Sunday, March 30, 2008

The Development of Talent: Implications for Training Programs and Traders

Mad props to the Camron Systems site, which linked this phenomenal article from the NY Times on the development of talent and how elite athletes are made. I'm usually not one to gush, but this is a must-read article if you're interested in developing trading talent or in designing training programs to develop trading talent. Especially interesting is the discussion of how the brain undergoes changes (myelinization) as the result of proper training.

Discussing Spartak, an elite Russian training program for tennis players, the article explains:

If Preobrazhenskaya's approach were boiled down to one word (and it frequently was), that word would be tekhnika - technique. This is enforced by iron decree: none of her students are permitted to play in a tournament for the first three years of study. It's a notion that I don't imagine would fly with American parents, but none of the Russian parents questioned it for a second. "Technique is everything," Preobrazhenskaya told me later, smacking a table with Khrushchev-like emphasis, causing me to jump and reconsider my twinkly-grandma impression of her. "If you begin playing without technique, it is big mistake. Big, big mistake!"

So there you have it: why so many traders fail. They begin trading without technique. They try to develop their trading accounts before they've done the work to develop their brains.

Technique develops brains: the implications for the development of traders are profound.

Someday, a trading firm is going to get it and become the Spartak of the financial world.

Hats off to Camron Systems for recognizing the importance of the article.


Excerpt From the Trader Performance Book

Toward a Trading Curriculum

What Makes an Expert?


Ziad said...

Hi Dr. Brett,

Great post and excellent NY Times article. An enlightening follow-up post would be to delineate what you consider to be "technique" in trading. It's very obvious for sports, but I think the problem with trading is not that no one thinks that technique is important, nor that they are are not willing to work on it, it's that it is a very vague notion. When one thinks of trading they usually think of strategies and probabilities. But what truly is technique? That is probably different for each type of trading.

For day trading (say less than 10 trades a day), I would think technique would include: execution (knowing when to work orders and when to go at market for entries and exists), stop placement (knowing where to place stops and how to adjust for volatility), timing (when to enter, when to exit), gauging market conditions (are we range bound or trending, volatile or slow), strategy selection (which types of set-ups and exits work with which types of markets).

That's what I can think of. But do you feel that there are more things that qualify as technique that traders can practice? If you could come up with a detailed list as a follow-up post, that would prove quite instructive, and may help us focus on things that we may be ignoring as a vital area of correct technique.

Also, I find it difficult to think of practical and realistic ways to practice all of these techniques outside of live trading (where I am always focusing on improving them and collecting feedback daily). Specific suggestions would be interesting.

Thanks as always,


iconoclast said...

re your request for a list of techniques - you need to read the context of the trading article in which the link was made. The gist of the article was you can't
"learn" trading, you can only learn the "component" parts that make up the process, then perfect each part. Part of the process is to learn the "components" that make up the market you are trading

Brett Steenbarger, Ph.D. said...

Hi Ziad and Iconoclast,

Great comments; thanks. I agree: the key to learning trading or any performance field is breaking down performance into component skills. As you infer, Ziad, those will vary depending on market, timeframe, and strategy being traded. (Component skills for a portfolio manager will obviously differ from those of a scalper). That is where mentorship is so crucial--