Want better trading performance? Use this plan…

  • October 6, 2005
  • Brett Steenbarger

Several readers responded to my
recent article, asking how one can train to be a successful trader.  To
answer that question, let’s consider other performance activities such as
professional dance, theater, chess, athletics, and elite police (SWAT) and
military (Special Forces) training.  All of these fields, I maintain, have
several common features:

  • A high ratio of time spent in practice/rehearsal relative to actual
    performance;

  • A structured, demanding program of realistic practice/rehearsal;

  • A teacher/coach/trainer who guides practice/rehearsal by creating demands
    sufficient to challenge the performer, but not so overwhelming as to create
    frustration and failure;

  • Rapid, comprehensive feedback to allow performers to learn from their
    practice/rehearsal and incorporate changes in future performances;

  • Structured preparation for specific performances, including review of
    one’s competition, creation of a performance plan, and active rehearsal of
    this plan;

  • Structured review of recently completed performances to guide learning and
    subsequent practice;

  • Recognition for superior performers and performances.

Laying out the shared features of training programs makes clear that these
are technologies for accelerated learning.  Combining intensive
rehearsal with mentoring and feedback creates a feedback loop in which successes
are reinforced and shortcomings are quickly identified and addressed.  In
my previous article, I mentioned the principle of SAID: Specific Adaptation to
Imposed Demands.  The role of training programs is to provide the right
kind of demands in the right amounts, so as to channel the specific adaptations
of performers.  Invariably, we define limits for ourselves that fall well
short of our capabilities.  The mentor’s job in the rehearsal process is to
push us to our real limits–again and again–until what had been extraordinary
now becomes routine.  

What do traders typically do to become better performers?

  • They read articles, newspapers, magazines, and books.

  • They attend conferences.

  • They keep journals to review their trading days.

  • They participate in chat rooms and bulletin boards.

  • They buy new equipment: hardware and software.

What do traders typically not do to become better performers?

  • They do not spend a high ratio of time in practice/rehearsal relative to
    actual performance;

  • They do not have a structured demanding program of realistic
    practice/rehearsal;

  • They do not have a teacher/coach/trainer who guides practice/rehearsal by
    creating proper demands for the trader;

  • They do not have rapid, comprehensive feedback to guide learning from
    practice/rehearsal;

  • They do not have structured preparation for specific days, including
    review of the markets, creation of a trading plan, and active rehearsal of
    this plan.

In short, traders lack a structure for generating SAID, those adaptations to
imposed demands.  Facing few imposed demands, they develop few adaptations.

When I came on board at a professional trading firm, I made sure the new
traders had a realistic platform for simulated trading, a program to track their
trading successes and failures, meetings each day to review performance, and
structured, daily teaching and goal-setting.  Even with all that, success
was difficult to attain for all traders, impossible for some.  If you are
to truly succeed as a trader, you’ll need at least as much as I provided my
students, and you’ll need at minimum many months of serious, effortful training
with a mentor possessing documented qualifications and experience in your
particular market.

I don’t say these things to attract business; in
fact, I don’t provide commercial services for traders.  I say these things
because they’re true and because it’s unlikely you’ll hear them from the many
snake oil peddlers and self-anointed gurus who populate the industry.  If
you’re not meant for trading, you’ll find my words discouraging.  If
trading is for you, you’ll read in my words a challenge and a call to become
what you truly can be.

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. 
He invites questions and comments via email.