Friday, September 04, 2009

Further Ideas on Learning How to Trade and Decision Support for Traders

I want to thank readers for their insightful comments and reactions to my post on learning how to trade. A number of respondents rightly noted that an unmoderated discussion is a recipe for chaos and simply calling out one's own trades does not, in itself, teach traders how to trade.

This is where the concept of "decision support" is important. Traders need to develop ways of seeing markets that are unique to them, that make sense for them, that fit their risk tolerance and lifestyle, and that best make use of their skills and talents. Simply giving traders ideas could actually stunt their development, much like doing a child's homework for them.

An important challenge in trading is that there is typically more valuable information streaming from markets than a single individual can reasonably process on their own. This is why portfolio managers at hedge funds and mutual funds typically hire analysts and assistants. A number of informed, disciplined eyes watching markets expands the trader's cognitive bandwidth.

The kind of blog I envision is interactive, but in a moderated fashion that focuses on decision support. Backtested signals from trading systems and historical studies of market patterns provide potential ideas to trade, but it remains the trader's job to filter these ideas, execute them, and then manage them as trading positions. The signals and studies support decision making, but do not substitute for skill development.

By reviewing successful and unsuccessful trades after hours, however, a comprehensive blog could advance that skill development, helping traders identify and cultivate best practices in timing entries, managing risk, etc.

Think of a basketball coach working with players before the game to prepare for the opponent; calling time outs during the game to make mid-course adjustments; reviewing tapes after the game to build on strengths and identify weaknesses: that is what a comprehensive, interactive blog could provide.