Thursday, August 11, 2016

Can Successful Trading Be Taught?

Can successful trading be taught?  Consider this excellent post from Bella at SMB, describing what the folks at SMB have learned from the training and mentoring of successful traders.  That post rings true for me, because I personally know (and have worked with) most of the traders Bella speaks about.  I have observed their development and can vouch for the qualities that have made them winners.

What is clear from my observations and experience is that patterns that have a positive edge in trading can be identified and taught.  What is also clear is that learning those patterns doesn't become successful trading until those patterns are truly internalized.  The many hours of study and performance review serve one important purpose:  taking a pattern that is "out there" and becoming so familiar with it that you learn to feel it internally.  

Consider raising a child from birth.  At first, you're a clumsy parent, trying to figure out what the baby needs, reading through parenting guides, and reacting and overreacting to every cry.  Gradually, you begin to read your cry is different from kind of holding and rocking works, another doesn't.  As you gain intimate experience with that child, you develop a feel for parenting.  You get to the point where you can anticipate your baby's needs in real time.

There is no way of achieving that kind of parenting skill and success without having plenty of baby time.  It's not uncommon to see fathers struggle with knowing what to do with their babies simply because they have been so busy at work that they haven't spent the kind of intimate baby time that gives them a feel for their child's needs.  

It is very similar in markets.  Screen time is what gives us the intimacy with patterns that enables us to internalize them.  You can teach a pattern to three different traders and you can teach parenting skills to three different parents.  Ultimately, it will be the trader and parent who cultivates repeated, intimate experience that is most likely to turn the information from teaching into lived performance skills.

Bella says something interesting in this regard:  it is not unusual for a trader to not be successful in their first year.  It is often several years before the new trader can become a meaningfully profitable trader.  Deliberate practice takes time.  The best traders find a trading niche that exploits their talents, derive a passionate interest from their work as a result, use that passionate energy to drive their practice and review, and accelerate their learning curves as a result.  But there always is a significant learning curve, with plenty of bumps along the way.

Medical school is a structured training process, honed over years of research and practice.  The new medical student starts with classroom learning (anatomy, physiology, pathology), moves to learning interview skills (how to take a history and physical), then moves to shadowing and assisting practicing physicians across different specialties, then takes on more responsibility within a specialty of their choice under close supervision and mentoring.  No one expects a first year med student to conduct a surgical procedure; by the end of their undergraduate training, they are actively working in the OR as part of a surgical team.

What I've seen among trading firms that are successful in growing talent is that they operate very much like medical schools.  They teach information, they embed new students in teams and encourage learning from a mentor, and they encourage students to specialize in areas that speak to their interests and talents.  That is the process that Bella describes, and it is an excellent example of how talent can grow through properly structured apprenticeship.

Further Reading:  Can Individual Traders Succeed in Today's Markets?