Why is learning to trade so hard?

This post is driven by the following question…

Why is learning to trade so hard?

Pulling together a couple of threads here I hope to add to the discussion and suggest an answer. I’d be interested to hear people’s feedback since it’s a pretty significant question for anyone starting out on this path.

If you’ve not had the opportunity to read it I’d suggest you get hold of a book by Nobel Prize Winner Daniel Kahneman called ‘Thinking, Fast and Slow’. The observant will notice there’s an important apostrophe in that sentence.

For a trader this covers some very, very useful topic like heuristics and biases, the endowment effect, formulas versus intuition and so on.

You know all those ‘pop-psych’ books you’ve read on the tube? Their underlying research may well have derived from this guy and his research partner Amos Tversky (now deceased) who carried out most of the original experiments over the last 40 years.

In the book Daniel explains two modes of thinking with their own strengths, weaknesses and characteristics.

FAST 

This is automatic thinking which operates at a instinctual level with little sense of voluntary control. This could include involuntary reaction to expressions, automatically filling in missing words from songs and turning to find the source of a car back-firing.

SLOW

These are effortful mental activities that demand concentration. Maths, decision making and choices. Trying to remember something or drawing conclusions from complex data… you can see where this is going.

Now the question that I asked earlier is also linked to a second question which really should follow on…

Why is trying to teach other traders so ‘hit and miss’?

If you want to learn anything in life then you find a teacher. This has been the way of the world since man invented fire. So part of the learning to trade ‘journey’ if you will is finding a system, suite of tools or approach that (as many have written) matches your personality… You can spend a long time looking for this.

Now, if there was just one way to trade that would be great – we’d all be done and there would also be one way to teach others how to trade. This is so far from reality that I’ve just seen a squadron of pigs fly past the window.

What are traders teaching non-traders mostly? They’re teaching them setups. If the blah, blah, blah and the x, y, z then it’s time to etc…

What they’re trying (and mostly failing) to do is present a myriad of complex information in SLOW thinking terms because these types of terms can actually be communicated. No wonder learning to trade is so damn hard and teaching people to trade is (maybe) even harder. I’d guess more than half the info is missing!

By the time a trader has actually gotten good (i.e. looked at a f**k load of charts) they’re not operating from this perspective at all. They’re approaching trading from the perspective of FAST - to them it’s all intuitive.

They’ll get asked ‘this trade met all your (setup) criteria but you didn’t trade it… why?’ and I’ve heard examples of this that the best answer given in reply has really been nothing more than ‘it doesn’t look right’.

Yes, you still need rules to avoid doing something really dumb but this still doesn’t bridge the gap between what’s taught and it’s implementation by someone else.

You and me are looking at the world of the market represented as a bunch of charts using our ‘slow’ brain. The guy trading successfully and consistently is looking at exactly the same data with his/her ‘fast’ brain.

This is the difference between pushing a wheelie bin versus piloting the space shuttle. How can the guy in the shuttle explain to the wheelie bin dude what flying looks like? There’s an in-built information chasm here.

So what to do… These are definitely two things I think all newbie traders like me need to accept.

1) It’s just gonna take time. If you’re not able to trade full time (addressing myself here) then it’s gonna take more time than someone who can watch price for 8 hours a day. Week in and week out. Look at charts. Look at more charts. Really deeply and seriously look at charts.

2) Record keeping. Keep records of your trades, your emotions, what the market was doing in general and how you managed a trade. Put as much detail into recording what you did as you can and really investigate all your losers. Really, really investigate your winners.

Case in point is this bunch of tweets from @Trader_Dante on the Twitter losing it about people not keeping records and how it can help or hurt them.

This is cut from TweetDeck so you need to read from the bottom up.

Follow Tom on Twitter @Trader_Dante or visit his site here if you’re interested. I borrowed this as it illustrated a point so emailed Tom for permission to re-post it.

If you don’t keep records then surely, surely there’s no way you can progress other than by accident. No-one accidentally finds themselves piloting a space shuttle. Wheelie bins go out on Thursday nite all down my road though so doing that seems pretty simple.

So there’s my answer. Whatever system is being taught the person teaching it has access to a set of ‘cues from the market that they couldn’t give to you even if their life depended on it.

  1. Record and examine your own trading excursions
  2. Look at a lot of charts – figure out your own ‘cues

Whether or not this progress from ‘slow’ to ‘fast’ encompasses trading psychology is another debate but I think it does. Once the engagement with the market is that unconscious and seamless then I can’t see how negative psychology could interfere with the execution. This is where the oft quoted statistic of 10,000 hours to mastery may well come in.

If anyone else has further insights into how to cross the chasm from ‘slow’ to ‘fast’ thinking I’d love to hear them.

11 thoughts on “Why is learning to trade so hard?

  1. The1LotTrader

    A very deep question – I guess the quick and easy answer is to say because nothing in life that’s worth having comes easy but really on the trading front, we know it goes somewhat deeper. In my view trading itself is not difficult once an understanding is built. Learning to master our emotions and work against our own nature is the hard part.

    Some more background reading for ideas that relate to the topic in question:
    The Red Queen: Sex and the Evolution of Human Nature (Penguin Press Science)
    That tweet deck snapshot is great and really all any beginning trader ever needs to know. Just book marked his page. Thanks.

    1Lot

    Reply
    1. robertsweetman Post author

      Thanks 1Lot

      The ‘evolutionary arms race’ which is one of the topics in the book you mentioned is already underway between traders and algorithms I guess. Not being a programmer I’m going to be relying more on observation, intuition, experience and risk management to build an edge rather than trying to develop anything related to algorithmic trading.

