TDI Podcast 65: Psyched Out ?

July 13, 2008

Guest: Brett Steenbarger, Author of The Psychology of Trading (Wiley, 2003) and Enhancing Trader Performance (Wiley, 2006). I want to know…What is it that psyches-out traders? How can we overcome some of the trading pitfalls and the we explore what tools the pros do not use. Brett schools me…

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Brett N. Steenbarger, Ph.D. has been actively involved in the financial markets since the late 1970s. He has served as Director of Trader Development for Kingstree Trading, LLC in Chicago and currently consults with traders in a number of professional trading organizations. Visit his site HERE.

He is also Clinical Associate Professor of Psychiatry and Behavioral Sciences at SUNY Upstate Medical University in Syracuse, NY. A clinical psychologist and active trader, writer, and researcher for the past 20 years, Brett is the author of Enhancing Trader Performance (Wiley, 2006); The Psychology of Trading (Wiley; 2003); and numerous articles on trading psychology for print and online financial publications.

His book chapters on brief psychotherapy can be found in such reference works as
The Psychologist’s Desk Reference (Oxford University Press, 1998), Encyclopedia of Psychotherapy (Academic Press, 2002), Clinical Strategies for Becoming a Master Psychotherapist (Academic Press, 2006), and the forthcoming editions of Kaplan & Sadock’s Comprehensive Textbook of Psychiatry and The Handbook of Clinical Psychology. His coedited book, The Art and Science of the Brief Psychotherapies (American Psychiatric Publishing, 2004), has been selected as a core training text for psychiatry residency programs.

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Written by Andrew Horowitz · Filed Under PODCASTS

Comments

796CommentsTDI+Podcast+65%3A+Psyched+Out+%3F2008-07-14+03%3A59%3A30Andrew+Horowitz to “TDI Podcast 65: Psyched Out ?”

Zach Bass on July 14th, 2008 2:40 pm

Hi Andrew, I enjoyed your interview with Bret, although it seemed that you might not have agreed with him about trading with technicals. Well, I think both of you are right.

I believe Bret when he says that most traders don’t use TA as a primary tool for developing positions and analyzing the markets. In fact, I believe that most traders are offended to think that their trading actions/behavior can be determined by drawing lines on a chart. Sure, traders do key of some specific levels like the 20 and 50 day moving average, and they look at where options line up. But the majority of their trades are based on sophisticated money management strategies, fundamentals, and news.

What I think this boils down to is a fundamental misunderstanding of what TA is all about. Guys like Bret think TA is some sort of pseudo science, not based on reality, because it’s not something “real” traders do. Well, this is where the misunderstanding lies.

TA is not a science, it’s an art and a craft to visualize mob behavior. Whether Bret cares to admit it or not, the stock market is nothing more than a mob of traders that behave like any other mob in human populations. Mobs exhibit certain characteristics and patterns as a group, without being conscious of those actions. And TA, in the right hands, is an effective tool for characterizing that behavior.

It works in stock markets as well as in general populations. Elliot Wave theory is also such a craft. Actually, EW is based in scientific principles, and the numeric patterns it is based upon (the golden ratio) actually exist in virtually every part of nature.

So, whether Bret wants to admit it or not, the behavior of a mob of traders can be plotted and predicted with a reasonable degree of certainty using TA.

-zach
Rok on July 14th, 2008 11:11 pm

Are you for freaking real? TA is an art of mob behaviour? TA is a valuable tool that allows for the fleecing of unsuspecting idiots. That’s all it is.
SS7: Dr. Brett Steenbarger, Sissy Value Investors & IMAX Corporation (USA) (IMAX) | TIM - Timothy Sykes on July 19th, 2008 10:18 am

[...] Solid interview with Dr. Brett the no BS trading coach [...]
VPro on July 27th, 2008 11:21 am

Normally I find Andrew’s guests to be very good, but I noted some problems with what Brett had to say. Thanks Andrew for providing for listener comments.

1. Brett alluded to the fact that fund and portfolio managers doesn’t use things such as the MACD or Bollinger Bands, but when asked, he never said specifically what they do use. He sounded like a politician to that question and never gave a solid recommendation as to what the retail investor should do.

2. It makes since that a manager building sizable positions over long periods of time (weeks, months, years) wouldn’t use certain TA tools because they will be changing through many cycles durning that time frame. Also, there are good and bad money managers, so a title doesn’t impress me, performance does.

3. He made it sound like the poor, dumb retail investor is being fed a line of bull when it comes to using TA tools. No doubt there are some “systems” and seminars out there that over promise/under deliver, or just plain don’t work. But to say that TA doesn’t work is ignorant and just as irresponsible as those systems referred to in the interview.

I use a combination of IBD tools and Tom O’Brien’s “Timing The Trade” for my trading and investing style. I’ve been in the market just 3 years now but have found great success by studying price and volume particularly at swing points.
I use Fibonacci expansion/contraction projections, the MACD, and 50, 200 day, & 10 week moving averages. These have helped me pick buy and sell points with greater success and to just stay away when there isn’t clarity.

Nothing works 100% of the time, the market is too big and too dynamic for that. You can be 100% right about a stock’s fundamentals, but if you buy at the wrong time you could be in a losing position for awhile.
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