The Pursuit of Excellence in Trading

In my latest blog post, I identify the one quality that seems to distinguish expert performers in any field from the ones who are merely good: The experts are relentless in their pursuit of improvement. In a word, they have organized their lives around a learning and development process that continually refines who they are and what they do.

One of the core skills that seems to distinguish successful market participants from their less successful counterparts is the ability to engage in what is called divergent thinking. The divergent thinker can view things from multiple perspectives, generating fresh ideas. Divergent thinking lies behind most forms of creativity, and it enables successful traders to separate themselves from the herd.

Divergent thinking may take the form of being a contrarian, but sometimes it is merely the ability to perceive opportunity in fresh ways. I am currently reading two books that are unusually vivid examples of divergent thinking. The first in Inside the House of Money by Steven Drobny. This book, conducted as a series of interviews with successful global macro traders, beautifully illustrates how they look across asset classes and national boundaries to identify opportunity. One beautiful example was the money manager who noticed a steep selloff in equities in Turkey following a major earthquake. He bought all the stock in glass manufacturers that he could find. When rebuilding commenced, he was in a perfect position to profit.

Divergent thinking also means being able to stand apart from market myths. A second book I'm reading, The Only Three Questions That Count by Ken Fisher, systematically examines common assumptions about the markets and shoots them down. Do high P/E markets perform worse than low P/E markets? Do budget deficits create bear markets? Does a weak dollar hurt stocks? Fisher illustrates how an unbiased look at the data helps traders take advantage of situations in which other fall victim to such myths. One core skill Fisher identifies is our ability to engage in divergent thinking with respect to our own biases: to realize how our hard-wired reactions to markets are often overreactions--which then enables us to profit from our own human frailties.

The relentless pursuit of trading excellence means changing how we think, how we perceive. In making ourselves successful, we inevitably remake ourselves. Independence of thought and perception--the ability to diverge when others are converging--is perhaps the greatest trading skill of all.

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, was recently released for publication (Wiley).