Wednesday, May 08, 2024

A Powerful Framework For Improving Your Trading


The most recent post pointed out that our trading psychology challenges evolve as we move from being rookie traders to consistently profitable ones.  Newbies wrestle with the challenges--and inevitable frustrations--of learning markets and weathering periods of risk and reward.  Experienced traders look to build businesses and find themselves tackling new learning curves as they branch out to different markets and strategies.  The reality of a trading career is that the progression from startup trader to experienced one is not a linear path.  Because markets are ever-changing, the winning methods that we discovered at one period may lose much of their edge over time.  I've worked with experienced hedge fund managers who have had to remake themselves as their old strategies became overcrowded.  The learning curve of traders is thus more of a spiral than a straight line.  We always go back to learning, but at higher and higher levels.  

Over time, those who can't evolve become extinct.

The really, really good traders I've worked with continually try new things.  They are like business startups and incubators, innovating and uncovering what works.  I found that a good question to ask traders during the hiring process is to ask them to lay out their pipeline of new ideas.  Just as I would want to invest in a company with a large and promising pipeline, so I look to hire traders that are continually developing.

The most powerful framework for improving your trading is to imitate those innovative traders:  Try lots of new things, see what works, and then build on success.  In psychology, this is known as a "solution-focused" framework.  Over time, identify and study what you are doing when you're not having trading problems and when you're not losing money, because the odds are good that--at those times--you're doing something well.  "Do more of what works" is the motto of the solution-focused psychologist.  Whether you're a developing trader or an established one, look for opportunity, try new things to capture that opportunity, and then focus on and do more of what works.  

Quite simply, this is a formula for evolution.  If you cultivate more and more "mutations" of your trading, inevitably you'll find some that are uniquely effective.  A powerful framework for improving your trading is to discover and then do more and more of what you do well.

Further Reading:

Solution-Focused Trading