Friday, March 27, 2009

Approaching Markets With an Active Mindset

When I talk with a group of traders this weekend, I'll be focusing on the importance of approaching markets with an active mindset. Successful traders don't simply turn on the computer and follow the market. Rather, they actively look for themes and patterns, drawing upon the implicit learning that comes from longstanding market immersion.

Think of a person riding an elevator with classical music playing in the background. The act of listening is passive; the music is for atmosphere only. At a symphony concert, however, a listener will actively attend to the performance, picking out motifs in the work and following their development.

A tired person in the morning will gulp their coffee, barely tasting it. The coffee expert, however, carefully prepares the coffee to maximize the flavor of the beans and the temperature of the water. Tasting the coffee is an active process, appreciating the flavors that emerge in the tasting.

With growing expertise, the trader learns to actively process market patterns as they emerge and place them into a perspective that leads to trade ideas. It is when traders become passive that they react to markets, buying simply because prices are rising or selling at the first sign of weakness.

But how can we become more active market participants, even when we're not trading?

Several readers have told me that they're using Twitter to document their thought process through the market day. They then review the tweets to better understand how they could have done a better job of recognizing and responding to market patterns. It's a unique application of Twitter, and it may be quite useful in turning passive market following into active market mastery.