Tuesday, December 23, 2008

Can I Trade for a Living? The Quest for Trading Success

A reader who has tried for years, without success, to trade for a living consulted with a trading coach. After reading one of my articles, the reader is now questioning the coach's advice. The reader asks:

"Am I deluding myself by following his assertion that successful trading is predominantly based on mindset--and that this is the key--this is all that has been missing from my previous trading ventures? I have spent years and thousands of $'s trying to educate myself as to trading systems, books, and methods. I thought that all I really needed to do was find a trading method that suited me - (my psychological makeup), something I could follow with a degree of self-confidence...Is there any hope that this might become a possibility?"

My heart goes out to those who struggle with trading, and I cannot express the depth of my contempt for "coaches" who pander to those hopes with psychological snake oil.

Let's try an experiment: Read the first two paragraphs of this post again, but this time substitute the words "play chess" for trade and "chess playing" for trading. Now read the paragraphs again and substitute the words "play golf" for trade and "golf playing" for trading. Do it yet again, imagining that our writer is an aspiring Broadway star, and substitute the words "act" and "acting".

Of course, the re-readings sound ludicrous: we know that there is far more to success in chess, golf, and acting than "mindset" and prefab "systems, books, and methods". The missing element? Skill development. Training. A systematic program of learning that emphasizes pattern recognition, an understanding of market movement across time frames, intermarket relationships, sound execution of trade ideas, and risk management.

Mindset is critical in sustaining motivation, interest, and focus during the learning curve, and mindset is crucial in the consistent application of one's skills. The wrong frame of mind and emotional/cognitive/physical state can disrupt the best of skills, but the best of mental outlooks cannot substitute for developed skills. No positive mindframe and "method that suited me" can provide competencies--in any performance field.

So is there hope for our reader? As long as he is searching for a perfectly harmonious method that he can "follow with a degree of self-confidence", he won't be immersed in a learning curve and won't succeed as a discretionary trader. His best bet is to shop for an actual trading system that has been adequately developed and backtested and have it executed mechanically by a participating broker.

Alternatively, he could start from the ground up with observing markets and patterns, testing out trading ideas and skills in simulation mode, and making note of the markets, time frames, and patterns that come most easily and provide the greatest interest, as outlined in my trader performance book. Observing experienced traders apply their skills in online trading rooms or joining a proprietary trading firm that features sound training can also be worthwhile toward this end.

Most of all, our reader should find coaches and mentors that are more interested in guiding a career than making a sale. There are good ones out there that will shoot straight; note, for example, John Forman's recent series of questions that he answers for developing traders and the sophisticated observations of Ray Barros re: emotions and trading.

The bottom line is that the answer to successful trading cannot be found in any coach, book, or system. Success is something that is cultivated over time, with directed effort. There is hope for our reader if he can identify his strengths and systematically learn to apply them to markets that capture his interest and motivation.


JamesSS said...

Thanks so much Dr.Steenbarger.
Kind regards
James S.

bzbtrader said...

Off on a little tangent here, but I say DITTO to claims of blog banner ads that promise 50-100% returns by simply following the guru's advice (and paying a hefty fee). There is no free lunch. For a reality check on the vetted performance (and cost)of various trading systems (both canned and open) www.futurestruth.com is a great place to start IMHO. I've got no tie with them but I know they provide an objective review of what the systems approach can really deliver.

DG said...

I am one of of your ardent readers and I find your info helpful to my quest in trading. Like the trader you mentioned, I am struggling but I try to make sure I will just study by myself and rely from some well thought informations like yours to get ideas on how to become a better trader. I think the answer to become successful in trading is to search for yourself alone that suits your own thinking,knowledge,capabilities, experienced. Relying from coach is good but when it comes to a situation in a game to make a decision, it's your call. Imagine Phil Jackson instructed Kobe Bryant to make a three point shot with 5 ticks left to win the game but he got trapped (does he follow the instruction of Phil Jackson??? of course not) and Kobe saw an opening to go all the way to the basket as time running out to make a sure two point score to tie the game for an overtime. So as a market participant, relying on your guts and judgment is the name of the game...

JasonBourne said...

I think this post misses a very important point, which also is one that is very rarely bought up by anyone in the teaching/coaching/selling industry (whether this pretains to trading or something else). If we make the word substitutions you suggest, a balanced view of the nature/nurture debate would strongly argue that at this point the author consider whether they have the inherent talent necessary to do well at their pursuit. Good skill development, training, and absolute dedication can take someone with very little or no talent a long way in most fields. But at best this combination usually delivers marginal results and leads to making a marginal living -- ofcourse those on the extreme nurture side (which includes the "snake oil" coaches in your post) would disagree. A marginal living isn't a result most people who dedicate themselves to something are really looking for, its not one that is likely to deliver a fulfilling life. The biggest value of this kind of experience is that hopefully the individual at some point starts to wonder how well they could do if they put the same level of dedication into something they genuinely have an aptitude for instead of something that holds some cachet which appeals to them or society (big money, flashy cars, easy women, etc.)

CharlesTrader said...

Some suggested reading:

"The Role of Deliberate Practice in the Acquisition of Expert Performance" Ericsson,Krampe and Tesch-Romer: http://projects.ict.usc.edu/itw/gel/EricssonDeliberatePracticePR93.pdf

"The Expert Mind" by Philip Ross:

"How to Grow a Super-Athlete" by Daniel Coyle:


OneToothShark said...

Hi Dr Brett, great article as usual. One question though

In your opinion what are the starting qualities needed to be a great trader.

These qualities are easy to see in most performing arts. Example,

Basketball = Jumps high and Tall
Singing = Great voice
Football = Big build, runs fast

Now these starting qualities will not guarantee success but it is obvious that a really tall kid has a better chance of becoming a NBA player than a small weakling (All things equal)

So what are these starting qualities for traders?

Brett Steenbarger, Ph.D. said...

Thanks for the recommendations; great ones, Charles--


Brett Steenbarger, Ph.D. said...


I hope my subsequent posts address the excellent questions and issues raised by Jason and One Tooth Shark--