Friday, October 05, 2007

Developing a Trader Strengths Questionnaire

Dear Readers,

I'll be returning to the U.S. from Australia shortly, so will resume posting after that. In the interim, I'm asking readers to assist with the writing of an upcoming post. I would like to develop a questionnaire to assess trader strengths: positive behaviors that are associated with being a successful trader. What do you consider to be the most important strengths for a trader? Please send your ideas as comments to this blog post (not by email, please) and I will incorporate your insights into the draft questionnaire.

My hope is that the questionnaire will help traders identify their strengths, but also identify where they need further development. Such self assessment can aid in goal setting and self mentoring.

Thanks for your help with this. When I'm finished with the draft questionnaire, I will post to the blog so that all can make use of it.

Brett

17 comments:

Ajay said...

discipline
ability to cut losing trades
generate one's own trading ideas
thorough back-test of one's methodology

Brandon Wilhite said...

A combination of conviction and flexibility of thought...a difficult mixture.

BW

Amrou said...

Self-Awareness - knowing what you're good(bad) at so that you can develop a strategy that fits you
Discipline - the ability to follow the rules you set
Humility - so that you can accept that you make mistakes and therefore learn from them
Dedication - not giving up when you come across the inevitable let-downs

Those are probably good enough to get a trader started. As long as you don't blow out, learn from your mistakes, and keep at it, most people should eventually make a living.

Higher levels of success require original thought and exceptional talent, but that talent could be in any of a number of areas because there's so many different ways to trade.

Eric said...

Discipline: ability to fight emotion and stick to a game-plan, admit when you have been beaten.

Basic understanding of math and waveforms.

Risk management-risk assesment.

These are all the skills I tend to lack, as I buy the tops and sell the bottoms. ;)

oh, and a paranoid, lack of trust in anything I'm told about a stock.

Anatrader said...

Brett

In response to your post:

I believe a successful trader should be willing able and ready to change his mental models as new information comes into his mind.

His mental mindset has to accord with reality because this will lead to effective action. The ability to allow new information to change the model leads to new distinctions, and this in turn leads to new insights.

New insights lead to new distinctions in an ever growing cycle of improvement.

Trader Musings said...

Positive behaviors that are associated with being a successful trader:

ENJOYMENT

Enjoy trading

Enjoy continuously refining your trading technique

Enjoy the challenge of doing something that few others can do

Enjoy continuously looking for that edge that others do not have

Enjoy studying the markets everyday

Charles

hcarstens said...

Learning, nuance, continuous improvement, strategic planning

NQTrader said...

Hi Brett,

Thinking in probabilities, imo, is the single most important strength any trader can have (beyond the skill to discover and retain an edge, of course). It is a mind set that is often paid lip service to but rarely actually practiced. Telling a trader to think in probabilities is like telling people who want to lose weight to diet and exercise. While well meaning, the advice is too general to be helpful. What they need to know is how do I set up a diet and exercise regimen such that I can consistently move towards my goal? Unfortunately, there seems to be very little instruction on how to develop that probabilistic mind set (only one author that I know of). Note that this has nothing to do with how you generate your edge, whether technically or fundamentally or otherwise.

Regards
NQTrader

Dr Bruce Hong said...

Hi Dr Brett.
Your question got me thinking. Here is what I came up with in my blog:

