Sunday, August 09, 2009

The Dynamics of Trading Success

It is unusual for elite levels of performance in any field to develop in isolation. Most often, success develops in what I call "performance incubators": structured situations that build skills over time through frequent practice and performance. For example, college basketball serves as an incubator for professional talent; the academies run by tennis pros serve as incubators for the pro tennis circuit; amateur and regional theaters incubate talent for Hollywood and Broadway; chess clubs incubate talent for national and international tournaments; minor leagues and college teams in baseball incubate major league talent; etc.

This post on "What Makes an Expert?" helps to explain why so many traders do not reach their full potential. Without structured incubation, it is difficult for skills to develop over time. Three years of experience become one year repeated three times over, not a cumulative learning experience.

Perhaps this is why research finds that so few active traders achieve consist success. How many surgeons would be successful structuring their own training? How many pianists? Gymnasts?

Many "trader education" offerings are not efforts at incubation. How do we know this? They lack developed curricula. Successful incubators start with basic skills and develop more refined ones. Most educational efforts in trading are not training efforts in this sense. (See this post for what a trading curriculum might look like). Indeed, it is difficult to think of successful incubation efforts in various performance fields that do not last for years of regular training before formal, professional performance commences.

How many traders have undergone such rigorous training? Might that help to explain why so few successful traders remain successful over time? Without developed skills across a range of market conditions, it would be difficult to adjust to shifting markets.

The sad truth is that few traders could afford to devote years to perfecting their craft; few educators have undergone development themselves to know how to structure a proper program of training. It's a shame; any trading firm that mastered incubation would ensure its successful future. Which is one reason why certain investment banks, which do structure their training and mentorship processes, remain at the top of their profession.