.200 --> 0:04:54.279 portfolio managers I work with is keeping score, keeping score 0:04:54.360 --> 0:04:57.080 of what they do well, keeping score of what they 0:04:57.080 --> 0:05:00.440 do that needs improvement, so that they are always learning 0:05:00.560 --> 0:05:04.760 from their experience, always recognizing the mistakes they can correct. 0:05:05.360 --> 0:05:09.200 One of the greatest big picture mistakes that traders can 0:05:09.240 --> 0:05:14.560 make is the failure to adapt to changing markets. They 0:05:14.600 --> 0:05:18.560 hope that they have an edge, probabilistic edge in the markets. 0:05:18.800 --> 0:05:22.520 They hope that that edge will last in perpetuity, and 0:05:22.560 --> 0:05:26.720 in fact, markets change, and just like any business, what 0:05:26.760 --> 0:05:30.040 worked at one time can become obsolete at another and 0:05:30.400 --> 0:05:33.919 failing to innovate is one of the greatest problems. Failing 0:05:33.960 --> 0:05:40.839 to innovate. Just describe how individual traders innovate. They innovate 0:05:41.240 --> 0:05:47.679 by tracking patterns in markets, tracking what moves markets, and 0:05:47.960 --> 0:05:52.360 developing new and different ways of monitoring that and taking 0:05:52.400 --> 0:05:56.000 advantage of that. So, for instance, an example would be 0:05:56.680 --> 0:06:02.800 as computers, as algorith big trading systems became more dominant 0:06:03.240 --> 0:06:08.280 in the marketplace, we found more traders, both short term 0:06:08.279 --> 0:06:13.679 traders and portfolio managers employing some quantitative techniques to help 0:06:13.760 --> 0:06:16.760 them understand some of the forces that we're moving markets. 0:06:17.120 --> 0:06:21.000 That's an evolution, that's adaptation. So let's talk about when 0:06:21.040 --> 0:06:24.880 you shifted, Um, is it fair to call at full 0:06:24.920 --> 0:06:28.480 time as a trader coach? Was it two thousand four 0:06:29.040 --> 0:06:32.520 Kingstreet Trading, who for people may not be familiar with them, 0:06:32.560 --> 0:06:35.560 at one point in time they were of all the 0:06:35.600 --> 0:06:40.240 futures trading at the Chicago Mark. They recruit you, Um, yes, 0:06:40.320 --> 0:06:42.800 to be the head of trader development. Is that that's right? 0:06:42.880 --> 0:06:45.680 That's right. So I had written my first book, The 0:06:45.720 --> 0:06:49.279 Psychology of Trading, and one of their traders had discovered 0:06:49.320 --> 0:06:52.320 the book and convinced the owner of the firm to 0:06:52.360 --> 0:06:54.960 bring me in to work with the traders. That went 0:06:55.080 --> 0:06:57.839 very well, and they hired me on a full time basis. 0:06:58.040 --> 0:07:00.840 I left the Ivory Tower and went full time to 0:07:00.960 --> 0:07:04.000 working at a crazy trading firm in Chicago with people 0:07:04.040 --> 0:07:06.960 I loved. So I would imagine a lot of people 0:07:06.960 --> 0:07:09.400 who are listening to this might be familiar with the 0:07:09.440 --> 0:07:13.880 idea of a trading coach from the showtime show Billions. 0:07:14.400 --> 0:07:16.800 Have you seen it? Does it doesn't ring true? Or 0:07:16.840 --> 0:07:21.640 is it just a Hollywood dramatization of that sort of relationship. 0:07:21.680 --> 0:07:24.400 I can tell you that there's a lot less drama 0:07:24.480 --> 0:07:28.320 in my work, and I don't think the nuts and 0:07:28.360 --> 0:07:31.120 bolts of my work would make it into TV drama. 