Recently, I listened to Geoffrey Colvin’s book “Talent is Overrated”. While the whole idea that “greatness is not born, but made” may seem quite common sense for most people, knowing and doing something about it seems to me to be quite an ordeal, and is the primary reason why there are approximately 10% who are elite traders in this field. For instance, in my own trading, I sense that the reason why I’m not an elite trader despite knowing so many chart patterns is primarily because I’m not doing what great traders are supposed to be doing – “deliberate practice”.
But what is exactly deliberate practice, when applied to the field of trading? I set out to answer this question and found useful tidbits from Dr. Brett Steenbargers’ works. Let me share and make a digestive summary of what I’ve learned.
Greatness is the outcome of a prolonged developmental process. – Brett Steenbarger
Brett wrote this fantastic article “Focusing On Trading Solutions”, and here he dissects that for chart pattern savants like me, the most likely solution to problems such as discipline, over trading, patience and risk management can be harnessed by asking the right questions and having a routine measure to check this out.
For instance, instead of asking “How can I trade with discipline?”, which is a vague question. The proper question to ask is “When have I been trading with good discipline? What do I do differently at those times?” He reasons that traders shouldn’t ask the problem focused questions but rather ask questions that address the problems (solution focused).
I tried to answer personal trading questions as I log and evaluate my trading journal for the month. For three straight months, I’ve had consecutive gains month on month, this month has been hard and I didn’t make net gains.
Looking past my journals, I realized there were three distinct problems in my trading, which if I could improve on, will have made this month possibly still a gainer, and me a better trader. My streak of monthly gains didn’t make it this month. While I can surely blame that the market had not been cooperative, an elite trader will owe up to one’s losses, and use those problems as opportunities to learn. More than that, an elite trader will look at one’s strengths, identifying trading setups that presented good risk-reward levels, and capturing those moments, and repeating it over and over for consistency.
In my quest for deliberate practice in trading greatness, I’ve been reminded by Brett to focus more on identifying my best practices, and to group them in categories, instead of always focusing on my problems. Here’s how I did mine:
My Worst Trading Behaviors & My Best Practices & Key Measures:
1.) I will average down on a stock -I’ve stopped the disastrous averaging down.
Key Measure: Cost Entries
2.) I will buy more than my allocated size – I am now able to put position sizing as a key discipline.
Key Measure: # of Purchased Shares
3.) I will buy a lot of setups leading to overtrading – I am now able to tone down, and make more concentrated, conscientious trades rather than blinking and triggering everything that “might” go up. I am less likely to overtrade. I am also able to manage my risks more.
Key Measure: # of Trading Setups Opened At a Time
4.) I will chase prices. – I still have yet to master patience in buying at the proper entry. What I sometimes do is to buy the setup, and just limit the size to a smaller amount for fear of missing out.
Key Measure: List down times I chased prices and the trading results. Learn that patience pays off, and gives better risk reward setups.
5.) I will not cut at the pricepoint I placed as my stoploss, adding hope into the equation – I am now able to detach myself from the trades I made, cutting when the price is against me.
Key Measure: # of Losses capped to a $ Amount, Position Sizing
6.) I will regret about selling too soon – I am now able to hold and lighten down on profits longer than usual.
Key Measure: Check journal on selling half principles, Evaluate # of Average Gains to Winners
7.) I will second guess/ hesitate executing a trading setup and miss out – I can see the market data and the underlying forces moving it. I can thus formulate good stock picks based on this idea. Once I identify these profitable setups, I look to find similar setups and repeat
Key Measure: Check the trades that were in my hit lists, but didn’t act upon. Analyze the emotional decisions why I hesitated on making the trade. Count the number of trades I hesitated, and look into improving this by taking the stigma of hesitation, and just concentrating on the setup.
8.) I have a tendency to square a position, despite being ahead- Once I am able to buy cheap, but have trouble maximizing the size. I need to maximize the “free trade” by just letting the trailing stop be a mechanized decision.
Key Measure: Execution of Trading Stops
The greatness that I aspire is within my reach. As Geoffrey Colvin reminds us, greatness isn’t reserved for a preordained few. It is available to you and to everyone, but you need to know what intersects your interests and skills and deliberately practice those skills.
Mastery of any field inevitably also brings self-mastery. – Brett Steenbarger
Mastery of your strengths will lead to a repetition of your best practices. Doing more of what works, will build them into habits. Keeping a journal, and making tabs on measuring how you’re doing on each aspect of trading is what differentiates the trader who aspires to be consistently successful, and the rest of the populace who just wants to be successful.
Merely putting in the years does not hold up to becoming a great performer. There are no shortcuts to success. If you want to be the best you can be, you’ll have to commit yourself to years of repeated practice. Recognize your consistency by evaluating your trading journals. Go to each task with a new goal, instead of trying to get it done, aim to get better at it. When you’re trying to stop yourself from chasing prices, do this by checking your trades whether you’re improving. Keep a tab at your trades. Have a template to follow, your hit list for the day, and how you’re doing with your entry and exit slippages. Make your learning structured.
What are your best practices for generating trading ideas? executing trading ideas? risk management? managing your positions and exiting positions? How do you plan on getting better at it, and more importantly, how are you measuring it?
-The Faceless Trader
Related Readings: Article 1 – Why Most Traders Fail