Dec

7

Is Trading an Acquired Skill? from John Watson

December 7, 2009 |

11 Comments so far

1. Steve Leslie on December 7, 2009 7:25 am

   I was hoping a post showed up where this analogy could be used. Last evening on 60 minutes they did a segment on the Harlem Children's Zone a charter school in the middle of Harlem. They take children from the inner city and through a very regimented program develop them educationally. The goal of the school is to send every child to college. Their results are amazingly successful. This is done under the most bitter of odds against success at any level. Socieonomically these are the most challenged of all youth in the country. The message here is that if children can be successfully taught to be successful in school here they can be taught successfully in other areas of the country. And this model is being replicated in other locales.

   There are two locations in the country that trains marines, Paris Island and Camp Pendelton. Tony Robbins shares a discussion he had with the commandant of the Marine Corps how they take a raw recruit and in a few short weeks turn them into marines. His response was very enlightening. He commented that by and large these youth have very little structure in their lives to begin with. They have never been given much attention or responsiblity. The Marine Corp indoctrination process provides the structure and along the way, greater and greater responsibility until at the end of the program they have earned the right to be called a marine.

   I never trained a trader, but I have trained plenty of salesmen and women and I can say emphatically that salesmen are made not born. I learned how to sell through the Xerox sales program and the Dale Carnegie Sales Course. You can teach someone to be a salesman. The key word here is teach. Now how that person acquired the skill in the first place can be a subject of debate. How far along the process the salesman goes is up to them. This is where the desire and the goal seeking process comes into being.

   In the movie "Catch me if you Can" we meet Frank Abignail whose father was a salesman and who instilled in Frank at a young age certain skills and desires which prepared him for the things that Frank would do. Such as portray himself as an airline pilot, physician and a lawyer. It is also interesting to note that Frank also became the most notorious fraudulent check casher in history. He acquired this ability through years of work and articulation.

   To suggest that there is a genetic component to being a successful trader is ludicrous in my view. This bias is intellectually insulting. This is akin to suggesting that Physicians, lawyers, executives and all other professions have a genetic component to them. It would only be a guess and entirely impossible to quantify. There is little physical skill involved in being a trader, so the major components in being a successful trader are mental and intellectual. I suggest that the reason most people do not become successful traders is that they do not go through the necessary process of becoming a trader in the first place. They are not patient enough, they cut rush the process and cut corners. First they must learn the rules and the mechanics of trading and then develop a methodology which works. furthermore some develop faster than others some may blossom later in life some earlier but this is all completely impossible to statistically predict.

   Look at Quants like Simons and Cohen. They employ Phd's in mathematics and music for their staff. They do not require a background in sports. Nor do they necessarily come from a background i.e. Wall Street which seasons them.

   Successful trading as in other things in life is not easy or an entitlement. It is hard very hard and it is grinding. For the uninitiated the rules are stacked greatly against them. One great year can be followed by a long drought. And one major mistake can destroy one permanently. It is not for the faint of heart. It can and has been done but it is very hard to do so.

2. Craig Bowles on December 7, 2009 9:55 am

   It seems like everything takes work. An artist one time told me it takes two days to make up for every one day missed. I knew a golfer though who only played a few times a year and one of those times was often winning the club championship. Jim Thorp use to practice various sports mentally, so it appeared he didn’t put in the preparation even though he actually did. Somebody with less sound fundamentals has to practice a lot more to get positive results. We all seem to be predisposed mentally. Some card players mostly play for gin and some prefer to knock and get the sure money.

3. Rocky Humbert on December 7, 2009 10:04 am

   One way to approach this question is to replace the word [trader] with other crafts/business/vocation.

   For example, “I was wondering if one could be taken off the street, with no experience, and be taught to be a profitable [small business owner.]”

   Or, “I was wondering if one could be taken off the street, with no experience, and be taught to be a successful [jet fighter pilot].”

   Or, “I was wondering if one could be taken off the street, with no experience, and taught to be a profitable [courtroom litigator].”

   Or, “I was wondering if one could be taken off the street, with no experience, and taught to be a profitable [inner-city High School English teacher].”

4. david higgs on December 7, 2009 1:11 pm

   Didn't you read the "The Complete TurtleTrader" by Micheal Covel? The question then, might be, can they then think our to the "pit"?!?

5. Nigel Davies on December 7, 2009 1:31 pm

   To achieve mastery in a particular pursuit I like Geoff Thompson's ballpark figures of 3,000 hours to be a strong amateur and 10,000 hours to being a world-beater. I very much doubt there is a better predictor of excellence than man-hours spent.

6. Tristram on December 7, 2009 11:49 pm

   When I started in the business a wise salesman told me that the business had a niche for every personality. In other words, success would be in part, finding the area that best suited my personality and raw skill set. That was an insightful and valuable piece of advice.

   I think the idea of skills that people are born with has some merit if the skills are more broadly defined than trading specific. For example, if you ask me what skills are significant in a traders success that he or she is born with, I would say: perseverance, fortitude, adaptability and the desire and drive to learn. These would be useful in many environments, but essential in a trading environment. I agree with Steve that many other things that make a trader successful can be learned and mastered with structure and focus.