0:07:31.520 --> 0:07:37.160 A lot of the improvements that traders make are nuances 0:07:36.880 --> 0:07:39.880 that it's the block crement, yeah, incremental, it's the blocking 0:07:39.920 --> 0:07:43.280 and tackling, so to speak, learning to do things better, 0:07:43.360 --> 0:07:48.240 identifying mistakes made, where to and how to best execute 0:07:48.240 --> 0:07:53.680 a trade, how to wait evidence in, deciding upon an 0:07:53.720 --> 0:07:56.880 idea to invest in. Those are the kind of nuances 0:07:57.000 --> 0:07:59.480 that end up making a big difference in performance, but 0:07:59.520 --> 0:08:02.680 are not particularly traumatic to work on. You hinted something 0:08:02.720 --> 0:08:05.280 that I had that raises another question in my mind. 0:08:05.600 --> 0:08:09.440 When you evaluate how well you're doing, is it just 0:08:09.600 --> 0:08:12.720 a function of the trader's P and L or are 0:08:12.760 --> 0:08:16.800 you looking at process more than outcome? Great question, and 0:08:17.280 --> 0:08:20.400 you have to look at both. You know, at one level, 0:08:20.400 --> 0:08:23.400 what a affirm hires me. We have to look at 0:08:23.560 --> 0:08:28.080 do the traders make use of the resource? That's one level. 0:08:28.120 --> 0:08:31.280 Are are they satisfied with it? Do they feel they've 0:08:31.320 --> 0:08:37.040 benefited from it? So satisfaction is one criterion. The second 0:08:37.040 --> 0:08:40.840 criterion is a process one. Are they actually doing something 0:08:41.040 --> 0:08:44.680 different as a result of the meetings? And then the 0:08:44.760 --> 0:08:49.080 third criterion would be the profitability. Does doing something different 0:08:49.120 --> 0:08:54.960 translate into better overall performance? I'm very Rihults. You're listening 0:08:55.000 --> 0:08:58.840 to Masters in Business on Bloomberg Radio. My special guest 0:08:58.880 --> 0:09:03.280 today is Dr Steam Barger. He is a clinical psychologist 0:09:03.800 --> 0:09:07.680 and professional trading coach. Let's talk a little bit about 0:09:07.920 --> 0:09:12.160 the process of coaching traders and investors. Where does that 0:09:12.240 --> 0:09:17.480 process begin. The process begins with self observation, and this 0:09:17.600 --> 0:09:20.920 is true of any psychological change. We have to become 0:09:21.080 --> 0:09:25.520 aware of our patterns before we can make changes in 0:09:25.559 --> 0:09:30.800 those patterns. So typically, I will observe a trader and 0:09:30.880 --> 0:09:32.800 what they're doing. I will have I will give them 0:09:32.840 --> 0:09:37.280 exercises to help them with self observation, and will begin 0:09:37.400 --> 0:09:42.000 to observe patterns and what they do, some successful patterns, 0:09:42.080 --> 0:09:44.720 some patterns that get them into trouble. What what's what 0:09:44.760 --> 0:09:48.680 do these exercises look like? That sounds interesting? Well, the 0:09:48.720 --> 0:09:52.760 most basic exercise that people associate with coaching of traders 0:09:52.760 --> 0:09:56.600 would be keeping a journal, so people, day in day out, 0:09:56.840 --> 0:10:00.000 will track the decisions they make and how they made them, 0:10:00.000 --> 0:10:02.640 why they made them, and the success of those decisions. 0:10:02.960 --> 0:10:05.480 They may track certain things in their personal life as 0:10:05.520 --> 0:10:08.120 far as their mood, their energy level, and so forth, 0:10:08.679 --> 0:10:11.520 and we start to look at the patterns that appear 0:10:12.360 --> 0:10:16.079 in the journal entries. So, what are some of the 0:10:16.760 --> 0:10:20.080 bad habits you see that traders engage in. Some of 0:10:20.120 --> 0:10:24.280 the bad habits that traders engage in is are an 0:10:24.280 --> 0:10:28.360 inability to turn it off, so to speak. Explain that 0:10:28.360 --> 0:10:31.280 a little bit, Yes, so they take the problems home 0:10:31.320 --> 0:10:35.200 with them. They really don't get a chance or give 0:10:35.240 --> 0:10:40.439 themselves a chance to renew themselves. And they justify that 0:10:40.520 --> 0:10:43.200 by saying they're so devoted to their trading and so 0:10:43.280 --> 0:10:45.920 devoted to markets when in fact they're in the process 0:10:45.920 --> 0:10:48.480 of burning themselves out. Sometimes you have to take one 0:10:48.480 --> 0:10:51.560 step back to go two steps forward. Well, take a 0:10:51.600 --> 0:10:54.960 step back, but also a lateral step. What the psychological 0:10:55.000 --> 0:10:59.280 research tells us is that people perform best when they 0:10:59.360 --> 0:11:03.760 have a healthy amount of positive emotional experience of their lives. 