Tuesday, May 01, 2007

Coaching the Professional Trader: A Consumer's Guide

Coaching has become an institution within American business. According to a recent Harvard Management Update, 86% of companies utilize coaching to enhance the skills of their managers. Indeed, a Harvard Business Review study estimates that 1 billion dollars is spent annually on executive coaching. The article refers to the market for executive coaches as a kind of "wild west", in which "No one has yet demonstrated conclusively what qualifies an executive coach or what makes one approach to executive coaching better than another. Barriers to entry are nonexistent--many executive coaches know little about business, and some know little about coaching." Despite valiant efforts to standardize the field, such as The Executive Coaching Handbook, the plain reality is that coaching in the corporate world is a field without a firm empirical base and without uniformly recognized credentials.

This wild west applies not only to executive coaching, but the gamut of coaching in the trading world. There is a very thin literature dealing with the coaching of traders, and much of that is more applicable to the novice, retail trader than to the established professional. Much of the popular literature, for example, assumes that major goals of coaching are to help traders establish trading plans and stick to these with discipline. This simplistic notion of trading does not begin to capture the complex world of a market maker at an investment bank, who is interacting with trader colleagues, market, and sales professionals through the day. Nor does it ring true to the multimillion dollar portfolio manager at a hedge fund, who might be trading a long/short strategy based upon quantitative valuation models.

While coaching of the retail trader has tended to address the needs and interests of struggling traders, trading coaches are most often sought for professional traders who are already successful. (Many firms, in fact, only hire traders with established track records of success who already have demonstrated successful trading methods and risk management). Very often, the traders seeking coaching are looking to "take it to the next level" by expanding the size and/or scope of their operations. Others are finding that their success increasingly places them in managerial roles, for which they were not trained and which may not represent their true passion. Still others face life challenges apart from trading that might impact their performance.

If you're a professional trader or trading firm considering hiring a trading coach, what should you look for? Here's a brief checklist that might guide your initial search:

* Trader Motivation - My experience across proprietary firms, hedge funds, and investment banks is that the value of coaching is directly proportional to the trader's interest in the process. When the coaching is initiated by management (or HR) with little trader input, it rarely turns into an ongoing, useful process.

* Rapport - A large body of research in psychology suggests that change efforts are most likely to be successful when there is a positive working relationship between the parties involved. Scheduling initial, trial meetings to determine whether or not there is a solid alliance can help avoid wasting much time and energy. If rapport isn't present after a couple of meetings, it most likely won't be there.

* Content Awareness - A trading coach should know something about trading and about the kind of trading engaged in at the relevant setting. The challenges facing a high frequency trader at a prop firm and a portfolio manager at a growing hedge fund are meaningfully different. It is difficult to build a strong rapport if the coach is clueless about the trader's life work.

* A Thorough Assessment Process - Beware the coach who offers a canned program of assistance, one-size-fits-all. The coaching should be bespoke: tailored to the individual's specific needs and circumstances. This means that a thorough assessment process should precede efforts at intervention. It is invaluable, I have found, to include others in that assessment process, such as risk managers, desk managers, MDs, and others coordinating the work of traders.

* Emphasis on Limited, Measurable Goals - If there's one thing that has given coaching a bad name, it's a reliance on buzz words and psychobabble in place of validated methods directed toward measurable aims. Both coach and client should be able to verbalize their specific aims, what they will be doing to reach these, and how they'll know if they're achieved.

* Professionalism and Experience - Who is the coach ultimately working for: the client firm or the trader? How will confidentiality be handled? What feedback will be given to managers of the trading firm? If more specialized help is required (e.g., a psychiatrist), how are referrals handled? How does the initial assessment identify problems that would out outside the coach's scope of practice? An experienced, professional coach will have thought through these issues carefully.

My personal preference is for services that enable traders to become their own trading coaches, rather than dependent upon an external coach. As a helper, that takes me down the path of direct skills teaching, rather than talk counseling. Ultimately, however, what is most important is the fit between the personality and needs of the trader and the style and methods of the coach. Firms should not be hesitant to audition many prospective coaches before settling on one or more to make available to their talent.

Relevant Readings:

Performance Coaching: When It Works, When It Doesn't

Trading Coaches: What Works

Trading Mentors and Coaches: A Resource Linkfest

How Traders Can Become Their Own Coaches