Friday, December 11, 2009

Training Traders for Performance Niches

Responding to my recent post on characteristics of an ideal training program for traders, Adam makes an excellent point: a training program must focus on the skills most relevant for the particular kinds of trading being taught. In many cases, this involves mathematical and analytical skills.

We often refer to trading as a single career field, but the reality is that many different activities are subsumed under the trading label. In that sense, trading is like medicine: there are many specialties, each reflecting the skills and interests of the practitioner--and each having very different training. Think of the training of the psychiatrist, the surgeon, and the emergency physician and the very different skills that go into expertise in those fields.

Similarly, the skills of the portfolio manager are different from those of the order flow trader; the developer and trader of mechanical systems relies on very different competencies from the active discretionary intraday trader. Spreading and arbitrage relies on different skill sets from outright trading; option trading differs from long/short investments in stocks; and so on.

The important implication is that even the world's best training program might not be ideal for any particular trader. Just as an aspiring surgeon would not benefit from a residency program in psychiatry, a trader with mathematical and analytical skills might not benefit from a training program in discretionary scalping; a trader skilled at viewing and trading relationships might not thrive on trading a limited number of setups in a single asset class.

This is why aspiring physicians first attend medical school before they specialize in a particular branch of medicine. Only broad exposure to the field, including rotations through a variety of specialties, can uncover where the student's greatest skills and interests lie. How worthwhile it would be for aspiring traders to sample different approaches to trading, so that they could find their niches--and also cultivate new ones.

But how can traders hope to gain such broad exposure to the field? I'll address this topic in the next post in this series.