Tag Archives: focus

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.

Advertisements

There’s always an answer

I firmly believe there’s always an answer available to any problem that you might face. However the challenge lies in actually asking the right question or being able to see the problem correctly. You can spend an awful lot of time pursuing what you think is the answer to a problem only to find out the question which first arose was the wrong one. That’s slightly opaque so I’ll try to use a (short) real world example to illustrate what this post is about.

I’ve recently found huge problems going to the gym during the week.

Frankly the last thing I want to do at 7-8pm is drag my ass to the gym. I’m just too knackered and the whole experience wakes me right up so my body doesn’t calm down till midnight by which time I’m a corpse 8 hours later when I should have already been up at 7 a.m. to go to work… Ugh…

I’ve spent two months beating myself up for only going to the gym once or twice on the weekends and given what I’m trying to achieve physically that’s not enough. What happens is you go in on the weekends and destroy yourself (too much weight) and are a wreck the rest of the week… it’s no fun.

I thought this failure was related to self-discipline/laziness and so on but taking a bit of a step back from the problem recently I figured out that if I joined a gym close to work I could spend 40 minutes in there each lunchtime, save money (on Costa lunches) and be more productive in the afternoons also. Bonus!

The problem wasn’t ‘not going to the gym in the evenings’ but actually I should have been asking ‘How can I train every day?’ If you ask the right question then the answer seems easy.

With respect to trading (yes we got on topic eventually) I’ve been looking at the problem which is that since I’m working full time it’s very challenging to gain trading experience that is useful and which I can learn from.

What I mean by this is to learn a new skill you need to be able to repeat it over and over under the same/similar conditions before you can internalize it, before it becomes truly ‘yours’. However if your exposure to the market is haphazard/piecemeal and under pressure that’s nothing like how you should be trading. Also given the fact I miss opportunities to learn/set-ups intra-day the actual number of potential learning experiences I’m exposed to is actually very small…

Now I began approaching this problem by looking at radically changing my work life (not currently possible) then at the hours/markets I could trade (yes, to a certain extent) or simply mothballing the whole topic till I’ve gotten myself into a position where I can trade full time. This last sentence is hugely ironic and contradicts all my reasons for learning to trade.

It hit me that, since there are no shortcuts, what I’m looking for is chart time. The right question to ask is actually ‘How do I get more experience in front of the market?’

Happily I stumbled across this program which allows you to ‘trade’ from historical (live recorded) data at an accelerated pace. Since I’m not back testing a robot but learning to trade ‘price action’ in a discretionary way (that suits my psychology) I can now do this evenings and weekends to improve my competence in a structured way. The alternative being attempting to ‘read’ the market and place a trade having glanced at a chart in between doing actual work…

You can hopefully see how what I was doing before simply led to frustration, losses and a very haphazard learning experience!

Back way off topic again but to wrap up properly… If there’s an issue you see in your life then you need to check yourself.

  1. Are you trying to solve the right problem?
  2. Are you asking the right question about what you’re trying to fix?
  3. Are you simply scared of making the change you know you need to?

So my friends, onwards and upwards!

Additional progress measures…

I’m quite a fan of statistics since I’ve realised it’s difficult to progress without having a clear view of how you’re doing.

Going over my results I realised a few things…

  • This week’s results have beaten all of my previous ‘wins’ in the last 21 losing weeks
  • Last week and this week were achieved from 4 and 2 trades respectively
  • I missed a large number of profitable opportunities in this short period
While I have been keeping track of the time I’ve spent on learning this subject so far (354 hrs) that’s no longer enough and it’s becoming a slightly irrelevant measurement.

So I’ll be adding another target which is to make 5 good trades a week. Now it’s possible that doesn’t sound like a lot but I don’t want to put undue pressure on myself to enter crappy positions.

It’s also a somewhat limiting factor that I can only concentrate 100% on the European session open until 08:45 am because after that I need to be in my car 😉

However, I reckon this is an achievable target which will help me focus on getting better at trading through actual practice, especially now that I’ve got access to a set of tools which I’ve been successful with. Practising to improve at something is actually fun if you’ve got to a stage where you’re not continually throwing cash out of the window! Hooray! 🙂

So after next week I’ll add number of winning/losing trades to the results page and see how I get on with that.