Thursday, September 21, 2006

Trading Coaches: What Works?

It's rare that a week goes by that I don't get inquiries about the "coaching" of traders. I also frequently receive solicitations from individuals who offer educational, coaching, or mentoring services for traders. But does such coaching work? Is it worthwhile?

I recently completed a review of research regarding behavior change and the factors that enable people to alter their patterns of thought, emotion, and action. The PowerPoint slide above summarizes many of the findings.

What the research suggests is that simply talking with a coach, mentor, or counselor is of limited benefit. Yes, it can provide perspective and insight. Actual change, however, requires that people engage in new experiences. These enable individuals to internalize revised views of themselves and the world.

For example, talking with a couple about their frequent arguments and how to reduce them is less effective than requiring each member of the couple to argue right there in the office, but with each person taking the side of the other. That is, Spouse #1 has to argue from the point of view of Spouse #2 and vice versa. This discrepant experience helps people see themselves--and each other--in a new light.

Similarly, talking with a trader about trading a longer time frame is not as effective as actually observing a trader on a simulator attempt to hold positions longer and then process problems as they occur.

As a rule, when it comes to change, experience trumps talk.

The best forms of helping get people involved in the change efforts emotionally and behaviorally. If people experience strong emotions during the change process--and if they actively engage themselves in change daily--the new patterns are more likely to take root than if coaching is a bland, one-day-a-week effort.

For instance, when a trader is experiencing inhibition in a particular trading situation, I find a historical set of days on a simulator for the trader to trade that will involve frequent exposure to that situation. I then work with the trader while he/she is trading to face the emotions involved, rehearse cognitive and behavioral self control methods, and implement trading plans and strategies. That brings helping efforts to life.

A very large body of research suggests that people are likely to relapse into old behavior patterns if they do not actively rehearse their new changes. Such repetition is essential to internalizing a new set of experiences. My experience is that people are most likely to benefit from change efforts when they utilize new techniques and methods on a daily basis. Self-help guru Tony Robbins makes the claim that, if you do something new the same way, every day for 30 days, you'll have that new pattern for life. The research backs him up.

Because of the commitment of time and effort that such change takes, only those truly ready for change are likely to benefit from coaching. Surprisingly, many people seek help, but are ambivalent about changing. They don't really want to trade a different market, time frame, or strategy. They are not sure they want to cut their position size and implement strict risk management. Research tells us that people are most likely to change when they are in an action phase of readiness: prepared to do what it takes to tackle a problem.

Finally, the research on change is unanimous on one major point: The quality of the relationship between helper and person seeking help is a major factor in whether change efforts will succeed. The successful coach is a kind of mirror to traders: a way that traders can see themselves in a new light. This mirroring can only occur if the coach is trusted, and if traders feel that the coach is committed to their success.

So will coaching work for you? If you're ready for it, if you're committed to doing things new ways and not just talking about change, if you're willing and able to practice new skills, the answer is yes. The average change that people make as the result of counseling is on the order of a full standard deviation. That's one standard deviation of greater confidence, less anxiety, etc.

Will coaching work if you are simply looking to talk about your problems to a caring soul? If you hope that you can cut the cost by holding "sessions" weekly over the phone? Save your time and money. Relapse rates for most common problems are on the order of 75% without proper change efforts.

A variety of free trading psychology articles on my personal site might help you decide if coaching is right for you. This post should help you get started. I do not coach individual traders myself--my work with firms and my own trading keep me plenty busy as it is!--but I am happy to help traders with referrals and recommendations if I can. Mentorship and counseling don't always work, but under the right circumstances they can provide skills and perspectives for a lifetime.


yinTrader said...

Hi Brett

I follow your thoughts on trading coaches:

The successful coach is a kind of mirror to traders: a way that traders can see themselves in a new light. .Unquote

Having been through an intensive trading course, I find the dropout rate relatively high because many would not step out of their comfort zones to commit time and effort to change.

I overcame my inertia within a short period of time and prepared myself to forge ahead with daily reading on trading and psychology that finally saw me triggering trades within 6 months since.

That's one standard deviation of greater confidence, less anxiety, and whatever it takes for me to succeed in the not too distant future.

Proof of my constant search for knowledge about trading is my frequent posts, reactions to what I read and hope to learn from your daily indepth research.


Brett Steenbarger, Ph.D. said...

Hi Yin,

Thanks for your note. I think you're spot on; it does take persistence to sustain a learning curve. Research indicates that high levels of expertise require ten years of learning and practice. I think that principle holds more true for trading than most market participants realize.


voodster said...


I agree with your comments about coaching. I wish you had referred some place to get this type of coaching because otherwise your words are more theory than practical. I have been involved in the biz for many years and haven't found a coach willing to do what you said, there are tons of vendors willing to "teach", but most don't actually have the skills to trade profitably. So for me the best way has been to be my own coach through constant evaluation of my performance.

Brett Steenbarger, Ph.D. said...

Hi Voodster,

I agree that it's difficult for independent traders to get this kind of mentoring. Much of the coaching of this kind does happen in (some)hedge fund, prop firm, and investment bank settings. Elements of coaching are also found in many of the better online trading rooms, including Woodie's CCI Club, Linda Raschke's service, and John Carter's Trade the Markets. There are also individual trading coaches who I refer traders to, based on the fit between what they offer and what traders need. I'm always happy to point traders to resources when possible.


Anonymous said...

I feel good quaility coaching from a coach who has a proven track record can prove priceless, in pursuit of fasttrack success. To be able to model myself on a great trader/mentor turned me into a proficient trader within 12 months. So many of us are looking for the "Holy grail" of trading, when all we really need is to implement the following steps, repetition of the basics, emotional control (instead of procratinating take the message the emotion is trying to tell us and look at the fundementals and charts of our stock to see if we need to take action) good quality mentoring and finally keep it super simple. These ultra simple strategies have transformed my trading so i'm sure it can do the same for other peoples. i look foward to reading your reply,thank you Martin

Brett Steenbarger, Ph.D. said...

Hi Martin,

Good point. In many fields, from athletics to music, good quality coaching and instruction can accelerate the developmental curve. There are many self-styled coaches who lack trading experience, and I question how helpful that can be (just as I question how helpful a wrestling coach would be who never engaged in competitive wrestling). There is much to successful trading that is related to skill development, not just one's frame of mind. Thanks for your perceptive comment, and best of luck in your own continued development--