Friday, March 28, 2014

What Makes a Trader a Peak Performer

What turns any activity into a peak performance activity is keeping score--and then using the scores to work on improvement.  Once you begin to track how well you're doing, you have a baseline of success from which you can gauge further growth.  Keeping score also keeps a trader accountable to themselves:  are you really improving over time?  

What prompted this topic was a visit to The Night Owl Trader site.  Two things jumped out at me when I looked over recent entries.  The first was that the author is attempting to call market direction for the next day.  The most recent forecast was "uncertain".  I love that.  Having created and recreated more regression forecasts of markets than I care to count, I know that sometimes the output says, "uncertain".  That is not as appealing to some as making a table-pounding, high-conviction bullish or bearish call, but it is intellectually honest.  Sometimes the evidence is balanced, and sometimes there isn't a distinctive directional edge.

The second thing that I liked was using the daily forecasts to keep score:  how often the author was right and wrong on market direction.  Keeping score publicly can be a particularly strong form of accountability.  Over time, it can lead to useful reviews:  what were the highest batting average periods?  The lowest ones?  What types of markets were most forecastable and which were least?  How could the forecasts improve for the least predictable markets?

A while back a trader contacted me about working together.  He didn't attempt to convince me of his passion for trading or his grand insights.  Rather, he sent his multi-year track record, performance statistics, and a very well laid out description of his trading methodology.  The message he sent was, in essence, "Here's what I do; here's how well I do it; I want to get to the next level."  His track record wasn't perfect, but it was his willingness to keep score, stay intellectually honest--warts and all--, and open the kimono in the search for peak performance that made me strongly suspect he'll get to that next level--and beyond.  

Those are the traders you want in your network:  they will bring out the best in you through their devotion to achieving the best within them.

Further Reading: Keeping Score, Religiously 


Doug A. G. said...

This is a good post Dr. Brett, that's why I've been longing for you to resumed your blog, good thing you're at it again, many thanks, I might learned from Night Owl Trader...yes, she's posting great insights...

Michele said...

Many thanks for your kind mention of my blog. Here is a short piece I'll be posting in tonight's edition along these lines under the heading of "Uncertainty".

Last week we were honored by a visit from Dr. Brett Steenbarger who commented on our occasional use of the call "uncertain" in this blog, here. When I first started tracking my daily accuracy, it was either right or wrong, higher or lower. After a while, I realized that sometimes it's not possible to meaningfully call the direction of the market. Uncertainty comes in three basic forms.

First is the case of headline risk. No technical analysis can prepare you for an earthquake in Japan or an unexpected Fed announcement.

The second case is when I expect the market to close nearly unchanged - a doji. Technical analysis can tell you if the market's going higher or lower, but it can't slice finely enough to distinguish between a four point gain and a two point loss. There's little point in calling such a day higher or lower.

And the third case is when I simply don't have a clue. It sometimes happens that some of the technical indicators I use are bullish while others are bearish or just in a strange indeterminate state. Maybe someone else is smart enough to figure out those days, but I'm not so it becomes an "uncertain" call.

But Dr. Steenbarger's comments got me thinking about the ways we can use uncertainty to improve our forecasting skills. I'll write more about this later this week. I try to keep the Night Owl short enough to keep from boring my readers to death and I'm afraid we're already over our daily limit. So without further ado, let's move on.

Ahmet Kara said...

Great post, thanks for sharing.