6 PLAYBOOKS FOR 6 DIFFERENT MARKET REGIMES Last week’s firm-wide @smbcapital meeting was about better adapting to different market regimes. Which begs the question - what types of market regimes are there for discretionary traders? And what playbooks should we be running for each of them? I’ll start and you all can expand on this in the replies. Obviously this is far from exhaustive and kept high-level, but I think this should lead serious traders to do some deep reflection of their own. 1. Theme-driven bullish market. Markets like this one favor momentum strategies, swing longs, overnight momentum, IPOs, and headlines relevant to the driving theme. Early summer of 2026 certainly fell under this with AI as the driver and leading sectors like DRAM / cloud computing. 2. Macro-driven markets. Think in the spring during the start of the U.S.-Iran conflict, think 2025 Trump tariffs and the Russia-Ukraine war. Due to the randomness and volatility of these headlines, this market highly favors breaking news trading as well as trading move-to-move, while greatly reducing overnight exposure and swing exposure. 3. Range-bound market. Think of the last couple months, where we've had no prevailing theme and most indices have stayed range-bound while the leaders from the prior cycle corrected. In this market, you want to reduce overall trading activity and risk allocation. If volatility is inflated, you might focus on selling vol, but you need to be careful of complacency. There can still be niche opportunities, but overall, most traders will find it best to be more hands-off. 4. Panic-driven markets. During these markets, breakdowns can work exceptionally well. However, I found that my greatest PNL, ironically, comes from longs in names that have totally capitulated, especially trading the right side of the V. Overnights and swing trades can again be quite favorable in this market. IPOs and headlines tend to take a back seat. 5. Idiosyncratic single-stock or single-sector moves. This is the type of market where broader themes are quiet, yet single stock names occupy the majority of your focus. This is where all risk should be allocated to the single stock or sector. I'm thinking of when we saw the epic short squeeze in $CAR this year, or prior moves in names like $MSTR, $GME, $AMC, or when sectors offer great opportunities, like the quantum names over the last few years. 6. Euphoria. We've seen markets like this in 2021 following COVID, as well as glimpses of this at times during the last couple years. In this market, small caps are on fire. Anything with a theme works, and momentum breakouts go so much further than you could have imagined. This is when swing trading and big-picture imagination work better than you could have ever imagined. Those that are quick to short or skeptical either miss out or risk ruin, as using your brain can get you killed here. Further questions from here: 1. How do you identify each of these regimes FOR YOU? For example, one criteria might be a certain vix level or sentiment metric. 2. What playbooks are you competent in for each of those? 3. How much risk do each of these markets deserve? This post was inspired by thoughts from @steenbab and this blog post: traderfeed.blogspot.com/2026…