0:11:04.400 --> 0:11:08.120 And that experience could come from relationships, it could come 0:11:08.280 --> 0:11:13.640 from deeply meaningful activities, it could come from physical exercise. 0:11:14.200 --> 0:11:19.520 And so what people become overly immersed in trading, they 0:11:19.600 --> 0:11:23.720 often shut off some of these other positive avenues and 0:11:23.800 --> 0:11:25.960 that's part of what helps burn them out. What what 0:11:26.080 --> 0:11:30.520 about work satisfaction? What happens when a person's work satisfaction falls. 0:11:30.600 --> 0:11:34.040 Do they find themselves in a downward spiral that becomes 0:11:34.160 --> 0:11:37.440 challenging to break? They can, And that kind of downward 0:11:37.480 --> 0:11:42.040 spiral can become a slump, and many traders are familiar 0:11:42.120 --> 0:11:48.440 with that phenomenon. When people draw down in their trading, 0:11:48.520 --> 0:11:52.200 as happens to all of us, it's important to have 0:11:52.520 --> 0:11:57.960 other areas of positive focus. So, for instance, one of 0:11:58.000 --> 0:12:01.160 the things I work with the raiders on if they 0:12:01.200 --> 0:12:03.760 work within a team, is how they can build their 0:12:03.800 --> 0:12:07.439 team processes and how they can be more successful, more productive. 0:12:07.440 --> 0:12:11.959 As a team, we work on refining their trading processes 0:12:12.000 --> 0:12:15.480 and learning from the draw downs so that they always 0:12:15.600 --> 0:12:19.679 feel as though they're moving themselves forward, even when their 0:12:19.679 --> 0:12:22.680 accounts aren't necessarily moving forward. So let me ask you 0:12:22.720 --> 0:12:26.480 the opposite question. I always ran into trouble as a trader, 0:12:26.679 --> 0:12:29.640 not when I was having trouble, but when I was 0:12:29.679 --> 0:12:33.079 on a hot streak, when I felt whatever I touched 0:12:33.120 --> 0:12:36.920 turned to gold, and that invariably ended badly. What do 0:12:36.920 --> 0:12:40.080 you do when you have somebody who's just on fire 0:12:40.320 --> 0:12:43.360 and you want to rein them in without you know, 0:12:43.480 --> 0:12:47.720 reigning on their parade. It's very easy for confidence to 0:12:47.760 --> 0:12:51.280 become over confidence. Let me give you an anecdote. With 0:12:51.320 --> 0:12:54.000 several traders that I worked with a few years ago, 0:12:54.679 --> 0:12:59.400 we took a look at their profitability as a function 0:12:59.440 --> 0:13:02.760 of their level of risk taking, and so when they 0:13:02.800 --> 0:13:07.880 were taking relatively little risk, they were consistently profitable. Their 0:13:07.960 --> 0:13:11.199 hit rate on trades was very good. When they were 0:13:11.240 --> 0:13:14.800 taking the most risk, which is when they were most confident, 0:13:15.000 --> 0:13:18.880 they were actually losing money because their confidence had become 0:13:18.960 --> 0:13:24.400 over confidence. So what we did we created computer arized 0:13:24.440 --> 0:13:28.160 alerts that told people when their risk taking was getting 0:13:28.200 --> 0:13:32.480 into the red zone as a way of monitoring possible 0:13:32.559 --> 0:13:35.360 over confidence. What we were really saying to them is 0:13:35.640 --> 0:13:39.520 when you're taking this amount of risk, historically, you don't 0:13:39.520 --> 0:13:43.640 make money. So the baseball analogy is the difference between 0:13:43.720 --> 0:13:45.720 just getting wood on the ball and getting on base 0:13:45.880 --> 0:13:49.520 versus swinging for the fences and striking out. That's right, 0:13:49.600 --> 0:13:52.000 that's right, fair way to look at it, and and 0:13:52.400 --> 0:13:55.480 my goal as a coach is to make people aware 0:13:55.520 --> 0:13:59.720 of those patterns, help them become mindful of those patterns, 0:13:59.720 --> 0:14:03.080 not tell them how to trade. So how often are 0:14:03.080 --> 0:14:05.880 