Monday, October 31, 2016

Winning At Trading By Being Different

I love Porter's quote; it summarizes so much of what I've found in working with traders.  The really good ones deliberately choose to be different.  They look at things others don't look at; they view the world through multiple lenses.  This enables them to find unique opportunities.  

There is a great post from Ivanhoff Capital that summarizes the trading strategies of a successful money manager.  In that post, you can see how James Mai is playing on a multidimensional chess board, viewing markets short-term, long-term, and through the lenses of price change and volatility.  He has a clear idea of where and how markets misprice risks, and he is willing to make many small, losing trades to find a limited number of large winners.  I heartily recommend you read his ways of viewing markets, just as a way of appreciating how a successful trader deliberately chooses to be different.

And how do traders learn these different ways of thinking?  By being exposed to other traders who perceive and exploit unique opportunity.  When an early career trader is brought into a trading firm, the single best predictor of his or her success is the degree of mentoring that occurs at the trading desk.  When new traders are left to their own devices to sink or swim, they frequently sink.  When traders are brought on as trading assistants and learn their way from the ground up through a mentor, they absorb ways of thinking about markets.  Smart training programs allow their new talent to rotate from one trading desk to another, so that they absorb a variety of ways of thinking about markets.

This is why I occasionally post on research I'm doing, creating such measures as "pure sentiment".  I'm illustrating a way of thinking, whether you follow that particular measure or not.  

After all, learning from example is why developmental efforts from plumbing to psychotherapy to medicine are structured as apprenticeships.  We learn by absorbing the wisdom and experience of masters and then by integrating that learning into our own, unique style.  We can deliberately choose to be different by exposing ourselves to different talent and ideas.

Further Reading:  Creativity and Innovation