Tuesday, February 05, 2008

Cross-Talk: Three Winning Characteristics of Training Programs for Traders

In an excellent post, John Forman, author of The Essentials of Trading, notes the pitfalls of the trader whose primary motivation is to make a quick killing in markets. Going after large rewards generally brings large risks, and few developing traders are able to handle those constructively. Many traders with small accounts, needing to multiply their money rapidly, court "risk of ruin": the near-certainty that a string of (highly leveraged) losing trades will put them out of business.

John's advice is to build skills and allow the power of compounding to generate success for the long term. In other words, he is advocating building a career, not gambling to make large sums.

So how do training programs at successful trading firms operate? I'm working with several at present and find three common elements among them:

1) They Teach Real Information - The programs are run by experienced traders who share specific setups, risk management methods, and ways to execute ideas. In the beginning, trainees don't trade; they learn the ropes by listening to mentors and observing mentors trade. At one firm I'm familiar with, trade ideas are shared openly through the day so that trainees benefit from a continuous role modeling.

2) They Offer Opportunities for Skill-Building - The successful training programs don't leave traders to fend for themselves. Rather, they enable beginning traders to practice techniques in simulation mode or with very small size. The leaders of the programs then meet with the traders to review results, make suggestions, and guide the learning process. Until traders show that they can trade small and follow the rules they were taught, they're not given larger size to trade.

3) They Blend Standardization With Individuation - This is a subtle point, but an important one. First the training programs teach traders how to do it "by the book". They model specific skills and drill those in a standard manner. Later, however, as traders become familiar with the skills, they are encouraged to experiment and develop their own ways of following the core rules and principles.

What this means in practice is that the successful training programs for traders are content-rich, highly structured, and run in a hands-on manner. I'm finding that firms that execute their training programs well are attracting and retaining superior talent. Conversely, firms without these programs end up as revolving doors, as new traders cannot survive their learning curves.

John Forman makes the analogy to sports, and it's an apt one. The sports coach is one who teaches strategy and drills skills, who provides feedback and challenge, and who guides development. A training program for traders is not so different from a training program for athletes. It's all about learning the game, developing the skills, and then applying the skills in increasingly demanding environments.

The challenge for the independent trader is to draw upon such resources as online trading rooms for information and modeling of skills, followed by the implementation of a curriculum that systematically rehearses those skills. Research in fields as diverse as jazz music and chess suggests that entrepreneurial expertise development is possible when the performance activity provides ample feedback--something trading provides in spades. By observing what works in training settings at trading firms, we can better structure our own learning.

1 comment:

Przemek said...

Dr Brett, could you list some of these 'superior training' organizations?