you sitting down with traders? Is this a weekly thing, 0:14:05.920 --> 0:14:10.040 a daily, a monthly? What what is the usual time 0:14:10.040 --> 0:14:12.920 frame for someone like? It varies tremendously. When I've worked 0:14:12.960 --> 0:14:17.479 full time at trading firms, then it was not unusual 0:14:17.679 --> 0:14:21.200 for us to touch base to meet several times a week. 0:14:21.520 --> 0:14:25.240 There are traders even now that I meet with who 0:14:25.280 --> 0:14:28.040 will send me their journal entries on a daily basis 0:14:28.480 --> 0:14:32.120 as a way of getting quick feedback. But others times 0:14:32.160 --> 0:14:36.960 it's a monthly process. In some cases it's as wanted 0:14:37.000 --> 0:14:41.360 as needed, So it really depends on the urgency that 0:14:41.480 --> 0:14:45.160 the trader feels in terms of need for change. So 0:14:45.440 --> 0:14:48.600 there's a related question to that, the feeling the need 0:14:48.920 --> 0:14:53.680 for change, which is what makes somebody coachable if that's 0:14:53.720 --> 0:14:58.200 the right word, And the corollary, are some traders just 0:14:58.400 --> 0:15:04.120 uncoachable the coach doable? The coachability factor partly depends on 0:15:04.160 --> 0:15:07.960 the capacity for self observation. People who would be really 0:15:08.040 --> 0:15:11.120 uncoachable probably never seek out a coach to begin with, 0:15:11.840 --> 0:15:16.680 But clearly if someone is more defensive than open minded 0:15:17.040 --> 0:15:19.640 to the things that they're doing wrong, that's going to 0:15:19.720 --> 0:15:24.480 make it a difficult situation for coaching. So I one 0:15:24.480 --> 0:15:27.240 of the questions I had tied up, which you kind 0:15:27.240 --> 0:15:29.520 of answered, but I have to go back to it, 0:15:29.600 --> 0:15:32.680 is how much do you need to know about trading 0:15:32.920 --> 0:15:36.560 to be an effective trading coach? And maybe a better way, 0:15:36.920 --> 0:15:39.960 now that I know you've been trading for thirty plus years, 0:15:40.240 --> 0:15:43.320 maybe the better way to ask that question is what's 0:15:43.360 --> 0:15:48.520 the ratio between psychology and trading when you're coaching people? 0:15:48.760 --> 0:15:52.640 It's a mixed ratio because, as I mentioned before, sometimes 0:15:52.680 --> 0:15:59.200 trading problems create psychological frustrations, and sometimes psychological issues can 0:15:59.320 --> 0:16:02.960 interfere with good trading decisions, and a big part of 0:16:02.960 --> 0:16:08.000 what I do is try to tease apart the causality. 0:16:08.280 --> 0:16:13.120 Is this a trading problem that's having psychological effects, or 0:16:13.240 --> 0:16:15.360 is it a psychological issue that might be affecting their 0:16:15.520 --> 0:16:20.320 entire life that's influencing their trading. It's very helpful as 0:16:20.360 --> 0:16:26.280 a coach to have familiarity with trading, with making trading decisions. 0:16:26.320 --> 0:16:30.480 I have long contended that my greatest credential as a 0:16:30.520 --> 0:16:34.280 coach is not the three letters after my name. My 0:16:34.400 --> 0:16:37.280 greatest credential as a coach is that I have made 0:16:37.360 --> 0:16:40.760 every mistake that all of the traders I work with 0:16:40.880 --> 0:16:44.280 have made. I'm Barry Hults. You're listening to Master's in 0:16:44.320 --> 0:16:49.200 Business on Bloomberg Radio. My guest today is Dr Brett Steambarger. 