Monday, February 20, 2017

Group Coaching: A Powerful Trading Resource

One of the things I'm most looking forward to in this coming Sunday's four-hour seminar at the New York Trader's Expo is the opportunity to conduct true group coaching with attendees.  It's surprising how little coaching of traders occurs in group mode, especially given the common overlap of concerns among traders.  I'm looking forward to the experience because of several powerful advantages of working in groups:

1)  In groups, there are opportunities to gain insights from other members as well as from the group organizer.  Take AA as an example:  much of the impact derives from the interactions of members to support, challenge, and enlighten one another.

2)  Groups, run properly, can be fun.  They lend themselves to interactive exercises and lively dialogue.  We tend to be most focused on what is most engaging.  Groups can actively engage us.

3)  The loyalty built within groups brings the best out in people.  I saw this when I ran group therapy sessions on the inpatient psychiatry unit of a hospital.  Members reached out in ways for others that they couldn't always do for themselves.

Perhaps best of all, groups can become phenomenal creativity resources.  Imagine a group of dedicated traders, each bringing their best trade of the week--and their best psychological practice--to the group meetings.  Everyone can play off everyone else, modifying the ideas, applying them to their own situations, and generating new best practices for the entire group.  When group members are passionate about what they do, that passion becomes self sustaining, fueling the development of new ideas and methods.  It's an important reason some traders choose to join trading firms rather than trade on their own.  It's an important reason solo traders maintain active networks with like-minded peers.

Think of basketball and football teams.  Think of AA.  Think of Special Forces units.  So often, groups push us in ways that we would never push ourselves.  Groups support us in ways we cannot support ourselves.  Groups give us feedback we'd never think of on our own.

(While writing this, I'm listening/watching MMJ doing their early Conan session.  From 2:45 on in the video, you can see how groups, passionate about what they do, make beautiful music.)

Look forward to some great music making this weekend!

Further Reading:  Joining a Hedge Fund or Prop Trading Group

Sunday, February 19, 2017

Trader Education: The Process of Becoming a Great Trader

Thanks to a savvy trader for passing along this enlightening news account of how coach Gregg Popovich is helping mentor his young talent through the use of game film.  Interestingly, the assignment is not to watch games but to watch specific performers who have the skills that the young players need to develop.  By watching the greats in action, the rising stars absorb their example, integrating what they do into who they are as players.

This observational learning occurs in many performance arenas.  Chess students study the games of the grandmasters and learn from each move made.  In medical school, students undergo a clinical education that teaches them how to care for patients.  The motto is "see one, do one, teach one."  First you observe experienced physicians in practice, then you do what they do with close supervision, and then you teach more junior professionals, thereby cementing your own learning.

No one pretends that you could become a chess grandmaster or a successful physician by simply sitting in a classroom or by randomly trying things out and hoping to hit upon success.  Professional development is a function of internalizing the performance of experienced masters.  We become what we repeatedly observe and study.

The power of observational learning helps explain why so many of the most successful traders have developed under mentors, often as part of teams.  The Tiger cubs trained by Julian Robertson are an excellent example of observational learning in practice.  When world class talents mentor promising students, the result is further world class talent.

As Bella at SMB observes, successful teams not only teach skills but also actively nurture talent with support and caring.  This is essential during rigorous and challenging training conditions.  It is a major reason why elite military groups, such as the SEALs, conduct their training and operation in teams.  Teams take responsibility for their members.  Many obstacles are overcome, not just through individual effort and determination, but through team spirit and dedication.

Do you want to know some of the best ways of distinguishing real trader education from the fake kind?  Look for teams, look for videotape, and look for the Gregg Popovich approach to mentoring, where you spend considerable time seeing one before doing one.  And do you want to see what makes for a future trading star?  It's the willingness of a Dejounte Murray to sit on the bench, wait his turn, and use that time to observe, observe, observe the greats and integrate that learning into his game.  

Trader education has just scratched the surface of the potential of observational learning.  

A thought experiment:  What if you recorded your trading and regularly reviewed your best trades?  What if you were in a classroom of developing traders and everyone regularly reviewed each other's best trades?

Perhaps so few traders succeed because most are so busy trading that they never sit on the sidelines and absorb the lessons from successful traders.

Further Reading:  Four Pillars of Trading Process

Saturday, February 18, 2017

Fake and Real Education in Trading

We've heard a lot lately about fake news, both from the political right and left.  The truth is that it's difficult to report truth, objectively.  Too often agendas slant what we present, turning what should be enlightenment into persuasion or, at worst, propaganda.  A credible academic journal presents studies supporting and not supporting various ideas, allowing the data to speak for themselves as much as possible.  No one would read an academic journal that only published information supporting specific views, suppressing contrary evidence.

