Friday, December 25, 2009

What I See Among Many of the Best Traders

Here are four qualities I observe among winning traders and portfolio managers. These can be great areas for self-development in the coming year:

1) A creative way of looking at markets, and a way of creatively resolving conflicting market views;

2) The emotional resilience to re-enter a trade idea after being stopped out, when subsequent action confirms the initial view;

3) The courage to bet large when there is high conviction in an idea; the prudence to control risk when that conviction is lacking;

4) An insatiable desire for self-improvement that builds a deep, internal sense of confidence.



CBS said...

Have you seen yahoo finance home page? The GBP/USD shows it is up almost 3,800%. Something is wrong.

Ahsan Haque said...

Nice post sir, I always enjoy your thought. Keep up good work.
Ahsan Haque.

Adam said...

Brett ~

As usual you point out fundamental truths ignored by many:

"1) A creative way of looking at markets, and a way of creatively resolving conflicting market views..."

If there was but one view (opinion) of the market (no matter what it was) the market would be perfectly efficient: earning a risk premium would be impossible.

Multiple views of the market means that hidden somewhere in that asymmetry of information is an exploitable edge.

Yet, on MSNBC and other sordid channels talking heads talk up "analyst consensus," the condition under which market efficiency is trending toward "1" and thus there's no money to be made beyond an index return.

As you rightly point out, the best traders and portfolio managers intentionally seek out asymmetries of information that they can resolve (exploit) to their benefit and that of their clients.

Doing this this takes commitment to perform vast amounts of independent research and analysis.

It also takes ~ as you rightly point out ~ "emotional resilience" to stick with the results of one's research (that exploitable edge) and the "courage to bet large".

How many of us flinch out of trades at the first sign that consensus might be going against us? How many of us later regret having not stuck to our understanding of a trade?

Note, I didn't say "belief," as belief is irrational, and has no place in building "a deep, internal sense of confidence."

As always, Brett, thank you for pointing out the obvious that all the rest of us seem to miss.


JimRI said...

Dr. Brett,

As usual your posts are profound. To me, those are the characteristic of those who are high achievers in any field: Thinking outside the box, the ability to endure disappointment and come back, the courage to take a risk, and the drive to do it - with the confidence that if it does not work out, one will survive - somehow. Those who don't have some combination of these characteristics will choose a safer way to live and make a living but one with lower potential rewards. Some with all of these characterists will not succeed but at least they will have tried.