0:16:49.400 --> 0:16:54.040 He is a clinical psychologist and a trading coach who 0:16:54.080 --> 0:16:57.840 graduated from the University of Kansas with a PhD. In 0:17:00.080 --> 0:17:03.000 Let's jump right into some of the things you do 0:17:03.320 --> 0:17:07.239 coaching traders. How does a firm go about deciding we 0:17:07.280 --> 0:17:09.400 want to work with the trading coach. We think there's 0:17:09.440 --> 0:17:12.240 some gains to be had from that. Often the initial 0:17:12.640 --> 0:17:15.840 request or demand will come from the traders or the 0:17:15.840 --> 0:17:21.440 portfolio managers themselves. Maybe they have known someone who has 0:17:21.480 --> 0:17:25.240 worked with me, maybe they've read my trader feed blog, 0:17:25.359 --> 0:17:27.880 or they've read one of my books, and so they 0:17:27.960 --> 0:17:31.160 will bring it to the attention of management. Then I'll 0:17:31.200 --> 0:17:34.399 typically go into a firm and do a talk for 0:17:34.440 --> 0:17:37.520 the traders and talk with them about trading, talk with 0:17:37.560 --> 0:17:41.520 them about psychology, talk about working on performance, and they 0:17:41.560 --> 0:17:45.000 make a decision from there. So someone decides they want 0:17:45.000 --> 0:17:48.800 to work with you, And at that point, isn't mandate? 0:17:48.960 --> 0:17:51.560 Is voluntary to people? How do people start filling up 0:17:51.600 --> 0:17:56.199 your calendar? How does that work? Totally voluntary? This is 0:17:56.240 --> 0:18:01.200 something that is available to traders, but not required of them. 0:18:01.240 --> 0:18:04.000 What I typically find is that in the beginning there 0:18:04.000 --> 0:18:06.920 are the early adopters, and then there are a few 0:18:06.960 --> 0:18:10.960 tire kickers along the way, And as the results come 0:18:11.000 --> 0:18:14.280 out and it goes well, then more people here about 0:18:14.320 --> 0:18:18.000 it and get interested, and so the interest can grow 0:18:18.119 --> 0:18:22.720 over time. So we talked earlier about hot and cold streaks. 0:18:22.720 --> 0:18:25.960 But the question I have you is, Hey, sometimes you 0:18:26.000 --> 0:18:28.600 flip a coin and you get ten tales in a row. 0:18:29.720 --> 0:18:33.120 How challenging it is it to tell the difference between 0:18:33.800 --> 0:18:37.600 someone whose process has some issues and someone who, hey, 0:18:37.640 --> 0:18:40.040 sometimes you know the dice, just don't don't go your 0:18:40.040 --> 0:18:42.680 way for a while, and eventually that will turn around 0:18:42.720 --> 0:18:46.879 on its own. It's a very important distinction, and obviously, Mary, 0:18:46.920 --> 0:18:49.840 it's one of the reasons why risk management is one 0:18:49.880 --> 0:18:54.320 of the most important psychological tools for traders, because there 0:18:54.320 --> 0:18:58.320 are going to be random streaks of losing trades and 0:18:58.359 --> 0:19:01.440 you have to be able to survive that risk of ruin. 0:19:02.080 --> 0:19:04.960 What we typically look at or two things when someone 0:19:05.119 --> 0:19:08.960 has a series of losers. The first is have markets 0:19:09.000 --> 0:19:12.639 themselves changed? Is there something different about the market that 0:19:12.720 --> 0:19:15.200 we need to adapt to? The second is has your 0:19:15.200 --> 0:19:19.199 process changed? Are you doing something differently than when you 0:19:19.280 --> 0:19:25.400 were winning? And those two questions usually will help us 0:19:25.440 --> 0:19:28.439 figure out whether we need to take adaptive action or 0:19:28.480 --> 0:19:33.320 whether it's just bad luck. So you mentioned winning and losing, 0:19:33.400 --> 0:19:35.520 and I'm gonna go off script a second ask you 0:19:35.560 --> 0:19:39.080 a question that I've always been fascinated by, which is 0:19:39.240 --> 0:19:42.760 you're looking around Wall Street and the traders that are there. 0:19:43.359 --> 0:19:48.080 Forget the algorithms, but the actual human traders historically have 0:19:48.520 --> 0:19:54.199 come from a um collegiate athletics background that seems to 0:19:54.240 --> 0:19:58.119 be rifle of Wall Street any thoughts on that. I 0:19:58.160 --> 0:20:03.640 think that's common. I I think it's far from always 0:20:03.680 --> 0:20:09.400 the case, especially lately. People with athletic backgrounds or backgrounds 0:20:09.400 --> 0:20:14.480 in performance fields in general tend to be competitive, tend 0:20:14.520 --> 0:20:18.080 to be interested in winning and losing, and so it's 0:20:18.119 --> 0:20:23.120 a natural transition in that respect to trading. Uh. That 0:20:23.200 --> 0:20:26.919 being said, I believe that trading is a much more 0:20:26.960 --> 0:20:31.640 analytical game now than it was let's say, twenty years ago, 0:20:32.359 --> 0:20:35.879 and so we see people who have some of the 0:20:35.960 --> 0:20:42.040 analytical background going into financial markets a little bit different 0:20:42.119 --> 0:20:46.200 than when it used to be mostly the jocks. Makes sense. 