Trading Psychology
The Daily Trading Coach: 101 Lessons for Becoming Your Own Trading Psychologist
Steenbarger gives you a real, testable process for fixing how you trade: watch yourself, find the one pattern behind your ten problems, attach felt cost to it, then drill three rules until they run without you. He then buries that process inside 101 standalone lessons that actively discourage you from reading it in order.
The one idea
You do not have ten trading problems. You have one, showing up ten ways. That is the argument the whole book rests on. A trader who misses good entries, sometimes ignores his stop, sizes too small, and cuts winners early is not fighting four separate flaws that each need their own fix. He is fighting one emotional state that expresses itself differently depending on what the market hands him that day. Steenbarger calls this looking for the pattern behind the patterns. Find the state, and four problems collapse into one job.
The tool for finding it is a journal, but a specific one. Three columns: what you traded and how you placed it, what happened including exits and P/L, and what was actually going on in your head at the time. After a few weeks you sort the entries into two piles, your best trading and your worst, and you look for what repeats in each. Steenbarger is firm that this sort has to be emotional and not clerical. If your journal has no feeling words in it, he says, it will summarize your changes but never motivate them. Writing 'I need to be more disciplined' produces nothing. Writing down exactly what a pattern has cost you, until you are disgusted by it, produces change.
Then comes the part most readers skip. You take what you do during your best trading, turn it into explicit rules, pick no more than three to work on, and grade yourself on them every single trading day for weeks. Goals are process goals, never dollar goals, because on a short time frame you do not control dollars. Sliding back into old habits is expected and is a stage of the change process, not proof of failure. The book's real claim is that repetition, not insight, is what makes any of this stick. Understanding your pattern changes nothing. Doing the replacement behavior a few hundred times does.
What it actually teaches
The sequence below is scattered across four chapters and dozens of lessons; assembled, steps one through six run in order and steps seven and eight run alongside them from the start.
KEEP A THREE COLUMN JOURNAL
Column one: the trade idea, size, time, prices, and how you placed it (all at once or scaled in, market or limit). Column two: exits, times, P/L, how you got out. Column three: what you were thinking and feeling, your preparation, your confidence level. One entry per idea, not per fill. If you buy three mining stocks because you want to be long precious metals, that is one entry. Too fast for that? He allows one entry for the morning and one for the afternoon, or entries only for your standout best and worst trades. His warning is blunt: the best predictor of failure he sees is a trader who cannot sustain self-monitoring, and the usual cause is a journal so heavy that nobody keeps it.
SPLIT THE ENTRIES INTO TWO PILES
After several weeks, sort every entry into best trading and worst trading, then look only for what repeats. He gives five categories to check: emotional, behavioral, cognitive, physical, and trading patterns (sizing, time of day, entry style, instruments). His own sort produced three findings about himself: initial size neither too large nor too small performed best, trades placed too early in the morning or later in the afternoon underperformed, and shorter holds with clear targets and stops beat longer ones. Do not read subtleties into it. He wants only the differences that hit you between the eyes. Then ask the harder question: what is the common denominator behind these different mistakes?
MAKE THE JOURNAL HURT
Knowing a pattern is not the same as being motivated to change it. So you write out and visualize the specific dollar and career cost of each negative pattern, and the specific benefits of each positive one, until you feel them. He is openly hostile to affirmations: reciting 'I will be a successful trader' is empty at best and self-delusional at worst, because it connects to nothing you do tomorrow. His diagnostic question for sizing the prize: how different would your P/L be if you eliminated the largest 5 percent of your losing trades? For most traders that one slice is the whole difference.
SET AT MOST THREE PROCESS GOALS
A goal states what you will do or not do in a specific situation, not what you will earn. Not 'I want to trade less often' (too vague to act on) and not 'buy when the put/call ratio hits a 100-day high' (too narrow to work on daily). Three is his stated ceiling, and he often runs fewer. Each goal has to be something you can work on every trading day for several weeks, because a behavior you touch occasionally never becomes automatic. The framing question: what are the one or two ways I can trade more like my best trading and less like my worst?
