Tuesday, September 17, 2019

Trading Psychology Advice for Struggling Traders

Recently, I've received a number of emails from traders who describe themselves as "struggling".  There is a sense in which all developing traders are struggling traders, as we struggle to make sense of markets, and we struggle to master ourselves.  Here are several pieces of advice that might be helpful to traders who are struggling with their development.

1)  Make sure you structure your learning process properly - Starting with trading in simulation mode (many platforms allow this and help you keep track of your performance) and practicing your research; entries; trade management; and risk management allows you to make your mistakes without doing harm to your account.  In every sport, players spend more time on the practice field than on the playing field.  Practicing and keeping score allows you to *see* your progress and gives you the confidence to go live.  Reviewing your trading enables you to see your mistakes and successes and learn from both.  Focus especially on your progress and what you do well...these often point the way to your eventual trading niche.

2)  Get the best mentoring you can find - It is difficult to find a performance field in which teaching/mentoring is not an important part of development.  In many arenas, such as the medical school where I teach, every student has multiple mentors over the course of their education and training, allowing them to absorb many sources of learning.  This is an important reason for joining a trading firm that assists in training, and it's an important reason to be part of online communities and resources.  The Appendix to my new book contains a large list of resources that can offer great education and mentoring.  It's worth the time to examine many of these and see which ones offer the kind of assistance that will speed your learning curve.  

3)  Give yourself time to explore different trading niches - To go back to the medical school analogy, students try out various specialties, such as surgery, internal medicine, and pediatrics, before they focus on a single direction for their training and career.  Sometimes, struggling in the learning process suggests that the niche you're trying out might not be the one for you.  Like the various medical specialties, different forms of trading require different skills and interests:  "scalping" short-term movement is very different from trading longer time frames; trading volatile stocks "in play" is very different from trading the broad market; quant trading is very different from discretionary.  Among the traders I work with at SMB, many are successful at one kind of trading but really struggle with others.  Among portfolio managers I work with at hedge funds, many are successful at one kind of strategy (directional macro) and not so much another (relative value or single name long/short equities).  Think of track and field and how many events there are:  from pole vaulting to sprinting to distance racing to shot putting.  So much of success is finding the niche that speaks to your talents and interests.  

One last piece of perspective.  If I were mining for gold or oil, I would not necessarily start digging where everyone else has been.  I would try to conduct or commission my own geological studies and dig where others have not explored.  Similarly, it is toughest to make money doing what everyone else is doing.  A great deal of success consists of looking at new market data (and old data in new ways) and defining strategies that exploit the herd.  Many of the best active trading edges consist of catching bulls and bears trapped, unable to move the market higher or lower, and needing to get out.  Some of the most valuable tools for trading allow you to detect such opportunities in real time.

Further Reading