Becoming a Trader - Learning to trade psychology
Master the Various Elements
Structuring the practice with goals and rapid feedback is essential to the learning process. Research in sports psychology finds that athletes gain significantly more from practice if it includes specific goals and prompt feedback regarding the meeting of these goals. An interesting set of studies reviewed by Ericsson found that championship chess players rarely played for fun. When they played, it was to study openings, hone their end game, etc. Similarly, passively following markets is unlikely to have the same benefits as directed practice focusing on concrete guidelines for entering and exiting trades.
There may be a second reason why chess masters avoid leisure play. Research summarized by Singer, Hausenblas, and Janelle in their excellent text, Handbook of Sport Psychology (2nd ed.), finds that learning is enhanced by breaking tasks down into component pieces and working systematically upon each. For example, a beginning chess player would not start his or her training by exclusively playing entire games. Rather, there would be a concentrated focus on learning opening moves and strategies, followed by dedicated attention to the middle game, defenses and endings. Training in the martial arts is similar, where intensive practice of individual movements precedes practice and tournament matches.
Our experience is that beginning traders too often want to learn trading by actually trading. This is similar to the martial arts novice starting with tournament competition. Segmentation of the trading process into component elements, such as pattern recognition, order execution and trade management – combined with intensive rehearsal of the segments – is far more likely to yield long-term skill acquisition.
Time Is a Predictor of Success
Trading is not unique in the length of its learning curve. Studies of young chess masters have found that the single most important predictor of a player’s rating is the number of hours spent in serious study and practice. Janet Starkes at McMaster University in Ontario, Canada, and her research colleagues examined the facets of such practice across such domains as figure skating and musical performance. She found that practice was most predictive of success when the practice was associated with high levels of effort and concentration. It is thus the quality of rehearsal – and not just the quantity – that appears to be important in advanced training. One can practice for months under less-than-optimal conditions of a challenge and fail to see meaningful skill development.
This is where coaching is particularly important in such fields as sports, musical training and the martial arts. It is very difficult for students to gauge the level of challenge that is sufficient to build skills and yet not so difficult as to generate undue frustration and discouragement. A useful analogy is bodybuilding: setting a weight machine at a setting that is too low will not build strength; setting it too high can promote harm. The most helpful training is often at levels of difficulty that lie just beyond the student’s comfort level – a level that can be set and monitored by a coach.
• The learning process does not appear to be any shorter for traders than it is for successful musicians, athletes or chess players. It is not unusual for significant P/L improvements to take several months to occur, with consistent profitability requiring even more time. Significant effort and plenty of patience are needed to undertake such an effort. Most traders fail at trading for the same reason that dieters fail to lose weight. It is much easier to initiate a directed effort than to sustain it.
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