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).