Financial trading is challenging work, requiring a high degree of focus, discipline, and analytical ability. In this week’s episode I spoke with psychologist Dr. Brett Steenbarger, who specializes in the psychology of trading. Brett describes the habits of thought and action—many of them drawn from cognitive behavioral principles—that help traders perform at consistently high levels.

I learned a lot from our discussion, as someone who’s almost entirely naive about the trading world. We explored many topics, including:

• The difference between trading and investing
• How traders make money
• The mental abilities like pattern recognition that make for skillful trading
• Mental and emotional challenges that traders face
• The downside of perfectionism and hindsight bias for traders
• The relevance of CBT principles to dealing with self-talk in trading
• Treating losses as learning opportunities
• The problem with assessing one’s personal value based on the ups and downs of trading
• How traders can prevent burnout
• The importance of building a highly fulfilling life outside of trading
• Being “emotionally diversified” for long-term success
• Buying and selling for non-rational reasons (“Overtrading”)
• Solution-focused strategies
• The value of a strength-focused approach to trading
• Finding flow as a trader
• How to guard against being over- or under-confident
• Responding to changing market patterns
• How investors can stay flexible and adaptable
• Self-awareness and trading journals
• The problem with trading in “fight-or-flight” mode
• Managing excessive fear when trading
• When a trading problem reflects a bigger life problem
• The threat that frustration poses to trading, and how to manage it
• The irrationality of “revenge trading”
• Developing self-awareness of thoughts and feelings
• Learning to be one’s own trading coach
• The value of meditation during the trading day
• How traders can reduce distractions and increase concentration
• The effects of fatigue on concentration and performance
• Is trading for everyone?
• The difficulty and low success rates in making one’s living from trading

Brett referred to his blog, which has a ton of useful information for traders—including guidance for handling “turmoil and opportunity in markets” (which seems to capture our current situation). You can find it here: TraderFeed.

Brett N. Steenbarger, PhD, grew up in Canton, Ohio, receiving his BS from Duke University and his Ph.D. in Clinical Psychology from the University of Kansas. He has been actively involved in the financial markets since the late 1970s. Brett has served as Director of Trader Development for Kingstree Trading, LLC, in Chicago and consults with traders in a number of professional trading organizations. He is also Clinical Associate Professor of Psychiatry and Behavioral Sciences at SUNY Upstate Medical University in Syracuse, NY. Drawing upon an intensive research program that began in 1998, Brett has created a number of unique measures of market trend, momentum, and institutional activity designed to aid short-term traders. These measures—and the trading strategies derived from them—have been chronicled daily in the TraderFeed blog.

A clinical psychologist and active trader, writer, and researcher, 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. (Please note that a percentage of purchases made through these affiliate links will be used to support the podcast, at no additional cost to you.) His book chapters on brief psychotherapy can be found in such reference works as The Psychologist’s Desk Reference, Encyclopedia of Psychotherapy, Clinical Strategies for Becoming a Master Psychotherapist, and Kaplan & Sadock’s Comprehensive Textbook of Psychiatry and The Handbook of Clinical Psychiatry. His coedited book, The Art and Science of the Brief Psychotherapies, 3rd ed., has been selected as a core training text for psychiatry residency programs.

You can also find Brett’s articles on Forbes and follow him on Twitter.