   I would suggest that Dr. Brett in an invaluable and insightful resource with regard to this subject, and I have personally learned more about the subject of trading development and trader training from him than anywhere else.

   tw

7. Stan Rowen on December 8, 2009 12:25 am

   Recently listened to CD of “Way of the Turtle: The Secret Methods that Turned Ordinary People into Legendary Traders”, by Curtis Faith, one of the proteges of Richard Dennis. Let’s not forget that the pool of trainees was carefully selected from many applicants, with further weeding out in an interview process. That book led me to Hersh Shefrin’s “Beyond Greed and Fear: Understanding Behavioral Finance and the Psychology of Investing”, which has a very similar mindset to Daily Speculations. That is, do rigorous scientific analysis, use tests, surveys, and stats. Above all, carefully observe all behavioral foibles and follies in oneself and others (loss aversion, misframing, biases, persisting in beliefs that are invalid, and more). Very illuminating.

8. Steve Leslie on December 8, 2009 8:40 am

   I agree wholeheartedly on Dr. Hersh Shefrin's book. This is one book that in my view is essential reading. Invaluable resource especially for a young aspiring professional,trader,speculator and casual observant.

   When I started out investing 30 years ago there were not many resources available to learn from. The WSJ, Business Week, Forbes and that was about it. Books were not that plentiful, I remember reading Ben Graham's book, Stan Weinstein, Joe Granville, Ivan Boesky, Bob Prechter Gerald Loeb, but not much else. The only financial show worth watching was Louis Rukeyser. Boy do I miss him just a gem of a guy. Now the availability of information is so magnificent that what may have taken one years on a study curve now takes much less time. Few College courses were offered in this arena, now kids in high school and junior high are exposed to investing and finance. I taught a class a in Junior Achievement and there were kids in there n(gasp) who are so much brighter than I ever was. They can converse on free cash flow, pbr, triangles, ascending channels, flats, waves, rs, that I never heard of until my 30s. They are so fortunate.

9. legacy daily on December 8, 2009 10:17 pm

   "a profitable trader" is somewhat of a myth. I have no problem with the word "trader." The problem is with the word "profitable." Profitable for how long? Profitable all the time? Profitable by how much? Does consistency matter? Does it matter what tools one uses to remain profitable? (The last question is about all available tools from computers and knowledge to deception and fraud.)

   If "a profitable trader" is someone who can make a living by trading, I suspect the answer is subject to similar statistics that rule in any other profession. Also, note that just as a teacher need not make a special difference in someone's life to make a living teaching, a trader need not be profitable to make a living managing someone else's money.

   If the question is can someone take a $1,000 and turn it into $1,000,000 and then take that $1,000,000 and turn it into a $1,000,000,000 by just trading (based on some super special training), the problem starts to become a bit more clear. Readers of this site know the odds of this.

10. Valery Kotlarov on December 9, 2009 4:20 pm

    They became legendary, thanks to the crowd. Thank God I never followed their methods. What I like is these html links without the rel=”nofollow” . Last but not least, the real great books do teach a lot of common sense and skepticism.
    Good luck.

11. Tom on December 22, 2010 12:48 pm

    Your father says that mentors are not enough if you don’t have a “fire in your belly.”

    This raises the question as to whether there are innate personal qualities which are a prerequisite for success in trading - for want of a better term, the correct character. Undoubtedly poverty of knowledge is enough to wrong foot and ultimately deter the vast majority of aspirants. This is worse in an age where the correct experience is harder to come by and all of the nonsense promulgated on the Internet and in so called online trading communities will corrupt most casual entrants. What of the case where an individual is taught by a successful practitioner and does not succeed in spite of this?

    Perhaps an interesting experiment would be to invite your uncle to test his hypothesis. It would be interesting to record and publish his experiences doing so. To make the challenge further interesting, perhaps invite your father to recommend someone he considers most unsuitable. The outcome of this experiment could resolve the issue beyond all doubt.

    Games, sport, competition and the ability to accept risk. One of the most successful traders I have encountered is a master mariner who has been sailing for 45 years. He sails single handed from Maryland to Gibraltar in one pull, and is in his mid sixties. This is an exceptionally intelligent gentleman who has mastered several languages and enjoys solving puzzles. He offered training courses in the UK in the late nineties, and out of around 200 students only a dozen or so were successful. The issue is clearly not the qualities of the teacher, or the ability to communicate the information, but the qualities of the students.

    Amongst the other successful traders I have encountered, nearly all are exceptional sportsmen, musicians, or somewhat eccentric businessmen. Most show aptitudes in more than one of the above.

    Aside from the ability to compete fiercely and handle the inevitable knocks, the successful trader must also be free of various self destructive urges which are all to common. I have a belief that culturally we are all regressing to a somewhat childlike state where we are not inclined to take responsibility for our own affairs. This is caused in large measure by government and the media. Becoming an independent trader, as distinct from an employee in an institution, requires one of the highest degrees of personal responsibility of any profession. Most are ill equipped to cope with the demands this places. I would postulate that the majority need the structure and framework imposed by society and are unable to either evolve as leaders or stand alone successfully. I have seen several traders trained by an extremely proficient individual - all taught the same things in the same way - and nearly all of them sabotaged themselves in various morbidly fascinating ways. It led me to conclude that most do not truly aspire to success, despite what they may claim, and even more insidiously despite what they may sincerely believe themselves to want.

    Perhaps “fire in your belly”, or character, or whatever other term we can find in our language is simply the intangible qualities which separate those who aspire from those who ultimately succeed.