Wednesday, March 26, 2014

Finding an Effective Trading Coach: What to Look For

The recent post on seeking a trading coach suggested that many times a coach is not the ideal solution for trading-related concerns.  Many problems that traders face are a subset of performance anxiety/pressure concerns that impact people in various situations, from exam-taking to public speaking.  Those issues can be addressed quite effectively by experienced, well-trained psychologists.  The advantage of finding such a psychologist is that they are likely to be local and hence more accessible and more affordable than most trading coach specialists.

That local consideration is an important one.  Research in counseling and therapy finds that the most consistent ingredient of success is the quality of the relationship between the person helping and the person receiving help.  It is easier to build and sustain that relationship with face-to-face meetings that can be scheduled with regularity.

Whether you end up working with a counselor, mentor, or coach, other ingredients of success include:  1) a concrete focus for change; 2) active work between meetings to make changes; and 3) the ability of the helper to provide fresh perspectives--and new directions--for the change process.  In other words, change is most likely to occur when you specifically spell out the desired change, work actively and consistently to achieve that change, and receive useful and insightful guidance from the person you're working with. 

But my experience is that one success factor trumps all others:  great helpers care greatly about helping.  They are personally invested in your success and go the extra mile to make the coaching or mentorship work.  With the less effective helpers, you have the nagging sense that the meter is always running, that they're in the business of generating billings.  Effective helpers plan for the end of helping: they want you to be independent and reach the point of helping yourself.  Less effective helpers want to milk the cash cow: they invent endless ways to keep the coaching or counseling going. 

By the end of a couple of meetings, you generally know if the process of mentoring, coaching, or counseling shows promise and whether there is a positive chemistry.  Don't be hesitant to shop around: amazingly, people will travel from store to store to find the right outfit, but won't put a fraction of that effort into finding the right physician or psychologist.

Outcome research suggests that brief approaches to counseling can be highly effective for people who don't have long-standing, severe personality problems.  When you're ready to make changes in your personal or professional lives, the right helper can be a valuable catalyst.

Further Reading:  Three Considerations in Selecting a Trading Coach

1 comment:

Curtis said...

I feel you only need a trading coach if you've obtained consistent high level success over a long period of time and are trading at below your prior level of success and you are keenly aware the reasons that might be but unable to correct for them.

You do not need a trading coach if you try to perform at a higher level and fail, have never performed at a high level, previously traded at a high level but no longer can and don't know why, or have never obtained consistent success.

As well, the types of processes that a trader uses to achieve moderate success may not be very relevant to achieving super normal success. For example, a moderately skilled trader may wait on setups whereas the super normal trader may enter on the slightest indication of a development and manage or develop the trade as incoming data supports or refutes that position. The moderately successful trader may employ the usage of stop losses whereas the super normal trader may not use stop losses per say but rather manage the trade through virtual positions and various forms of risk limits. While some coaches may be moderately skilled, it would be extremely unlikely that a trading coach would be super normally skilled.

And, again I've suggest that the trader must approach 200% returns to trade for a living under most scenarios assuming less then half a million in risk capital. Let's do some quick math too see what's required to actually trade for a living with less then half a million dollars.

The trader with a 100k account (20x the average retail sized account) who wishes to make around the average for other professional workers say around 85k/year needs too net 85% on the account. But, this won't grow the account! So, realistically, this trader needs to net around 105% to just grow the account at 20% and make a professional living.

If said trader manages to do this the first 1 year then his trading has payed his bills and he's grown the account by 20k. So, he has 120k starting the next year and feels great. He nets 88% the second year and grows his account to 140k. The third year he breaks even and must withdraw money from his account to live on. Starting the 4th year he only has 55k to trade on and is pretty close too being out of business. Even, if he nets 100% then he's only making 55k (or a 25k shortfall from his previous standard of living). So, perhaps this trader has lived below his means but in order to grow the account by even 10k he'll have to drop his income down to 45k. Whether or not this trader is out of business, he's certainly out of business of making a professional income from his trading for a long time. He was way better capitalized then most retailers, never had a losing year, and yet still after just 3 years is broke.