Three Relentless Steps Toward Becoming a Great Trader

From Brett Steenbarger:
One of the goals of my book Enhancing Trader Performance was to figure out what makes successful performers tick--in any field of endeavor. What I learned in researching the field was that talent--inborn abilities--are necessary for success, but not sufficient. It's how people channel their talents by structuring their learning processes (i.e., their building of skills) that ultimately determines whether or not they become elite performers. Here are three straightforward ways you can structure your learning to make the most of your talents:

1) Keep score. Relentlessly. When Lance Armstrong's performance team works with him, no aspect of performance is ignored. They measure his stance in the bike to minimize wind resistance; they measure his pedaling frequency to maximize his speed and minimize his effort; and they tweak the design of the bike to achieve every possible edge. His cycling performance may be art, but behind it is plenty of science. So it is in other performance domains, from NASCAR to chess to ballet: the greats study what they do to constantly improve. Take a look at the performance metrics that professional traders collect to figure out their strengths and weaknesses. They figure out how they perform in rising, falling, and flat markets; they evaluate their performance as a function of being long or short and as a function of time of day. Keeping score builds the motivation to continuously improve, but it also tells you which improvements to make. Track every trade you make: How much did it go against you while you were in the trade? How much did it go your way after you exited? How could you have recognized that it was a winner (so that you could have scaled in with more size) or a loser (so that you could have exited with minimal loss)? The really great performers make themselves a subject of study.

2) Study the market. Relentlessly. There's a reason why the great basketball and football coaches review game tapes obsessively with their teams. There's also a reason why chess grandmasters play and replay games from past tournaments. So much of performance--especially in trading--boils down to pattern recognition, and so much of pattern recognition boils down to multiple, high-quality exposures to the marketplace. A program that I use called Market Delta breaks down trades by their size and by whether they were transacted at the market bid or offer. That way, we can see if large traders are leaning to the buy or sell side. A replay feature in the program enables us to review each market day and see how the buying or selling unfolded. This provides us with many more of those high-quality market exposures than we could ever hope to get from simple live trading. In my book, I mention a learning technique used by many of the most successful traders I've known: they videotape their trading and then review the tapes after the close. It's a great way to review what the markets did--and how you responded. After a while, the patterns jump out at you.

3) Read. Relentlessly. Particularly for the independent trader, trading can be an extremely isolating activity. It's easy to get locked in your own head, your own ideas. If you look at the life histories of expert performers in various fields, you find that most of them have not been isolated. They have had mentors at various points in their careers to help them learn and grow. How can you pick the brains of the world's greatest traders and investors? Books and blogs offer one important avenue. True, there are many fluff books and self-absorbed blogs, but there are a few written by the pros that are worth their weight in gold. Right now, I'm reading Inside the House of Money by Steven Drobny. It's a wonderful collection of interviews that gets inside the heads of global macro traders. I'm also reading Ken Fisher's new text, The Only Three Questions That Count. He explodes a number of market myths and models a way of thinking about markets that has led him to consistent success as a money manager. Take a look at blogs written by Barry Ritholtz and Bill Cara; read the extensive Q&A sessions posted by Charles Kirk in his Members section. You may not agree with all their conclusions, but you'll learn how they think about markets. That is mentorship-by-observation.

It takes a relentless pursuit of excellence to become excellent: that is what I learned from my performance research. You can only sustain such a pursuit if you truly love what you're doing; if it captivates your very being. If you're not relentless in your pursuit of trading success, perhaps it's not that you need discipline or motivation. Perhaps trading is not the domain in which you were meant to excel. What my daughter Devon taught me is that somehow, somewhere there is a kind of productive activity you were meant to do. And when you find it, you will be relentless, because you want to be doing nothing else.