A brokerage firm exec recently talked
with me about the educational needs of new traders. What do new
traders need to succeed? How can we improve upon the ratio of traders who
succeed to those who blow out of their accounts within months?
When I wrote my recent book on trader performance, I
researched various performance fields--including athletics, performing arts, and
games of skill--to see how expert performers developed their skills. Based upon
that research, here are three core activities that I believe should be part of
every new trader's education:
1) Simulation - A large body of research suggests that
people learn complex patterns through intensive, repetitive exposure to those
patterns. By watching markets in simulation mode--something available in such
trading platforms as NeoTicker and
Ninja Trader--traders can experience
far more patterns than if they simply watch live action. The ability to replay
live markets again and again accelerates the learning curve by enabling traders
to internalize variations on patterns and common expectations following these.
2) Metrics - Intensive practice and rapid, accurate
feedback about the strengths and weaknesses of each practice activity seems to
lie at the root of most skill development. By collecting data on our
trading--metrics such as how much we make/lose, how much we draw down, how long
we hold onto winning and losing trades, etc.--we obtain the feedback that
enables us to learn from success and failure. Those metrics also provide goals
for future practice and development. The above platforms provide basic metrics;
more detailed reports are available through the
Trader DNA software.
3) Journaling - If simulation and metrics provide the
raw data for our learning markets, journaling provides the overall learning
plan. By keeping a regular trading journal, we can track our progress, set
continuous goals, and build on our strengths. The journal pulls together the
information from simulated trading and performance stats to create a learning
plan. Note that online journals are becoming increasingly popular; a nice
offering comes from Stock Tickr, which
allows traders to selectively share journals with other traders for mutual
mentoring.
What kind of patterns in the market should traders be looking
for and learning? I recently have been conducting
free sessions on my blog in which I track the market in real time for
traders, highlighting important patterns that reflect supply and demand in the
stock indices. My next session is scheduled for
Tuesday AM, October 31st. There is no charge or registration and you can
rest assured that I won't try to sell you any products or services, because I'm
not in that business. The goal is simply to enable traders to read volume flows
in the markets, understand *who* is dominating market action, and develop trade
ideas based upon how the largest market participants are behaving.
Trading, ultimately, is a performance sport. My hope is that
a structured program of practice, feedback, and reflection can help you become
as good a performer as your talents and skills will permit. The blog sessions
might be a way to get started by focusing on specific patterns you can track in
your practice sessions.
Disclaimer: I am not commercially affiliated with any of
the products or services mentioned in my articles; nor have firms solicited the
mentioning of these products and services or compensated me for such mention.
Brett N. Steenbarger, Ph.D.
is Associate Clinical Professor of Psychiatry and Behavioral Sciences at SUNY
Upstate Medical University in Syracuse, NY and author of
The Psychology of Trading (Wiley, 2003). As
Director of Trader Development for Kingstree Trading, LLC in Chicago, he has
mentored numerous professional traders and coordinated a training program for
traders. An active trader of the stock indexes, Brett utilizes
statistically-based pattern recognition for intraday trading. Brett does not
offer commercial services to traders, but maintains an archive of articles and a
trading blog at
www.brettsteenbarger.com and a blog of market
analytics at
www.traderfeed.blogspot.com. His book,
Enhancing Trader Performance, is due for
publication at the end of October (Wiley).
