A Powerful Technique for Breaking Emotional Patterns in Trading
Brett N. Steenbarger, Ph.D.
The following is a draft of an article that appears in the October, 2002 issue of SFO
Traders love patterns.
We trade chart patterns, oscillator patterns, historical
patterns, cyclical patterns—you name the pattern, chances are there’s someone trading it.
Much of trading boils down to pattern recognition and the ability to quickly identify and
act upon profitable patterns as they occur.
This is particularly challenging for active
futures and options traders, who must read the patterns, make their decisions, and place
their orders within a matter of seconds.
Processing market patterns in the midst of our
own emotional patterns—our tendencies toward impulsivity, hesitation, frustration, and
regret—is one of the greatest challenges of active trading.
It is always sobering for traders to realize that they are every bit as patterned as
the markets they’re trading—and sometimes far more so.
In this article, I will draw upon
two decades of experience as a clinical psychologist to illustrate a powerful technique for
interrupting and changing repetitive emotional and behavioral patterns that disrupt
The technique is a cognitive-behavioral method known as exposure, and—in the
Ranger tradition described by Brace Barber, Linda Raschke, and me in September’s issue
—it is a powerful tool for challenging oneself for exemplary performance.
Becoming Your Own Therapist
Extensive studies by Axel Cleeremans and Arthur Reber suggest that, with
sufficient experience, people can learn to read patterns in data and anticipate future data
Interestingly, this pattern recognition is intuitive and implicit rather than
we know things long before we know we know them
contradict the common belief that successful trading requires an elimination of emotions.
Our feelings, like market data, consist of relatively weak—but vitally important—signals
in the midst of considerable noise.
Our sensitivity to market patterns often remains
hidden amidst the pushes and pulls associated with trading fears and ambitions.
can learn to become their own therapists by using techniques such as exposure methods,
not to dull or eradicate emotion, but to gain control of their cognitive worlds and better
extract signal from noise
The problem, you see, is not simply our patterns of anxiety, guilt, anger, or
The problem is that we cannot control these patterns.
consciously plans to fail to pull the trigger on a promising trade; nor does anyone want to
impulsively leap into a non-trending but volatile market before evidence of a breakout is
As I emphasize in
The Psychology of Trading
(Wiley; January, 2003), such