Saturday, December 12, 2009

The Value of Multiple Mentorship in Trader Education



In my recent post, I made the case for traders beginning with a broad education in markets before they attempt to specialize in a particular type of trading. When I wrote my book on how traders can improve their performance, I devoted the entire second chapter to finding one's trading niche. I pointed out that, "The greats do not become great by working hard; they work hard because they find a great niche: a field that captures their talents, interests, and imagination" (p. 13).

I made the case in the book as follows:

"Finding the right niche makes all the difference in the world when it comes to performance. A hall-of-fame pitcher might well be a flop as a hitter; a punter in football rarely makes a good linebacker; commercial print models are not necessarily the ones who dominate the runway; the best medical researchers don't always make the best teachers. Over and over we see examples where the difference between success and failure is being in the right niche" (p. 17).

Why is finding a performance niche so important? "To invest the great amount of time and effort required for mastery, an individual must emotionally bond with the talent field, creating a long-term relationship. Our task, in the initial phase of development, is to forge an emotional bond so strong that it will survive the inevitable frustrations and opportunities of the learning curve" (p. 13).

When psychologists first learn their profession, they are assigned multiple clinical supervisors. Often these supervisors represent different approaches to therapy: some may be behavioral, others may be oriented toward family systems, others may specialize in group work, etc. The idea is that the trainee learns the field--and figures out a niche--through multiple apprenticeships. Similarly, medical students rotate among many specialties and work with multiple mentors prior to declaring a specialty field.

This is why I believe that the ideal training program for new traders needs to occur within trading firms. Only at an investment bank, proprietary trading firm, or similar organization can a developing trader apprentice to different traders and gain exposure to a variety of markets and trading styles. Indeed, at the large banks where I've worked, training programs blend structured didactic experiences with the opportunity to serve junior roles on trading desks. Traders begin as assistants, learn through observation and interaction, and gradually assume the responsibilities of managing money.

To make this work, of course, a trading firm must embrace a learning culture and must make training and education a priority. When I have visited such prop firms as SMB Trading and Trading RM, one of the things that has struck me is that the traders are actively calling out and sharing their trades. It is not "every man for himself": these firms build mutual support and learning into the daily trading process. Not surprisingly, these firms also share ideas with the wider trading world (see, for instance, blogs for the two firms above, as well as T3Live); part of their recruitment is showing off their training commitment and expertise.

This is not to say that a trader can't learn from work with an individual mentor. Such work, however, may be more appropriate to later phases of the developmental process, where a niche has already been found and one is working to excel within that niche. At the start, the availability of multiple mentors and the exposure to different ways of trading and different trading vehicles allows for new traders to discover their talents.

With the possible exception of investment banks, few trading firms are large and diversified enough to represent all forms of trading. Still, within most prop firms, you'll find traders participating in different markets, trading different setups. Yesterday I worked with traders at a firm who were trading stock indexes, natural gas, oil, and currencies. Some of the traders were scalpers; others held for longer positions. At such a firm, rotation among mentors would provide developing traders a rounded exposure to markets and trading styles.

Even when firms teach a particular approach to trading that is geared for specific markets, you'll find diversity in how that approach is implemented. Indeed, if that diversity were missing, the firm would just allocate all their capital to a couple of traders and forget about hiring and training altogether! The advantage to these firms is that they have well-defined, proven methods to teach and a range of experienced traders who have found their own ways of utilizing these methods. That is not unlike apprenticeships in the art world, where aspiring painters first learn by copying the masters and only later cultivate their individual styles.

Ultimately, the key to training success is find the right marriage of mentors and students, where developing traders are most likely to find their performance niches. We are most likely to discover who we are by taking on the roles of many people, and we're most likely to discover our talents by exercising them in multiple activities.
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3 comments:

Severino said...

Hello Dr Brett,

As you have said in your post, most are not going to have access to training at an investment bank. So how does someone
get an opportunity to help find ones niche from proven traders?

I am going to guess that a number of your readers will also not be seeking out employment within a trading firm or using a mentor at this time either.

There are some great traders out there with different styles that one can observe. Three that I would like to mention are.

1. electroniclocal.blogspot.com – A successful trader for thirty years. He took his experience as a local on the floor with training from the likes of Pete Steidlmayer and others, to trading order flow electronically for the last 15 years. Though he does use things from Market Profile he also uses other tools to trade within a style that fits his personality. (Great post today about that very thing).

2. futurestrader71.com - Index futures trader trading out of the Chicago Board of Trade building. Trading professionally
for the last 8 years. His style and teaching is one
on simplicity. (Also in the name of his blog “Simplicity
In Trading”) His uses Market Profile but with an
emphasis on volume profiles and trading ones plan.
There are some great free webinars on his site, more
then worth the time on what it takes and his style.

3. donmillerjournal.blogspot.com - Short-Term S&P E-Mini Trader and member of the CME who bested the top CTAs in 2008 with a 214% performance.
Don Millers style is unique to himself just as the others are.
He has become an inspiration to many with his shared
trials and tribulations on what it takes to make it, the good
and the bad. Great blog for inspiration.

Needless to say this is a biased opinion on the above mentioned. But there are some great resources out there.

This does not mean one should flip from one style to the next, but you can take advantage of some of the great traders out there to help find your niche.

Rino

Curtis said...

Yes, my vision for trading is seek to combine a strongly intuitive action on the market with the historical probabilities and, in particular, with computerized programs and robots.

Combining the known and the unknown.

Yes, trading for a living. Who wants that? Trade for glory and greatness. Trade to be an artist. Now that is something to think about.

ChewO said...

Dr Brett and Severino,

thank you for your informative and valuable posts.