Sunday, June 19, 2016

What Makes You Unique As A Trader?

So we're walking in the old section of Bergen, Norway (Bryggen) and come across a Mexican restaurant advertising its food in a unique manner. From the looks of it, the sign was bringing people in.

Whether it's in marketing or in trading markets, uniqueness counts for a lot.  It's not always easy to predict who will make money as a trader, but it's not hard to predict who won't.  The ones who won't succeed are the ones who are like all the others.  They look at the same things and trade the same ideas.  I've worked in many trading firms, from prop shops to hedge funds.  Across settings, the correlation of returns among traders is disconcertingly high.  When given the freedom to make their own decisions, many traders decide to abdicate critical thought and follow others.

In general, uniqueness is expressed in two ways: by looking at new and different information and by assembling information in new and different ways.  When I replaced time on the X-axis of my charts with event time, I redefined market data and could then view the data in a fresh manner.  For example, the volatility of volume-based bars is quite different from the realized and implied volatilities that we normally track; the cycles that appear in event time are wholly different from what we can see in chronological time.

Of course, being unique does not guarantee being successful; it's simply a way of generating more and different hypotheses.  Some of these will fall flat; others will bear fruit.  Being a trader is not so different from being an inventor.  The great find often follows scores of disappointments.  If you can't look at new possibilities and keep innovating, however, the successful invention will never follow.

I recently wrote about strategies for constructively dealing with difficult markets.  Our natural tendencies lead us to shut down when the world becomes less certain and when drawdowns extend.  That, however, is when we most need to be open minded and expand our horizons. 

So here is a simple self-assessment:

1)  What information are you looking at that others are not considering?

2)  What ways of assembling information are you employing that are different from what others are doing?

If I were a rational, prospective investor looking to back emerging talent, what could you show me that would convince me that you're truly doing something that is different and promising?

If you can't sell a prospective investor on what you're doing, perhaps you shouldn't be buying into it yourself.  

Our time and capital are too precious to be wasted on "me-too".

Further Reading:  How to Cope With Market Uncertainty