      The next question that arises is whether people try developing mechanical systems because they can’t master the challenge of their own psychology??

      Cheers

      Robert

      Reply
      1. The1LotTrader

        Personally I’m not a huge proponent of algorithmic trading for the small guy. It makes sense when you have hundreds of millions of dollars under management from an operational point of view but I cannot see the reason for a small account looking for exponential growth.

        I think the market has always been an evolving entity. Not just in terms of the technology but the nature of the market itself. The way I see it is that the market is hard to learn because it has to be. It has been my observation over time that the market will cause the most amount of pain to the most amount of people and it doesn’t make much sense to think it would be otherwise. Imagine if it were easy to trade – where would all the cash come from?? The market is such a psychological mind f**k precisely for this reason. Those that become skilled learn to do the hardest things that the majority of others cannot. That tends to be where the pot of gold is sitting.

        1Lot

      2. robertsweetman Post author

        Definitely agree there – I think there’s an advantage in not having to deal with outside/institutional pressure.

        Quoted elsewhere (I can’t remember where) ‘The hardest trades to take usually work out the best’

        Cheers

        Rob

  2. Millbrook

    Hi Robert,
    It seems to me that the long study of charts and the identification of high probability set ups is the necessary work to be done using slow thinking in order for the fast thinking part to develop the expertise of unconcious pattern recognition and expert intuition.
    The record keeping seems to be a way to use slow thinking to identify the failings in fast thinking – impulsive/irrational trades etc.

    Indeed the very nature of trading, boring periods of inactivity, will not suit the slow thinking part and maybe allow the fast thinking part to intervene inappropriately.

    I believe the following comment is incorrect;

    ‘Whatever system is being taught the person teaching it has access to a set of ‘cues from the market that they couldn’t give to you even if their life depended on it.’

    I believe they have become unconsiously competent in acting on the setups they use but also have the discipline to wait for them and the discipline to manage losses and preserve capital. They also recognise that they are dealing with probability and don’t invest themselves in being right or wrong.Their setups may not suit everyone so we take what we can and adapt to suit our own personality on the road to unconsious competence – I’d settle for consious competence.

    So overall I don’t think it’s a question of swapping from slow to fast thinking as trading doesn’t involve recognising patterns in fractions of a second. As the author says ‘expertise can be learnt by prolonged exposure to situations that are sufficiently regular to be predictable.’

    Reply
    1. robertsweetman Post author

      Hi Millbrook

      I think we’re pretty much on the same page – Aren’t you saying another part of this ‘bridge’ is trader psychology in relation to following rules to prevent self-sabotage? Does discipline exist outside of unconscious competence? I’d suggest it doesn’t since the results (consistency) are the product of an all encompassing approach. You’ve got to get most of the actions right most of the time…

      In the end we’ve both come back to ‘prolonged exposure’ ;)

      Thanks for the comment!

      Reply
  3. kinsaleforex

    Hi Robert,

    Interesting post and question. I’ve really enjoyed reading through your blog lately. You seem to have all the right questions and are well on the way to having the answers as well. I really like the Slow / Fast analogy as it ties up what we’re trying to achieve really well.

    After a bit (ok, a lot!) of draw down and largely due to the advice and constructive comments of 1 Lot, Trin Café and RogueTraderette i’ve recently started some back testing. This post really resonates with me and what i’m trying to achieve from this task.

    I did a lot of reading before ever starting trading and one thing above all else that I really took from my initial foray was to keep a journal. So I have a diary for logging each trade, a separate book for scribbling about my emotions whilst in a trade (admittedly a little underused) and of course, the blog. Where I talk about everything and anything!

    Cheers for the thoughts,

    Liam

    Reply
    1. robertsweetman Post author

      Thanks for the comments Liam – I’m also feeling more positive about the whole endeavour and happy things are moving in the right direction. Now all I need to do is get the rest of my life in order so I can spend more time looking at charts/price in the live market. The irony of this isn’t lost on me ;)

      The ‘silver bullet’ for trading does seem to be journal/trading records.

      Onwards and upwards!

      Reply
  4. Diane

    Hi, Robert
    Thanks for a very interesting article and I agree that recordkeeping is an important aspect of trading. I thought I would tell you about some monitoring tools I use.
    Performance scorecard: In addition to each trade being logged, I have a performance scorecard and I grade each trade I make. This helps me pinpoint mistakes easily.
    Screenshots: I also take a screenshot of every trade as I take it and then take a screenshot as it completes or not. This is useful when reviewing trades and comparing winners an losers.
    Reviews: I also review my trading each day (intraday), weekly, monthly and quarterly. It is good to stand back and review a longer timeframe.

    It will probably sound like overkill but with all the pyschological challenges in trading, if a trader can have an organised system for creating/modifying systems/backtesting/analysis/trade record keeping and review, it could/should provide useful pointers to where we are going right/wrong. It makes problems easier to solve. For us retail traders who don’t have a coach constantly looking at our performance, we need the systems to monitor our outputs. The challenge is to be objective!

    Di

    Reply
    1. robertsweetman Post author

      Thanks Di

      I’m going to steal the scorecard idea ok? :D

      I am writing a more in-depth post for the back of this week which shows what I’m (now) doing on the record keeping topic

      Objectivity is a constant battle. In my own mind I have discipline of a chess player and the chiselled physique of a Greek god.

      Unfortunately meditation and mirrors keep reminding me this isn’t quite the case…

      Systems and process? What did I sign up for?!

      Thanks for the input/comment

      Cheers

      Robert

      Reply
  5. Pingback: Why Most Retail Traders Fail « donaldT44's ES Trading Journal

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