Friday, August 09, 2013

Developing a trader's level of competence

A trader needs to go through the four stages of developing competence in their trading activities.

However, you need to get some building blocks or foundations in place. You need to:
  • implement a trading approach, such as trend following, that is robust and has a positive expectancy;
  • combine it with good risk management;
  • develop the confidence and discipline to follow both the above points;
  • develop the ability to control your mind, and avoid self-sabotage. Concentrating on the process, and not the outcome, will help you achieve this.

As a coach and mentor, my goal is to help traders who want to learn how to trend follow to get to that final stage. Fortunately, almost all of those I have met or spoken to have a healthy respect for risk. Without this, you are doomed to fail.

From there, you add in the system entry and exit rules, what to look for in a good set up etc. Then you support and help them through the inevitable good and not-so-good periods. This part is accelerated by participating in different market conditions - trending or non-trending, quiet or volatile. Having the ability to talk and correspond with other traders using the same approach can help reinforce the discipline to stick at it.

All while this is going on, the traders subconsciously begin to develop the skill to simply follow the rules of their chosen method, along with the confidence and discipline to follow the system. Quite a different approach from those who flit from one system to another. Then, things start to click into place. As Ed Seykota might say, they have an 'A-ha!' moment. They will still make mistakes (I do!) but they instinctively know what to do given a situation either with the market in general, or in an individual stock or position.

Then the real fun starts, because the tangible rewards (i.e. profit) start to flow. Of course, there will be losing periods - there are with ANY trading approach - but they are now on their way, with the necessary skills to profit from the markets going forward. As the old proverb goes:

"Give a man a fish and he you feed him for a day. Teach a man to fish and you feed him for a lifetime."

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