Saturday, March 04, 2017

The Real Way to Develop Trading Expertise

When developing traders want to improve their learning of markets, one of the first strategies they turn to is keeping a journal.  They write down what they did right and wrong, and they might make note of goals for the next trading day or week.  That is all well and good, especially when today's observations translate into tomorrow's goals and tomorrow's goals frame the next day's concrete plan of action.  But is this kind of journaling sufficient to supercharge a trader's learning curve?

I think not.

Think about the developing basketball player.  He or she does not simply play in a game, shower up, and then write observations and goals in a journal.  If that were the extent of preparation, fans could hardly expect to see improvement from game to game.  Rather, the player spends considerable time with the coach reviewing the game in detail, with a focus on game film.  The player uses the film to watch his or her performance and observe improvements that need to be made.  Then, in practice sessions, those desired improvements become the focus of both the player's and the coach's attention.

In other words, the basketball player does not wait until the next game to make needed improvements and work on goals.  The player is working on those areas during multiple practice sessions so that the improvements have already been made by the time the next game begins.

That is what supercharges learning.

Above you can see one of the products of my current performance experiment.  It's a single screen that captures the information that is most crucial to my decision making:  volume (participation in the market); buying/selling activity (upticks/downticks); and key price levels at which participation and buying/selling are occurring.  Watching the evolution of these variables during the day is key to finding points at which buying/selling expand/dry up, points that provide good risk/reward for short-term trades.

But where the experiment begins is after the session close.  That's when I return to the chart and advance it bar by bar and review my thought processes as the day progresses.  That slow motion review allows me to observe what I missed during the day session and replay it and replay it until it is cemented in my mind.  The review also enables me to pick up on setups that recur during stable market regimes.  This is a way of building a trader's cognitive development, sharpening the trader's perception, and finding opportunities in different market conditions, all of which are every bit as important as working on our emotions. 

Look at the greats in any sport.  They spend much more time practicing and honing their craft than actually performing.  There's a lesson in that.

Further Reading:  Patterns of Efficiency in the Market