A much neglected topic within trading psychology is learning styles and how those impact trading. In my experience working with traders, I find that many times their performance is compromised by a mismatch between how they are approaching markets and how they optimally process information.
Consider the following learning and trading styles:
* The Analytical Trader - Breaks markets and stocks down, making decisions from the data collected. This includes the fundamental stock investor and the mechanical system trader.
* The Visual Trader - Trades off information from visual presentations, including price/volume charts, depth of market screens, and indicator displays. This includes many discretionary traders who rely on technical analysis.
* The Auditory Trader - Makes decisions based upon information from human interaction, including conversations with analysts, assistants, brokers, and peers. This includes many pit traders.
* The Synthetic Trader - Assembles information from a variety of sources to find overarching themes and patterns that inform trading decisions. This includes many global macro traders.
* The Kinesthetic Trader - Actively participates in markets to sustain a feel for how those markets are trading. This includes many true scalpers and market makers.
I have known successful traders who draw upon all of these information processing modalities. The issue is not which is best, but rather which is optimal for particular traders. When visual traders become too analytical and overanalyze markets out of anxiety, they tend to underperform. When auditory traders overemphasize market charts out of uncertainty, they miss key data. When frustrated kinesthetic traders look at too much information in a synthetic way in a desire for certainty, they lose their feel for markets.
Many times the ways we cope with stress, risk, and uncertainty take us out of the game by changing how we engage markets. It is difficult to sustain consistency in processing market information if we don't understand our cognitive styles and strengths.
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Tuesday, May 12, 2009
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11 comments:
I LOVE your blog, but I have to disagree on this one.
While existence of learning styles is widely asserted, there is no evidence for them.
Here's a video from Daniel Willingham, a cognitive psychologist discussing learning styles:
http://www.youtube.com/watch?v=sIv9rz2NTUk
There, in fact, just seems to be good teaching and bad teaching. Not teaching inhibited by learning styles.
Whether these are learning styles or not, they can certainly be thinking preferences, thinking skills, and functioning modalities. What a good approach to encouraging one to broaden their perspectives and to do a little self examination.
Brett, it never ceases to amaze me, both your dedication to education, and the quality of your thoughts. Thank you.
Dear Brett,
I bought the daily trading coach and I always read your blogs current and past postings. You have providing an insight to life I never had before, so thank you.
In order to learn how to fish I need to find my own worms, with that being said where do I find the daily market pivot points, S123and R123?
Best regards,
Alan Weiss
What is the generally brokorage fees for investment in stock market through authorise petty broker & on line?
small caps
Alan,
Daily pivot points are a simple calculation based on the security's high, low, and closing price. There are several formulas. One basic one can be found at
http://hubpages.com/hub/Pivot_Point
Dr. Brett,
As a former instructor and flight school owner, I can attest there are several ways people learn. This is a well studied subject by several government departments. Of course, I am most familiar with the studies by the FAA.
Most students have a combination of learning styles, and one or two may show dominance. I never new my favorites until studying to be a flight instructor.
I am now assisting a fellow trader. When I catch myself explaining something the way I learn best, I am reminded by the confused look on his face that he doesn't learn the same way.
Hmm... interesting.
I think out of a 100%, my make up would probably look like this:
* The Analytical Trader - 30%
* The Visual Trader - 40%
* The Auditory Trader - 0%
* The Synthetic Trader - 20%
* The Kinesthetic Trader - 10%
I suppose this would be similar to the 'make up' of most retail traders? But then again, I know a fair bit of retail traders who have ZERO idea about certain qualities in the different traders characteristics as mentioned above.
One more thing to defend my 0% in auditory trader; there's just no one to talk to me.
RMD, recognize your strengths and stick with them. Avoid distractions that aren't within your style...
sounds good to me!
Hi RMD,
Sorry for the confusion; I didn't mean to suggest that the majority of variance in teaching outcomes can be attributed to learning styles. Rather, I am suggesting that people draw upon different modalities in their learning--something I've seen repeatedly in my work at Cornell and Upstate Med--and can learn more effectively if they play to their strengths.
Brett
Thanks for the kind comments. Alan, the pivot/targets I provide via Twitter are proprietary. You can find traditional formulas via Google easily.
Brett
Great points, JMJAtlanta; I think a big advantage of trading at a good firm is that you have plenty of ways to process market information: through research, talking with peers, etc.
Brett
Hi Shameena,
I have never surveyed brokerage fees, but would be interested if someone has.
Brett
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