Friday, August 01, 2014

The Enduring Value of Trading Wisdom

When we view the world from the trading desk, our perspective is too often limited to the lenses we wear at the moment.  Recency bias, hindsight bias, confirmation bias:  there are many obstacles that stand in the way of clear perception.  When we get off the desk and speak with colleagues, seek out new sources of research, and read novel views, we have the opportunity to wear new lenses and process the world in fresh ways.

One of the most powerful ways to shift our perspective is to speak with successful traders.  Those conversations are valuable, not so much for specific trade ideas, as for broader market-related wisdom.  Some of the most powerful lessons in my development have come from specific, eye-opening conversations with accomplished pros.

It was precisely such a conversation that first taught me about factor investing and ways of harvesting returns without engaging in market timing.

A walk through a university museum during a study break took me to a display of the works of Ayn Rand, and that led to the recognition that psychology could be much more than the treatment of disorders--and that trading could be more than profiting from market ups and downs

A conversation during my first visit to the trading office of Victor Niederhoffer led me to think of trading as a scientific activity that could be illuminated through the understanding of other disciplines.

A decision to read everything I could find on the topic of short-term approaches to therapy was intended to make me a better psychologist--and led to the writings on solution-focused work that taught me that exceptions to people's problem patterns are as important as those patterns.

I recall a casual conversation years ago with a very successful money manager who pointed out, "If it's not in your calendar, it's not part of your process."  That hit home.  The greatest of intentions, goals, and plans matter little if they aren't lived in daily life.

Watching an accomplished trader at work, I saw him take a quick loss on a trade and then flip his position and make far more money.  Before he changed his position, he gave me a smile and explained, "I just paid for information."  His losing trade was information, not a loss.  That stuck with me; to this day I search for information in losing trades so that I can extract some winnings from the day.  When dealing with uncertain markets, learning can be the one certainty.

In the office of yet another pro, I noticed very strict rules at work for adding to positions, taking positions down, and raising stops after favorable moves.  "The management of your trades counts every bit as much as the ideas you're trading," was the life lesson.  There are no touchdown passes if the blocking and tackling aren't solid.

It's great to seek knowledge, but the enduring lessons come from wisdom.  Markets are far too complex and challenging to be mastered from a desk.  There's a world of wisdom away from the screens in books, interviews, and conversations.  Teach yourself trading, spend the screen time needed to master market patterns, but also heed the advice of Mark Twain and make sure your schooling doesn't interfere with your education.  That might be the best wisdom of all.

Further Reading:  Life Lessons From Blogging