The medical student encounters many cases, watches many procedures, and studies for many years before he or she begins working on patients. Even then it is tightly supervised. Similarly, many, many acting classes and practice performances under the guidance of teachers and directors precede the appearance on the stage or in the movies. How many hours of practice and coaching occur prior to an athletic events? How many practice games lead up to the appearance in a chess tournament?
Training transforms traders. It alters behavior patterns, it reorganizes perception, and it shifts thought processes. Whether the training is self-directed, as in the case of many poker champions, or tutored, it is lengthy experience that makes a successful professional. That requires a constancy of purpose: an ongoing commitment to improvement.
Perhaps the greatest change that sustained experience brings is resilience. The successful trader has a high degree of conviction in his or her ideas, simply because of the accumulated base of experience that show how those ideas work out. That conviction enables the expert trader to press an advantage when it's present and hold onto a good position even during a drawdown. So many traders tell me that a relatively large portion of their annual profits come from a relative handful of trades. It was the emotional resilience to weather losses and still pursue the big opportunities that created those large winning trades.
I experienced a wonderful example of such resilience recently. It was Monday afternoon and a very successful trader called me and told me he was down a modest amount of money since the large market decline. He wasn't happy about that, but had just bought stocks and had taken a large position. His research said we were due for a bounce, and his reading of various stocks and sectors he follows led to the same conclusion. If he was wrong, he could go into the hole pretty deeply. But he strongly felt he was right. So he bought. And he bought.
Late Monday afternoon, the market plunged. It looked bad.
Nonetheless, more than once after the close, I found myself hoping that he hadn't bailed out. The odds were on his side. Since late 2002 (N = 1090 trading days), we had only experienced 33 days in which 2000 or more stocks simultaneously registered new 20-day lows. One week later, the S&P 500 Index (SPY) was up by an average of 1.78% (26 up, 7 down). The odds don't get much better than that.
The trader knew the odds were in his favor. The market was selling everything: the good with the bad. Fading panic was a strategy that had worked for him in the past. He hung on overnight, benefited from a solid bounce, waited for a pullback in the morning on Tuesday, and bought more. He finished with quite a profitable day.
Think of very successful political leaders, scientists, and artists. They see the world differently from others, and they are willing and able to stand by their beliefs and visions. What gave our trader the courage of his convictions? Perhaps simply this: his way of viewing markets had become his own. Not once in my conversation with him did he ask for my opinion of his positions or my opinion of the market. He had found his trading approach, just as an expert painter or writer develops his or her style and themes. Because his approach is so much a part of him, he can't easily abandon it, even when the chips are down.
So many traders--even good ones--would have bailed out of the trade late on Monday afternoon, fearful of continued weakness overnight. After all, we're all taught the virtues of keeping losses small. The great traders, however, have a feel not only for markets, but their own convictions. That keeps them in the market to make the large profit.
That trader has spent many years in the business, worked at several firms, and accumulated a great deal of experience. But what stood out for me was that he had made that experience his own, and that's why he stuck by it. No amount of imitating the trades and ideas of others will give you your own approach to markets that you'll believe in and stick by. It's how you meld the ideas of others with your own long, hard-won experience that gives you convictions--and the courage to stand by those.