Saturday, April 29, 2017

Three Ways to Move Forward as a Trader

I found an excellent way to assess experienced traders.  Simply ask them to show you what, specifically, they are now working on in their trading.  The best traders--including the ones experiencing current success--can show you concrete improvements that they are making to their research, their trading, their risk management, and/or their trading business.  Not intentions to make changes, not journal entries about changing, but actual, concrete, documented change efforts.

Here are a few things traders I've been working with have been doing to get to that next level of performance:

1)  Teaming up with other traders to create unique opportunities - The successful traders seek out others different from themselves and skilled/knowledgeable/experienced in different areas to create mutual learning and synergies.  A talented discretionary trader might team up with a talented quantitative researcher; someone expert in trading one region of the world will team up with someone with extensive background in a different region; etc.  In romance as in business, when the right people pair up one plus one becomes three:  everyone makes everyone else better.

2)  Becoming granular and working to improve specific trading processes - One trader I know is looking to high frequency market information to improve his entry execution, measuring results by tracking the adverse and favorable excursions of each trade.  Another trader is building specific time into his schedule to implement creativity exercises and generate more unique and promising trading ideas.  Yet another trader is implementing a system for sizing trades up and taking greater advantage of the trades found, through his research, to have the best hit rate and profitability.  The more detailed and sustained the improvement process, the more likely it is to result in meaningful change.

3)  Learning new tricks - I recently spoke with a trader who has created a unique correlation measure to assess when money is flowing into multiple macro assets at the same time as a way of tracking the activity of large money managers.  A creative trader is experimenting with generating sound patterns from the activity on charts, so that he can track more markets by simultaneously watching and hearing different markets.  When one market demonstrates the right patterns, he moves to trading it, so that he is always trading where there is opportunity for what he does.  Still another trader has added mean-reversion setups to his momentum ones so that he has different ways of trading slow versus busy markets.  These traders make money in different market conditions and in different markets, while others remain one-trick ponies.

Every successful company has an active research and development pipeline.  They are creating tomorrow's products and services and testing them out, because they know that is where tomorrow's profits will come from.  The auto manufacturer is working on driverless vehicles; the software company is building new virtual reality applications; the publishing company is electronically archiving chapters from all their books so that readers can, on the fly, select chapters from different books and create their own electronic texts.  

What is your R&D pipeline?  How full is it?  How much time do you spend in developing tomorrow's trading?  How, specifically, are you going to be better by the end of this year?  Those are some of the strategic questions that help guide the career success of traders.

Further Reading:  Three Varieties of Market Idiot