Tuesday, November 04, 2008

Learning How to Trade

A key idea behind my last book is that trading is a performance field like athletics and the performing arts. This suggests that trading success is not simply a matter of finding the right indicators or formulas. Instead, trading competence and expertise develops over time, as a function of structured learning and development. Becoming a good trader is not so different from becoming an expert surgeon or a chess grandmaster: it takes certain native talents, which are honed with intensive practice and review.

In medical education, the approach is often described as "see one, do one, teach one". We learn by observing competent practitioners, by following their example, and then by crystallizing our knowledge and skills by mentoring others. The learning curve is not so different in the military, where basic training offers opportunities to "see one" and "do one" prior to entering battle. Graduation through the ranks then provides occasions to "teach one". When artists learn to paint, they typically observe and mimic their instructors, only later venturing forth on their own with original efforts, and then later supervising others: that's the hallmark of all disciplines that train via apprenticeship.

The most crying need among new traders is for such apprenticeship. There is a great deal of information on the Web, in magazines, and in books, but not so many occasions to "see one" before doing one and teaching others. Seminars can be helpful in this regard, but their brevity prevents them from truly guiding a developmental process. No one realistically thinks that someone could learn chess or painting from a week-long seminar. Performance skills typically require extended training to achieve competence and mastery.

Two sets of resources are helpful for new traders who seek to "see one" before they place their capital at risk. The first are trading videos. These illustrate a trader's approach to analyzing markets and making decisions. Outstanding in this regard are Brian Shannon's videos for the Alpha Trends site. He illustrates ideas from technical analysis by applying them each day to the major market indexes. Just as a medical student observes an attending physician to learn about the reasoning process behind diagnosis and treatment, a trader watching a video analysis of a market can--over time--internalize how an experienced trader views and trades markets.

A particularly valuable video project is offered by SSK, who provides streaming videos of "a great day trading". These videos capture the live trading process and illustrate what happens during good trading. Such an approach fits well with the solution-focused coaching methods I've described earlier: instead of focusing on weaknesses, we can learn from observing our strengths and building on those. The videos illustrate how basic auction market concepts--and indicators derived from those concepts--can be applied to the short-term trading of markets.

A second set of resources involve day-to-day mentorship with an experienced trader. Ray Barros, for instance, mentors a limited number of traders on a daily basis, taking them from the basics--identifying trends in markets--to the fundamentals of managing risk, keeping a journal for self-development, and building a trading business. He provides feedback on their trading, sustaining a learning process in true apprenticeship fashion.

A different model of mentorship is the online trading room. Here traders can observe trades being placed in real time, learning from the commentary of the trader. The idea is that, over time, traders can internalize the reasoning and trading behaviors of the successful trader, hastening their development toward competence. The Institute of Auction Market Theory, under Bill Duryea, offers a particularly noteworthy trading room that employs Market Profile concepts and the reading of short-term auction behavior in real time.

As always, these links have not been solicited from me; nor am I in any way financially linked to any of these educators. Rather, my purpose in posting this information is to continue to point traders toward resources that might be helpful for their development. This blog--and many others--can be useful in providing information and analysis. Ultimately, however, you can only learn a performance field by observing performance and by performing yourself. Increasingly, we're seeing creative online services that facilitate this learning process.

For more on "how to trade", see the contributors to my forthcoming book, as well as my linkfests, Volume One and Volume Two.