In trading, we see a great deal of web content, seminars, webinars, and books offered as "education".  Too often, this is fake education, in that it promotes a particular agenda that is marketed by the writer.  How often have we seen something offered as education that starts with a tease and ends with a sales pitch to get interested students to purchase a service or product?  That's an infomercial, not information.  It's not education; it's advertising.

So what is *real* trading education?

*  Real education educates.  You come away with specific information and/or skills that you didn't previously possess.  

*  Real education is on the cutting edge.  It provides new information and new skills.  It does not merely repeat what has been written many times previously.  If what you encounter in a book or webinar could have been encountered three years ago, thirteen years ago, or thirty years ago, it's rehashing, not educating.

*  Real education is grounded.  It draws upon actual research and actual practice.  It is not mere opinion or preference.

*  Real education stands on its own.  It is not a throwaway lead-in for commercial products or services.

As many of you know, I teach in a medical school.  I value the education and training of medical students and residents, and I especially respect the continuing education of practicing physicians.  Without continuing education, a physician is locked in old information and old practices and become stale.  Patients suffer.  Without quality continuing education, traders--and their capital--suffer the same fate.  Education is far too important to be left to fakery.

True continuing education for experienced traders is the next great frontier in trader development.  Not rehashings of worn out technical trading patterns, bromides about discipline, or trading tales from old timers.  Real, actionable education based on real research and real practice.  It's an important part of what distinguishes a profession from a hobby.

Further Reading:  Toward a Curriculum for Traders

Friday, February 17, 2017

When Trading Problems Are More Than Trading Problems

Consider the following situations that I've encountered recently:

*  A trader was concerned about his inconsistent performance.  He asked for help with sticking to a set routine.  When I gathered background information, it turned out that he had significant symptoms of depression and a family history of depression.  Because he did not have a full-blown major depressive disorder, he assumed that his inconsistencies of mood and energy level were simple lapses of discipline.

*  A trader asked for help with overtrading.  He took too many trades, especially when he became frustrated.  His impulsive decision making was costing him money.  He wanted to find a way to achieve greater discipline in his trading.  His history documented a lifelong pattern of attention-related problems and poor frustration tolerance.  He had been diagnosed with attention deficit disorder in grade school but stopped taking medication and assumed he had outgrown the problem.

*  A trader showed good trading results, with superior risk-adjusted returns.  He did not take meaningful risk, however, and as a result never made much money.  Despite encouragement from his manager, he found it difficult to increase the size of his trades.  His early adult history included episodes of social anxiety and psychosomatic problems related to anxiety.

In each of these cases, the trading problem was the result of a larger problem.  The trader approached the problem as if it was a trading issue when in fact it required professional attention.

Not every problem that impacts trading can be solved by goal setting, writing in journals, and placing motivational post-it notes on a computer monitor.  Sometimes a trading problem is a manifestation of a much broader problem.  No amount of talking with a trading coach can properly address issues of depression, ADHD, or anxiety.  If you examine your history and find problems that have occurred outside of your trading, perhaps those need to be considered as possible causes of your trading concerns.  The right diagnosis and the proper help can be the best thing you could do for your trading.

Further Reading:  Best Practices for Dealing With Drawdowns

Thursday, February 16, 2017

Five Key Questions Traders Need to be Asking

Here are five helpful questions that traders too rarely ask:

1)  What was the price path of what I was trading *after* I stopped out of the trade?  Does my exit execution actually add value?

2)  What has been the price path of what I've been trading after I entered the trade?  Does my entry execution have positive expected value, or am I better off entering in a rule-based, mechanical fashion?

3)  When I've added to trades, what has been the P/L just for those added pieces?  Does adding to trades truly add to my profitability?

4)  What has been the price path of trades I decide to not take because of lack of conviction?  Does my conviction in an idea truly correlate with the profitability of trading that idea?

5)  How does my P/L behave after I've had a string of winning trades?  A string of losers?  Does recent performance affect my trading, and--if so--is that impact positive or negative?

Tough to come up with answers for better trading if we're not asking the right questions.  

Perhaps the best question of all:  How much time do you spend studying your trading vs. studying the markets you trade?

Further Reading:  Preparation and Success

Wednesday, February 15, 2017

What In The World Are You Trading?