0:20:46.560 --> 0:20:49.240 Let's let's talk a little bit about ego. How important 0:20:49.320 --> 0:20:52.840 is it to have a healthy ego and when can 0:20:52.880 --> 0:20:56.680 that run them up. You have to have some ego 0:20:56.920 --> 0:21:01.520 to believe that you can outperform all of these other motivated, 0:21:01.880 --> 0:21:06.200 talented participants in the marketplace, and you have to have 0:21:06.280 --> 0:21:10.560 an ego to be resilient to the inevitable periods of losing. 0:21:11.119 --> 0:21:17.800 It's when the ego becomes dominant when people feel the 0:21:18.000 --> 0:21:22.560 need to make the big calls. In a sense, it's 0:21:22.600 --> 0:21:28.320 about them being right rather than them following what markets 0:21:28.320 --> 0:21:32.679 are doing. That traders can run into some real problems. 0:21:33.600 --> 0:21:35.639 That's funny you say that. A few weeks ago in 0:21:35.720 --> 0:21:39.600 a column I referenced a Ned Davis book whose cover 0:21:40.000 --> 0:21:43.080 I love. The title I loved, which was being right 0:21:43.280 --> 0:21:46.560 or making money? And it's just well, you can choose 0:21:46.600 --> 0:21:48.399 you Is it the ego or is it the P 0:21:48.560 --> 0:21:50.919 and L that matters? Yes. The way I sometimes have 0:21:51.240 --> 0:21:54.520 put it is that if you're engaged in a dance 0:21:54.880 --> 0:21:57.680 with the market, you have to let the market lead. 0:21:58.920 --> 0:22:01.040 I like that. I like that a lot. So what 0:22:01.359 --> 0:22:05.200 is more to follow up on the athletic theme. What's 0:22:05.240 --> 0:22:11.920 more important? Offense or defense? Well, clearly both are important. Um, 0:22:11.960 --> 0:22:15.200 if you don't have good defense, you simply don't stay 0:22:15.200 --> 0:22:19.399 in the game. And so what we typically find is 0:22:19.520 --> 0:22:24.320 beginning traders often their greatest problem is overtrading, becoming too 0:22:24.400 --> 0:22:28.760 eager and trading way too much and not managing their risk. Well, 0:22:28.920 --> 0:22:32.199 I'm Barry Ridhults. You're listening to Masters in Business on 0:22:32.240 --> 0:22:36.040 Bloomberg Radio. My special guest today is Dr Brett steam Barger. 0:22:36.119 --> 0:22:39.320 He is a clinical psychologist and trading coach who has 0:22:39.359 --> 0:22:43.600 worked with some legendary firms and traders out there. Let's 0:22:43.680 --> 0:22:47.800 let's talk about the modern era of trading, we've seen 0:22:47.840 --> 0:22:53.920 a number of traders replaced with effectively software. High frequency 0:22:53.960 --> 0:22:58.280 trading has made it much more challenging. How much more 0:22:58.400 --> 0:23:02.280 difficult is it to be a trader today then when 0:23:02.280 --> 0:23:05.040 I began twenty five years ago, Well, when you began 0:23:05.080 --> 0:23:09.040 over thirty years ago, it is more difficult and more 0:23:09.119 --> 0:23:12.320 complex in a number of ways. And I'll mention too. 0:23:12.520 --> 0:23:15.639 The first is the respect that you are talking about. 0:23:15.960 --> 0:23:20.840 There are an increasing number of market participants, particularly algorithmic 0:23:21.280 --> 0:23:26.639 that are making decisions upon high frequency data. What's being bought, 0:23:26.680 --> 0:23:30.320 what's being sold each transaction, is it occurring nearer to 0:23:30.400 --> 0:23:33.000 a bid price, nearer to an offer price, and it's 0:23:33.119 --> 0:23:37.680 quickly aggregating all this information to tell them our buyer's dominant, 0:23:37.680 --> 0:23:42.120 seller's dominant, and making rapid decisions. And so a lot 0:23:42.359 --> 0:23:47.919 of the market movement is not occurring because of quote 0:23:47.960 --> 0:23:54.120 unquote fundamental reasons. Traders of old would look at the world. 