Using heuristics as an edge 1/6 Thinking something through is a conversation with yourself. So whenever you enter a trade, manage it (add, take partial profits, re-enter), or exit, it's a conversation. Inner conversations you have while trading, other traders have too. But even though these conversations are on the same topics, their length, clarity, and confusion vary wildly. Some of them are like the dreaded meeting we've all sat through. They go round in circles, waffle on and seem to go nowhere. Others are like a frustrating conversation that's either full of irrelevant detail or so brief it skips important information. Hold that thought. You're always competing against other traders. And in doing so, you want to see opportunities before they do, act before they act, and take profits before they can. We're told the importance of deliberate practice, which requires deliberate thinking. Deliberate thinking is how you work out and develop the best course of action. But when it's time to take the stage, the field or the trading screens, deliberate thinking isn't an option if musicians, athletes and traders want to perform and/or compete well. Turning all that thinking and planning into a performance skill, while the market moves in real time, calls for a shorthand version. A rule of thumb/heuristic is the shorthand version of that mental conversation. In the trade examples that follow, you'll see how they lead to fast, clear trade decisions. You only have to look back at everything you've consumed about trading to know this is an uncommon topic. That's why applying rules of thumb is an edge over other traders. Heuristic one: Is fuel used up? The beauty of this heuristic is that it gives traders who tend to chase the market entering a trade insight into what's happening beyond price changing quickly. Being counterintuitive, it also gives you an edge over the competition. Starting with the counterintuitive part, traders are drawn to fast-moving price like moths to a flame. Mostly, this leads to buying tops and selling bottoms. I say mostly because there are times when 'chasing' is the correct trade, and I have a rule of thumb for that too. But the majority of the time, when it isn't, consider this. Let's say, having trended up for three hours prior, the market has stalled for about half an hour. It's not going down, but it's no longer going up. That stall has some traders assuming the market will reverse, and they're now looking to get short. If price suddenly rolls over and drops quickly, the sudden drop is the trigger for traders to chase the market and enter a short trade. If you've traded for any length of time, you know what I'm referring to, because it's the intuitive thing to do, and we've all done it. The problem, of course, is that by the time we're short, the market flips and starts heading back up again. From a rule-of-thumb perspective, I think of price movement as using fuel. How fast the fuel gets used depends on the speed of the move. Say you head out to an oval for a run, and you can either sprint at your top speed or jog at a relaxed pace. If you run flat out, you're likely to be on your back gasping for breath within a hundred metres, because you've run out of 'gas'. But if you jog, you can do complete lap after lap before you reach that same out-of-gas state. It's the same for price movement, but people think about it in reverse. When price is moving slowly, grinding away, many traders doubt it can keep going. Yet it's using up buying fuel at the pace of a relaxed jog, which in turn leads to 'refuelling'. That refuelling comes from short sellers having to cover (who've entered because they anticipate price rolling over to the downside), and from buyers who sold prematurely, also anticipating price rolling over, now having to re-enter once they see their long trade is still working. By contrast, fast movement uses up all the stops traders have placed close to the current price. As usual market behaviour, experienced traders don't react. But less experienced traders enter into short positions, unknowingly refuelling the market with more buying fuel to take prices higher when they cover their shorts. So the rule of thumb is: is fuel used up? Of course, this is contextual, because trading is chess, not checkers. But that's all the more reason to use heuristics, because you can tie them together, like in the example below. Heuristic two: Aggressive or defensive? Firstly, I have a bigger-picture view chart telling me the market is ideally suited to 'Premium Long' playbook trades showing up. An indicator tells me when this is the case - which is a heuristic in itself. Note the second line in the message box: 'Defensive profit-taking when fading'.

Winter in trading doesn’t just empty the account. It also exposes the habits that keep you stuck. Overtrading. Holding losers. Becoming a bag holder. Most of the time, knowing you should stop doesn’t stop it. The routine feels familiar. The hope that “this time it comes back” or “I just need one good trade” feels safer than facing the loss. What actually changes a trader is rarely another tip or another journal entry. It’s a real challenge — something that makes the old way more painful than the work of changing. As Dr. Brett Steenbarger writes in his new peak performance series: “If it doesn’t challenge you, it cannot change you.” All real change is born of strenuous effort. Every change starts by pushing past your current boundaries. For many overtraders and bag holders, that challenge arrives as a painful enough loss or a long enough stretch of going nowhere that the emotional weight forces a shift. Not “I should change,” but “I have to change.” The competitive part of you finally gets tired of losing and starts the hard work of reviewing what actually went wrong, cutting size, sitting out when nothing fits, and rebuilding with small, disciplined steps. The Market Wizards Steenbarger studies put that kind of daily effort into scanning, studying, and reviewing. They treat the discomfort of the hard periods as the fuel, not the excuse to stay the same. Winter is harsh, but it can also be the challenge that finally moves you. Protect what’s left, do the uncomfortable work, and let the pain of staying stuck push you past the habits that created the bag in the first place. The next season rewards the ones who used the quiet time to change, not just wait.

There was so much more in this conversation, from managing fear and FOMO to increasing position size, building focus, finding your strengths, and keeping trading from becoming your whole life. Watch The Mental Edge with Dr. Brett Steenbarger @steenbab on YouTube: bit.ly/4rzSGwm