Dr Steenbarger has an interesting post. He is trying to develop a trader strengths and weaknesses questionnaire. I thought about it a while and here is my take. It may be a bit basic and not as psychologically oriented as the good doctor's, but here it is:
1 How much time and effort did you really put into studying and understanding the markets that you will be trading? One trading book? An on-line course? A weekend seminar?
2 How much to you really understand the market?
3 Do you have a trading plan? Or do you "wing it?"
4 If you have a trading plan, do you use it?
5 Do you find yourself agonizing and asking, "What to do? What to do?" at critical junctures? That would suggest that you are not using your trading plan or that your trading plan is incomplete.
6 Do you have Risk Management Rules? (Like stops and trading loss limits.)
7 Do you have Money Management Rules? (How many contracts and how much of your trading capital are you putting at risk?)
8 Do you follow your rules? Many of us grew up in the 60's and 70's where the mantra was, "Distrust authority," or "Never trust anyone over 30." If you have that rebellious streak towards authority, then how are you going to react when you are the authority and you (or your trading plan) tells you do do something?
9 Do you have a plan of action to address those moments when you may be fatigued, distracted, upset or physiologically aroused? These are times when we know that poor decisions can be made.
10 Do you engage in activities outside of trading? By this, I mean rewarding activities with friends and family; going to the gym or engaging in other exercise activities; meditation or otherplanned relaxation activities.
11 If you do not structure relaxing or other social activities, how do you relax? Do you even consider that a priority?
12 Are you a Type "A" personality - hard-driving, competitive and with high expectations, and therefore high stress levels?
13 Or are you a Type "B" personality - more relaxed, mellow, comfortable with your limitations and therefore less stressed?
14 How do you react to unexpected events. Type A's tend to get more upset that their expectations weren't met. That their plans came undone. Type B's are more likely to "go with the flow."
15 Again, this comes to the question about relaxation. Type A's can learn to, or can be trained to become Type B's.
16 Type A's are also more likely to be alexithymic. They tend to focus on external results and fail to sense or feel their own psychic and physiologic distress. Thus, they are more likely to "explode" or "go off the deep end."
17 What is the quality of your thinking and analytical abilities?
18 Do you form set opinions and refuse to change them? Are you described by others as rigid and inflexible?
19 Do you get angry if others disagree with you? (So what do you do if the market "disagrees" with you?)
20 Do you only see what you want to see? Are you frequently "blind-sided" by events?
21 Are you able to sit and watch the markets without doing anything? Or do you have an irresistible urge to get in there and trade?
22 Do you "fudge" your trade entries and exits in order to get into a trade?
23 Do you find excuses for why a trade went wrong? Or why you got less than you could've (and maybe should've) gotten?
24 Do you rationalize? Do you rationalize a lot?
Questions 1 through 9 deal with the mechanics of trading and the thoroughnes of your preparation.. Questions 10 through 16 deal with personality and lifestyle factors. Questions 17 through 20 deal with the type and quality of your thinking. And Questions 21 through 24 deal with your tendency to be impulsive and then to rationalize, so that you don't really have to make any changes.
There may be a lot of other questions that I could think of. This is what came to mind today. I expect that Dr Steenbarger will have a lot more detailed questions and that those questions will be more psychologically based and more performance oriented. I look forward to seeing what he has to say.

J said...

This is interesting research!

My view:

1. ability to see the different sides of yourself as they are at every point in time, as opposed to confusing it with what you want it to be

2. ability to see market action as it actually is at every point in time, as opposed to confusing it with what you want it to be

Best,

J

T. said...

1. Having well tested theories about market behavior (what moves markets, which catalysts have an enduring influence and which not, what data helps identify high probability turning points, what are the intermarket relationships).

2. Having well based and tested methodologies for picking individual stocks.

3. Having both short and long methodologies. This is important as it adds a layer of complexity to one's thinking.

4. Related to (1) and (2), being well versed in market history, as the market is a perpetually recurring event.

5. Lastly, I don't want to repeat what others already said, but one thing I must say, something I found absolutely critical: having a true, deep-seated probabilistic view of trading. This is the basis or origin of many necessary qualities (humility, flexibility, conviction, risk management, overcoming fear, etc.).

T. said...

Wanted to add one more point:

6. Having a solid work routine that incorporates both trading and research on a consistent manner. Research should be both on existing positions, as well as market conditions. Ideally, the daily routine should have a component that exposes the trader to enough data to allow the (intuitive or conscious) identification of budding shifts in the market, sector rotation, changes in individual stocks behavior, etc.

bryan said...