The beauty of financial markets is that, quite literally, you can trade almost any publicly listed asset in the world.  If you want to buy stocks in India, Brent crude oil, Japanese currency, or a curve spread in European interest rates, it's very doable.  Despite this historic access to global assets, something unheard of for the public just a few decades ago, we find traders locked into trading the same things, the same ways.

Too often developing traders focus on finding the right trading signals and setups; some hidden formula for making money.  The reality is that trading success is as much about what to trade (and when) as how to time market tops and bottoms.  The past six months in the U.S. stock market have been quite bullish, but notice from the excellent chart from Finviz that sector performance has varied widely over that period.  If you were trading interest rate sensitive utilities and consumer shares or healthcare issues, you barely made money if at all.  If you were trading financial shares, such as banks, you likely killed it.

What you trade is as important as how you trade.

Some years back, a successful trader I knew well found it difficult to make money trading stocks because volatility had declined.  He scanned the universe of commodities and found several that moved similarly to stocks when stocks were volatile.  He began trading those commodities and--lo and behold--he started making money again on a sustained basis.

When I recently visited SMB, I met with several traders who were achieving unusually positive results.  I quickly calculated their Sharpe ratios and found that, not only were they making significant money: they were doing so with excellent risk/reward.  It was clear in speaking with them that they had leveraged technology to identify stocks with the right kind of movement, that provided the best opportunities for that day.  Had they traded the exact same patterns in large cap energy or retail shares, they would have struggled for profitability.  

A macro portfolio manager who I recently worked with also had achieved consistent profitability with excellent risk-adjusted returns.  The strategy involved tracking macroeconomic data in detail and identifying which economies were accelerating and decelerating.  The portfolio then went long the growing economies and short the weakening ones.  Results were not only positive, but completely uncorrelated to the major market indexes.  All because that trader looked in places in the world that others were ignoring.  While the great majority was focused on the U.S. President's policies and trading only U.S. currency and rates, the successful trader was long some Latin American assets, short others; long some Asian assets, short others.

If your trading results have been subpar, consider the possibility that your problem may not be psychological and may not even be with your methods.  Instead, you could be like the gold prospector who is digging where everyone else has been mining.  If you wanted to successfully mine for gold, you'd conduct geological surveys, inspect the land, and go somewhere promising where no one else was looking.  Purchasing better equipment and doubling down on your "passion for mining" can't help you if you're digging in the wrong places.

Further Reading:  Reflections on Opportunity

Tuesday, February 14, 2017

How Trading Success Happens

When I first began working with traders, my central insight was that trading is a performance activity.  What makes for trading success is not so different from what makes for success in other performance fields, whether they be performing arts, athletics, chess, or surgery.  In each of these fields, the star performer begins with certain inborn talents and then refines those through a process of training, mentoring, and coaching.  Training and mentoring build knowledge and skills and accelerate the learning process.  Coaching provides guidance and helps performers channel their talents and skills to where they can be most successfully applied.  Long before elite performers acquire fame or fortune, they spend long hours in becoming.  Their focus is on improvement, the refinement of skills, and the development of new ones--not on the the trappings of success.

There are few, far too few, places where developing traders can benefit from the thoughtful integration of training, mentoring, and coaching.  It's one reason I've been such a fan of the building of teams within trading firms.  Those teams enable senior traders to benefit from the work of junior traders, and they provide hands-on learning, mentoring, and coaching for those juniors.  The learning takes place on the desk, just as an athlete's learning takes place on the field--in practice and during games.

No one expects an athlete to develop by reading books, taking classes, or practicing on their own.  No one develops as a performing artist by writing in journals and trying out different songs or plays.  In performance fields, aspiring performers learn from experienced performers and those knowledgeable about the performance domain.  Medical students are trained at the bedside by practicing physicians; chess players hone their talents in academies run by chess masters and grandmasters.

If I were looking to become successful in the trading world, I would learn some skills and/or develop some area of expertise that would make me valuable to a trading team or firm.  I would then contribute my skills to that team and learn everything they're doing that makes them successful.  Over time, I would integrate my abilities and experience with what I've learned to develop my own path to success--and then I would cement that learning/development by serving as a mentor for a new generation of juniors who could in turn make me better.

I've worked with many individuals, many trading teams, and many trading firms.  That is how success happens.

Further Reading:  The Foundation of Trading Success

Monday, February 13, 2017

Pushing Our Trading Boundaries

I had an interesting experience recently.  Until the snowfall of the last few days, I had been doing my jogging outdoors.  It's great exercise, and it is very effective in clearing out the head and starting the day.