0:23:54.200 --> 0:23:57.200 They would look at a company and its earnings and 0:23:57.560 --> 0:24:01.280 predicate their decisions on that basis. An increasing amount of 0:24:01.280 --> 0:24:05.159 market movement is coming from other directions. So that's the 0:24:05.240 --> 0:24:08.400 first way in which trading is challenging in the modern era. 0:24:08.800 --> 0:24:11.880 The second way, as you and I know, the world 0:24:12.400 --> 0:24:16.480 is a much more global place, and it's no longer 0:24:16.560 --> 0:24:21.119 the case that the major influences on markets occur only 0:24:21.200 --> 0:24:23.760 during New York hours. So much is happening in Asia, 0:24:23.800 --> 0:24:26.960 so much is happening in Europe. Headlines from over there, 0:24:27.040 --> 0:24:31.280 events from over there, um, global economic conditions from over 0:24:31.320 --> 0:24:35.760 there really affect how assets in the US behave, and 0:24:35.840 --> 0:24:39.399 so that's created a complexity that traders have had to 0:24:39.440 --> 0:24:43.160 adapt to. That's that's interesting. Let's let's talk about something 0:24:43.200 --> 0:24:47.320 that hasn't changed, and that's human emotions. How can you 0:24:47.520 --> 0:24:51.960 teach people to keep their emotions in check? What I 0:24:52.080 --> 0:24:56.760 work with traders on is not simply controlling their emotions, 0:24:56.760 --> 0:25:02.600 which is helpful, but using a emotions as information, becoming 0:25:03.040 --> 0:25:08.119 more mindful, more aware of one's emotional reactions, because many 0:25:08.160 --> 0:25:14.040 times there can be information in what we process emotionally. 0:25:14.200 --> 0:25:17.080 The old joke about George Soros's back there you go, 0:25:17.280 --> 0:25:19.280 acting up when he was in a position. As soon 0:25:19.320 --> 0:25:21.680 as he got out of a bad position, the back 0:25:21.720 --> 0:25:25.200 ache went away. There's information in that back ache, and 0:25:25.200 --> 0:25:31.160 and that's true for many people. They experience emotions and 0:25:31.600 --> 0:25:35.240 that it's information about what's happening in markets and what's 0:25:35.280 --> 0:25:39.239 happening to your portfolio. There's one portfolio manager I work with, 0:25:39.280 --> 0:25:44.800 for instance, who uses his emotional reactions to gauge the 0:25:45.040 --> 0:25:52.639 likely emotional reactions of other participants, and so expand on that. 0:25:52.760 --> 0:25:56.680 So how does how does one's own emotional reactions help 0:25:56.720 --> 0:25:59.760 you gauge other people's emotionally? If the market sells off 0:25:59.800 --> 0:26:04.199 and he starts to feel some panicky emotions, the first 0:26:04.359 --> 0:26:09.960 thing he thinks about is, that's interesting, maybe other participants 0:26:10.000 --> 0:26:13.960 in the market are feeling this kind of panic and 0:26:14.080 --> 0:26:17.080 what does that mean? And how has that market behaved 0:26:17.280 --> 0:26:21.320 when we've gotten into panic times. So he's aware of 0:26:21.359 --> 0:26:26.880 his emotions, but he's not being reactive relative to those emotions. 0:26:26.960 --> 0:26:31.040 That that that's quite fascinating. Here's another example. Sometimes when 0:26:31.119 --> 0:26:34.840 in my own trading, I'll have a series of winning trades, 0:26:35.119 --> 0:26:37.440 the sort of the way you described when you're on fire, 0:26:38.320 --> 0:26:42.280 and I'll have the thought I've got this figured out. 0:26:43.800 --> 0:26:47.600 How you laugh because you know what happens? Okay, Well, 0:26:47.720 --> 0:26:53.040 I become aware of that overconfident thought, and I realize 0:26:53.280 --> 0:26:58.560 that that's a warning signal. So the mindfulness, the awareness 0:26:58.560 --> 0:27:02.640