Hi Doc,

There are many different types of 'trading' and each type requires a different skill set. The futures trader who makes very short term trades using changes in the book is involved in a very different pursuit than the value investor who searches for unloved stocks. Likewise, a swing trader who develops quantitative models and auto-trades requires different skills to the trader who trades off news and economic releases. Any questionnaire needs to take into account that trading is not an homogeneous discipline. Your book, Enhancing Trader Performance, of course begins from this premise.

Despite the fact that most of us have attended school and have been forced to take lots of exams - successfully or unsuccessfully - I'm not so sure that we are good at identifying our own strengths. Because trading is such a varied discipline perhaps traders should begin by trying to assess their skills in a very general way. I wonder if it would be worth you considering something like the VIA Strengths Test as a starting point? You recommended this test a few months ago. I did the test and have subjected my wife and children to it too. It's an enlightening process which certainly makes the test-taker reflect.

Perhaps the greatest challenge facing any newbie trader is being able to survive long enough to find the trading style that suits their skill set. Once they find this style their work is only just beginning! To get to this point one strength that everyone needs is persistence.

Bryan Wendon

bzak said...

Self awareness is the most important factor for successful trading and investing. It's not justing knowing your strengths and weaknesses, it's challenging your own beliefs and convictions about your strategies in the market. The human brain can rationalize anything to support what it wants to believe and see patterns where they are none. You have to see how these own cognitive biases work against you.

I believe that successful trading doesn't come from the specific strategies used, but the mindset that goes behind it.

mdbllbr said...

Yesterday I read the article about neuroeconomics you recommended and also an old article written by you, Andrew W. Lo and Dmitry V. Repin (Fear and Greed in Financial Markets: A Clinical Study of Day-Traders).

One interesting thing I found in these articles is the fact that trading is an ambiguos game, meaning that if you don't know the probabilities of the outcome then trading became pure gambling and if you know the odds of winning, trading is a probability game.

Depending on how do you approach trading you will be a gambler or a trader and your success will depend on diferent kind of skills and behaviorar sets.

When you play a probability game your decisions must be "independent" of prior outcomes, i.e. you must stick with your strategy (decision making process) until you gain enough to compensate the losses (considering that the odds is not against you). That is a really difficult thing to follow because when we suffer a huge loss it affect us emotionally and it bias our next decision also we lose confidence in our skills to assess the odds correctly.

In order to succeed we must be able to update correctly the probabilities of winning conditionning it to all data available to the market. And never forget that probabilities is always changing.

We must have the knowlwdge to correctly update the odds and fast enough to take advantage of oportunities.

If you have propensity to develop any kind of phobia it wouldn't be good to your trading prospect because it will make your decisions biased and you won't be able to assess the probabilities correctly.

Considering that you are a trader and understand how probability game works and have the knowledge information to assess and update the condicional probabilities then the important qualities are :

1 - Fast thinking. You must update the probabilities as fast as you can after receiving a new information.

2 - Endurance. You mustbe be able to trade as long as market provide the opportunities. You must take advantage of the law of large numbers...

3 - Pacience to wait for good oportunities (high probability of winning).

4 - Perseverance to keep trading despite your losses. Never forget that you are supposed to win in the long run...

5 - Confidence that your assessment of odds are correct...

6 - Self awareness in order to stop trading when something is wrong with you.

nicker said...

If I had to select only one strength (which I don't) that separates successful traders, it would be having gained the techniques to avoid getting off-plan while in trading

Nicker

Krasimir said...

Hi Brett,

I've read readers responses. All contribute for a trader strengths, no dispute about that.

What I think is crucial for a trader strenghts may sound a bit Darwanian and I explain it with one word - adaptation. A trader most powerful strengh is his/her ability (skill) to adapt to the changing conditions of environment (market), so that is able to continue to exploit its resources in order to survive and conserve energy when there are lean times.

In Webster dictionary adaptable means capable of being or becomoming adapted. Which means to make fit often by modifications. In other words, to be adaptive in markets means flexible, sharp thinking supported by balanced emotions. And this would not be possible if a trader dosn't experience fun. Have you seen depressed lions in the wild? Quite the contrary, small, healthy lions have fun playing the game of survival and adaptation.

Krasimir