With the recent snow, I went back to the treadmill and resumed my jogging.  The great thing about the treadmill is that it continuously measures pulse rate, calories burned, distance traveled, heart rate, and more.  As I replicated my outdoor run on the treadmill, an uncomfortable reality hit me:  I was not coming close to my target heart rate for optimal aerobic benefit.  In simple terms, my outdoor runs were not pushing me nearly hard enough.

That's the great thing about keeping score:  there's far less room for making faulty assumptions about your performance.  In trading, we think we're working hard at improvement when in fact we're not really breaking a sweat: we're not truly pushing ourselves outside our comfort zones.  When I gave a recent talk to the SMB traders, I was asked about patience and discipline and proposed the following exercise:  calculate the median number of trades you've placed each day over the past two months.  Then divide that number by two and limit yourself to that number of trades for the day.  Once you hit that limit, you're done for the day.

Now that is a bit like getting on the treadmill.  We're no longer relying on a subjective intention to trade more selectively; we're keeping score and forcing ourselves to actually *be* more selective.  If you've averaged four trades per day and now can only take two, you've created a situation where you use half your bullets for the day if you take a single marginal, low-quality trade.  Knowing you only have two trades to make during the day forces you to look for the best opportunities and to keep powder dry for possible later opportunities.

When I'm on the treadmill, I can't avoid looking at the screen that tells me if I'm cheating or not.  When you're limiting the number of trades, you can't overtrade and somehow convince yourself that you're working on your game.  There's a saying that talk is cheap, but it's not.  It's quite expensive if it deludes us into thinking we're making progress when in fact we're not making sufficient efforts.  Bella was right to lay into some of the traders, just as I was right to chastise myself and double down on sticking with the treadmill.  If I want to clear my head and get fresh air, great, go for a jog.  But if I want to work out and develop myself, then dammit keep score, track objective reality, and really figure out if I'm truly developing.

It's all about use it or lose it:  if it doesn't grow, it stagnates.  And if we don't break a sweat and push our boundaries, we never truly grow.

Further Reading:  The Greatest Mistake Losing Traders Make

Monday, February 06, 2017

Trading Psychology Workshop on February 26th

How can we identify the strengths that can bring us to the next level of trading success?

How can we effectively work on the weaknesses that undermine our current trading?

What specific psychological techniques, proven in research, can help us not just make changes but sustain them?

At the upcoming Traders Expo in New York, Sunday February 26th at 8 AM, I'll be conducting a four hour workshop that will really be a group coaching where we learn about strengths, weaknesses, and change techniques.  The longer workshop format will ensure that we address your specific challenges and goals.  Please note that the basic Expo event is free; the workshop sessions do have a fee and registration is on a first-come basis.

There will be some good speakers and topics; hope to see you there!


Tuesday, January 31, 2017

TraderFeed is on Sabbatical

 When I look at all I've written--over 4500 posts on TraderFeed and four trading books--I realize there's a lot of material out there.  So I've decided to make one of my next projects a pulling together of all this information into a single user-friendly guide.

TraderFeed will be on sabbatical while I assemble the guide.  I'll still post tweets about life and markets and link worthwhile posts.

Best of luck in your trading.  I think you'll find the guide innovative and worthwhile--


Seeing Markets Better by Trading With Vision

As the saying goes, the risk is not in setting your sights too high and falling short.  The risk is setting your sights too low and succeeding.

In this post, Bella makes the important point that failure is an essential part of success.  When we discover the trading that works for us, we'll discover many approaches to trading that don't work for us.  Those will be "failures", but there will be important information in those failures.  The key is to fail in planned ways, with modest risk taking.  You can't find your success if you blow through your trading capital.  Developing as a trader is all about controlled failure and learning from what works and doesn't work.

This applies to life overall.  What in your life, right here and now, are you trying to accomplish that is truly remarkable?  What are you undertaking that is so important to you--so meaningful--that you're willing to try, fail, and keep trying?  Learning by trial and error and deliberate practice can be a tiring's the remarkable aspect of what we undertake that inspires us and gives us a sense of drive and purpose.  Few of us will push ourselves on the nitty gritty of day to day goals if we're not pulled by an exciting vision.  What keeps the athlete in the gym each day is the quest for the Olympics; what keeps the entrepreneur working 15+ hours a day is the vision of seeing a great idea come to life.

Daily goals channel our efforts.  Life goals inspire our efforts.

We best navigate the path to success if we travel it with vision.

Further Reading:  Boosting Our Energy Level