Credit: Brett N. Steenbarger, Ph.D.
Numerous books have been written on the topic of trading
success. Nevertheless, it is unclear how
expert traders obtain their expertise.
Several explanatory models are implicit in market writings:
1) The
psychological model – What makes great traders, this model asserts, is
self-mastery. Great traders don’t
necessarily possess better trading methods or secrets, but apply common wisdom
more consistently, with less emotional interference, and therefore with better
risk management. Developing trading
expertise is a function of developing oneself in this model.
2) The
scientific model – What makes great traders according to this model is
superior research. Markets exhibit
cause-effect relationships, and these relationships shift over time. The role of research is to uncover these
patterns and capitalize upon them. Such
a model is, in a sense, the opposite of the psychological model. It hypothesizes that, once you discover
inefficiencies in the marketplace, these can be incorporated into mechanical
systems that eliminate any troublesome human elements from trading.
3) The
hidden pattern model – Success in the marketplace, this model emphasizes,
is a function of understanding. Patterns
exist in the marketplace that do not shift over time, but also that are not
necessarily observable on the surface.
The role of the great trader is to successfully decipher and apply these
universal patterns. This is not so much
a function of research as experience; such approaches to trading as charting,
Elliott Wave, and Market Profile are not systematic approaches to trading, but
instead rely on the trader’s interpretive skill.
4) The
performance model – Trading is viewed as a performance activity, like
athletics, in this model. Successful
trading can be broken down into component skills and aptitudes that can be
honed through intensive exposure and practice.
Expertise is less a function of explicit research or pattern-based
interpretation as rapid execution of perceptual and motor skills.
No doubt each of these models possesses elements of the
truth, and it is quite possible that all of these models represent a portion of
what it means to be a great trader, not unlike the descriptions of the elephant
offered by the proverbial blind men.
Models one and four emphasize qualities of the trader; models two and
three stress the underlying qualities of the marketplace.
In a sense, these models are like lenses that traders wear,
shaping how they view the world and prioritizing what they work on. They reflect deep belief structures about the
nature of the world: whether reality is
fixed (capable of being captured by universal patterns) or changing (capable of
being captured through ongoing research); whether knowledge is explicit
(obtained through psychological reflection) or implicit (reflected in
performance).
Because these models of market success are drawn from our
fundamental views of the world, I suspect that they are far less amenable to
modification than is commonly appreciated.
A researcher will be turned off by Elliott Wave theory not because of
objective evidence (which the researcher finds lacking and the Elliotician sees
aplenty), but because the very notion of fixed, unchanging Platonian realities
does not mesh with a perspective that emphasizes dynamic
interrelationships. To a trader who
views trading expertise in performance terms, the idea that success is a
function of mindset simply does not register:
Can one become a good surgeon through self-development? And yet can one perform without the right
internal harmony (as the recent experience of the Los Angeles Lakers
demonstrated)?
Perhaps the successful trader differs from the unsuccessful
one, not because of the superiority of one model over another, but because he
or she has found a model for professional development that fits with his or her
basic personality, outlook, and experience sets. The unsuccessful trader may lack a coherent
model altogether—impulsively shifting from working on self to working on
market, working on research to working on discretionary interpretation. Or unsuccessful traders may pursue models
that utterly conflict with their fundamental personalities traits and life
experiences, as in the case of intuitive individuals who attempt to force their
trading into mechanical schemes.
In that sense, the models are like religions: There may be multiple paths toward spiritual
growth, but it is necessary to find a path that speaks to you. One cannot be a devout Christian one day, a
disciplined Zen practitioner the next, and still later an Orthodox Jew. By asking fundamental questions—Where is
opportunity in the marketplace? What
competencies do I need to capitalize on this opportunity?—you can begin to
grind your own lenses and formulate a plan for furthering your success.
No comments:
Post a Comment