Book Review: The Psychology of Trading


This review is way overdue since I read this book some time ago when I was researching/reading all the books on trading available in my city’s library.

I thought this was a very good read and is useful not just for traders, but really anyone who is interested in getting a better understanding of their inner emotions and how we respond to things. Our feelings of anger, joy, sorrow, etc.., are determined by what we decided to feel based on the event we are experiencing. Many times emotional states are triggered by past memories that are not related to the situation you are reacting too.  When negative emotional states are triggered by past memories, we call that “baggage”. This book addresses solutions for getting rid of that negative emotional baggage.

If you take a step back and view a situation as a third party observer rather than a direct active role, that helps you understand what’s driving your own emotional response for any particular situation.

Trading is a field that requires you to admit and know your mental and emotional strengths and weaknesses. In others fields, you can get away with faking it, but the market is the great equalizer that doesn’t care who you are or what “issues” you have. Those who haven’t mastered their emotions in the trading environment will likely wind up on the losing side of market moves as it is geared to prey on your fears and doubts. Outside of trading, managing one’s emotions is also of high importance. I’ve seen grown adults act like little children having tantrums when upset, which is why simple arguments can escalate to major altercations. If you can manage to keep your emotions in check even when dealing with others trying to “press your buttons”, you will be all the better for it.

This book also discusses the topic of “the 10,000 hour rule”, which was the main idea behind Malcolm Gladwell’s book, “Outliers”.  Basically, the 10,000 rule is that in order to achieve mastery in any field, you have to commit to at least 10,000 hours of training – a time length determined by interviewing successful athletes/performers/intellectuals and their training regimen throughout their lives.

Clearly this directly ties in with the markets as the author Brett Steenbarger explores the amount of time required to gain mastery in trading.

What makes this additional topic so cool is that this book was written several years before “Outliers” came out and the idea of the 10,000 rule went mainstream.

This was definitely one of the more enjoyable and interesting books on trading psychology. It doesn’t go into the actual specifics of trading execution or theory and includes many events from his life that have nothing to do with trading. This is why I think this book would appeal to traders and non traders alike, as the problems and solutions discussed can be applied to all areas of our life outside of trading.



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