INTERRUPT THE PATTERN WHILE IT IS RUNNING
Stopping the bleeding comes before fixing anything. His interruptions are physical and immediate: turn from the screen, fix your gaze on something nearby, take slow deep breaths. Or leave the desk entirely after a loss, stretch, get food, walk outside. Or talk your thoughts aloud while you trade, which converts you from someone inside the experience into someone listening to it. The sharpest version is thought-stopping on one trigger: any thought containing the word 'I' or 'me' while a position is on ('I'm going to make my money back', 'the market is killing me') gets stopped on sight, because self-focus is attention taken off the market. Related, and useful: the Hope-Meter. The moment hope shows up in a losing trade, treat it as a signal that you already know the trade is wrong.
CONVERT WHAT WORKS INTO RULES, THEN GRADE THEM
Rules are the bridge between a new behavior and a habit. He lists eight areas to write them for: position sizing, loss limits per trade and per day and per week, adding to positions, when to stop trading or cut risk, when to increase risk, entries and exits, daily preparation, and diversification across positions. A sample rule he offers: never enter a trade until you have measured the stop-loss and the target and confirmed at least 2:1 reward to risk. Then build a daily report card and grade yourself on rule-following, not on P/L. Rehearse each rule with the feeling attached, because a rule that stays a thought gets broken. Sliding back is phase four of his five-phase change model and should be planned for, not treated as failure.
SCORE THE BUSINESS, BROKEN OUT BY TRADE TYPE
Five numbers minimum: the slope of your equity curve, the count of winners versus losers, the average size of winners versus losers, average win or loss per trade, and the day-to-day variability of your returns. None of these have a target value; you compare them against your own history. Then tag every trade by type (intraday versus overnight, setup, market, time of day, or the trend and VIX level at entry) and run all five numbers for each bin separately, because each bin is a product line in your business. He also wants the daily P/L series of each strategy correlated against the others. Two strategies correlating at 0.20 share 4 percent of their variation, which is real diversification. If that jumps to 0.70 they share close to 50 percent and your capital is concentrated in one bet you never placed on purpose.
CALIBRATE SIZE TO THE EDGE YOU ACTUALLY HAVE
Lesson 77 simulates two traders on a $20,000 account. Trader A wins 48 percent of trades with winners averaging 0.90 times the size of losers. Trader B wins 52 percent with winners at 1.10 times losers. The gap between them looks trivial. Over ten separate 100-day runs, A loses money in all ten (about 3 percent) and B makes money in all ten (about 3 percent). Then he scales B's size and shows what that does to the ride. See the table below. His conclusion: you do not need a large edge, you need a consistent one, and the size you put behind it decides whether you survive long enough to collect it.
What it looks like Monday morning
Monday morning you open a spreadsheet with three columns and write one row per trade idea, not per fill, and you write it during the session or right after, not from memory at 10pm. You do this for three or four weeks before you try to conclude anything, because every other technique in the book runs off a sample of your own best and worst days. There is no shortcut past this and no version of it you can borrow from someone else. Most people who bounce off this book bounce off right here.
The second thing you do Monday takes no setup at all. Pick one trigger and one interruption. Steenbarger's is any thought containing 'I' or 'me' while you have a position on. When it fires, you look away from the screen, breathe slowly, and come back. You are not trying to fix the underlying problem yet and you should not expect to. You are proving to yourself that you can catch the pattern in real time, which is the capability every later chapter assumes you have.
| Position size | Average daily swing | Return per year | Peak-to-trough drawdown |
|---|---|---|---|
| 1 contract | 0.5% (about $100) | About 7.5%, before commissions | $700 to $800, roughly 4% |
| 3 contracts | 1.5% | Over 20% | About 12% |
| 10 contracts | 5% | About 75% | Over 40% |
The edge never changes across these rows; only the size does. Steenbarger's point is that at 10 contracts the swings rattle the trader into worse decisions long before the math fails, turning a small positive edge into a small negative one.
The measure of self-coaching is how hard you work on trading when you're making money.Brett N. Steenbarger, The Daily Trading Coach
Where it fails
- The 101-lesson format is both the sales pitch and the defect. Steenbarger says in the preface that the chapters are independent, that you can read them in any order, and that you should use the index to pick whichever lesson fits today. That is the selling point. It also means the actual change sequence is smeared across chapters 4 through 7 with heavy repetition. The three-column journal gets re-taught in Lesson 14, again in 31, again in 54, again in 58, and again in 85. Meanwhile Lesson 34 tells you to work on no more than three goals at once, for weeks each. A book that hands you 101 things to work on and then tells you to work on three is arguing with itself, and a reader taking one lesson per day for 101 days will never assemble the order the method depends on.
- Chapter 10 cannot be followed in any version of Excel released since 2007. Ten of the 101 lessons walk you through building a historical research spreadsheet, and the instructions are written against Excel 2003's menu bar: 'click on the Excel menu item for Edit, then click on Copy', 'select the Excel menu item for Data, then select Sort', 'select Filter, and select AutoFilter'. The ribbon shipped in Excel 2007, two years before this book, and no version since has an Edit menu. Some of the workarounds are pure 2003 too, like exiting the spreadsheet so Windows will hold your data on the clipboard to strip formulas. The formulas themselves still work (=average, =stdev, =correl, =if(G2>0,1,0)) but the step-by-step is dead, and this is a chapter Steenbarger himself calls one of the two especially unique ones.
- The book was built to live on the internet, and that internet is gone. The preface states the whole design premise: an e-book whose content links out to a companion blog, Become Your Own Trading Coach, with one master page per chapter, growing over time, with audio and video to be added. That blog is not a going concern. Neither is the reader email address he supplies for stuck readers (coachingself@aol.com). More damaging, two of the homework assignments are unrunnable as written: Lessons 72 and 77 both send you to Henry Carstens' P/L Forecaster at verticalsolutions.com to model your own return paths, and Lesson 77's entire argument is built on its output. Lesson 31 recommends StockTickr and Trader DNA for automated trade journaling, and Lessons 92 through 99 assume e-Signal's Data Export and Pinnacle Data's Goweb updater. You will have to rebuild all of that yourself in a modern tool before you can do the assignments.
- It assumes you already have an edge and enough money to trade it. This is a fix-your-execution book wearing the cover of a fix-your-trading book. Everything in it operates on a positive expectancy you are presumed to already own. If you do not have one, the journals, rules, report cards, and correlation tables will document your losses in higher resolution and nothing more. Steenbarger half-admits the capital side in Lesson 71: he says a consistent 15 percent a year keeps a professional employed at most firms, 30 percent makes you a star, and that living off those returns while still growing the account requires a starting account 'well into the six figures'. Chapter 8 is written for someone with a multi-year trade database segmented by setup and market condition. Most readers of this book have neither the capital nor the data.
- Chapter 9 is a 2008 link farm with survivorship baked in. Ten lessons, a tenth of the book, consist of 18 traders answering one question about how they coach themselves. The value was always in the links, and most of those blogs (Trader Mike, The Kirk Report, Afraid to Trade, Alpha Trends, Quantifiable Edges, GlobeTrader, Market Tells) have since shut, gone behind a paywall, or gone quiet. The selection problem is structural: he asked traders who were succeeding and publicly visible in mid-2008. Nobody in the chapter had blown up yet. You get ten lessons of best practice with zero counterexamples, in a book whose core method is explicitly built on comparing your best against your worst.
- The psychodynamic chapter has no feedback loop when you do it alone. Chapter 5 asks you to trace your trading problems to past relationships, master transference, and challenge your own defenses. The flagship example in Lesson 57 has a trader visualize his overprotective mother speaking his risk-averse self-talk back to him, which works because a licensed clinician was in the room, heard the man volunteer a childhood story, and reframed it live. Steenbarger warns in Lesson 32 that self-described coaches who apply a canned set of methods to every problem 'can be disastrous', and then hands the solo reader canned methods to apply to himself. The cognitive and behavioral chapters survive self-administration because they have checkable outputs. This one does not. If you want a single tested process rather than a menu of four therapy traditions, Tendler's The Mental Game of Trading (2021) is tighter: one map of how an emotion escalates, one root-cause taxonomy, one written tool (the Mental Hand History), applied five times. Tendler has no equivalent of Steenbarger's business-metrics chapter, which is the trade-off.
Who it is for
Buy it if
You already have a method that works on paper and you keep overriding it in real time. Or you have been keeping a trading journal for months and cannot tell what it is telling you, which is the exact gap chapters 4 through 7 close. Chapter 8 is also the best treatment of trading-as-a-business inside any psychology book, and it is worth the price on its own if you have never broken your P/L out by setup and correlated the pieces.
Skip it if
You are looking for setups, signals, or a system. You will not find one here, and Chapter 10 teaches you how to look rather than what to trade. Skip it also if you have not traded enough to have a real sample of good and bad days, because every technique in the book starts from your own trade history and there is no substitute input. And if you want one process to follow rather than a library of four, read Tendler's The Mental Game of Trading first: it is shorter, more recent, and does not make you assemble the method yourself.
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