I thought I would post my notes from one of my favorite books.
Enhancing Trader Performance by Brett Steenbarger. This is a great book I highly recommend that people read it in its entirety. Its very concrete unlike some other good books such as Trading in the Zone.
Perhaps my greatest shock has been the recognition that a significant proportion of emotional problems affecting traders result from departures from the principles of sound training. XIII
When they do not employ systematic training to translate talents into skills, and when they violate prudent risk management in eager hopes of rapid profits, they create needless frustrations and even traumas. XIII
He was cut from his team in his sophomore year of high school. Any hopes of obtaining a college scholarship were quickly receding. Most aspiring athletes would take their lumps, join a local league or intramural squad, and move on with their lives. Michael Jordan, however, was not like most young athletes. 1
He responded to the cut by practicing day after day. When he felt too tired to continue, he forced himself to recall his cut from the team and drove himself harder. 1
One of those factors is finding a performance niche: a specific activity that is most likely to capitalize on your talents and interests. 2
Al kept himself emotionally balanced, taking liberal time away from the screen after setbacks. He honored his stops religiously and didn’t become irate at losses. He consistently expressed optimism over his development and a love of trading. 3
Mick was anything but balanced, taking losses almost as personal affronts. He periodically violated his risk management guidelines and could not break from the markets until he had rehashed all his mistakes and fumed over each. 3
Most of the trading psychology books you’d read would give the trading edge to Al, the more disciplined, less emotional performer. But Al, the novice, never did succeed at trading. Mick was—and remains—a multimillion-
dollar performer. The experience of working with many Micks and Als—and seeing common wisdom about trading success shot down time and again—convinced me to write this book. 3
No doubt, there’s a bit of the young Michael Jordan in Mick. He doesn’t accept defeat lightly, and he uses losses to drive himself forward. That is characteristic of elite performers, we shall learn, but there’s something even more basic that distinguished Mick from Al. In fact, it’s so basic that K. Anders Ericsson, perhaps the most prolific researcher in the field of performance, considers it the cornerstone of expertise. Think of the difference between Al and Mick as something that occurs every day, for approximately 250 trading days a year. Both Al and Mick trade frequently enough that they have winning and losing trades each day. Al puts his losses behind him and clears his head, to focus on the upcoming trade. Mick fusses and fumes, but uses the losses to review his trading, figure out the market (and his mistakes), and get his money back. Over the course of a year, Mick’s reviews ensure that he has easily experienced twice as much market action as Al. Moreover, Mick has systematically reviewed his performance and made constant adjustments. Al, though more relaxed, has little basis for detecting and correcting his errors. Mick, for all his emotionality, has become a learning machine, using losses to improve his trading. Ericsson refers to this as deliberative practice, and it is a hallmark of expert performers. Through guided practice, experts open themselves to feedback and, as a result, become better decision makers. We often hear the phrase “practice makes perfect,” but performance experts in sports emphasize that it is perfect practice that makes perfect. 4
Competence precedes confidence: Winning mind-sets result from mastery, not the reverse. 4
Practice is the cornerstone of expertise because it multiplies experience. It provides us with far more experience than we could ever gain during formal performance or competition. 5
The essence of deliberative practice is what I call the learning loop. A learning loop is an attempted performance, followed by specific feedback about the success/failure of the performance, followed by renewed efforts that incorporate the feedback. 6
Take conscious steps to stand outside themselves and watch their performances, correct mistakes, and jump-start a learning process. 7
An inner urge to reach ever higher levels of performance. 8
Next to the leave-everything-on-the-mat work ethic of a Dan Gable, the effort of maintaining a trading journal hardly requires a laboring instinct. Yet the majority of traders won’t sustain even this level of performance commitment. Why is that? 8
There it was. This was not a trader who was drawn to markets the way Gable fiercely embraced wrestling or Jordan pursued basketball. He wanted to trade because he didn’t like the alternatives. The alternatives meant eight hours a day of effort and the loss of the freedom to do what he wanted to do. But elite performers are doing what they want to do when they labor far more than eight hours a day on their craft. 8
A middle phase. At this point of development, the performer concentrates on one or more specific fields of performance for serious pursuit. 10
A late phase. For a limited number of individuals, mastery of the performance activity becomes a primary life focus. The goal is no longer competence, but the development of one’s talents and skills to the fullest. There is a commitment to self-development. 10
The aim of such practice is the internalization of complex skills, so that high levels of performance become routine. 10
Without a middle period of competence development, there is no readiness for the rigors of mastery. Absent the joys of an initial, exploratory phase, there will be no sustained commitment to skill development. 11
How much time does it take to develop expertise? Research tells us that a minimum of 10 years is required. Indeed, this “10-year rule” is one of the more durable findings in expertise research spanning sports, the arts and sciences, chess, and medicine. There is so much knowledge and skill required by most fields that elite performance necessitates years of development. 12
The greats do not become great by working hard; they work hard because they find a great niche: a field that captures their talents, interests, and imagination. 13
He watches what large traders are doing by monitoring volume on a trade-by-trade basis and tries to decide when they have strong or weak hands. He religiously avoids thinking about the market lest he become locked into opinions
the next day. 15
Finding the right niche makes all the difference in the world when it comes to performance. 17
Each group finds its own path through the developmental process, cultivating what comes naturally and most enjoyably to them. 18
It’s not whether you can be a good trader; it’s whether you can find the trading that’s good for you. 19
We started by distinguishing experts from novices and found that experts are engaged in learning loops fueled by deliberative practice. 19
Key to Collins’s findings is the notion of the Hedgehog Concept: the idea that great companies simplify by focusing on their strengths. The three elements of the Hedgehog Concept are:
1. What you can be best at
2. Where you can be most profitable
3.What you are most passionate about 23
Good companies that never reached greatness, Collins found, strayed outside the circles defined by each of these elements. The great companies focused all their efforts at the intersection of those three circles. 23
What are your talents? Where is there opportunity in the markets? What turns you on? There you will find your learning efforts turbocharged by multiplier effects, yielding not just competence, but expertise. 24
An initial step in finding your distinctive place in the trading universe is self-assessment. 25
When you have found your niche, you don’t need discipline to do the right things; you won’t want to do anything else. 29
People develop their potential by building on their strengths, not by trying to overcome their weaknesses. Successful performers, they argue, work around their shortcomings, but achieve great things by making maximum use of their strengths. 40
Your ideal trading niche will be one that allows you to exercise your greatest talents while working around your weaknesses. 40
You will know that you are close to your market niche when you develop a feel for market patterns quickly, find yourself fascinated by the patterns you see, and act readily upon your perceptions 42
Other traders who are less emotional, more disciplined, and more systematic may fail because they lack strengths that readily translate into trading edges. 43
Only such a bond creates the immersion that leads one to internalize a field, not just learn about it. 53
Stated differently, ordinary learning generates ordinary performance. Immersive learning—sparked by the crystallizing experience—is the motive force behind Collins’s flywheel, generating multiplier effects that build expertise. 55
Creativity—the novel seeing and doing born of unique, immersive experience—be the ultimate source of edge in the markets? Is it creativity that distinguishes great traders from those who are merely good? 55
Equally important, he shifted his perception. What had been a threat was now a source of opportunity. Chad now began to scan the market for places where sharp moves left overexposed traders vulnerable. 57
Indeed, he became so adept at recognizing when others were trapped (as he had been) that other traders would immediately seek him out following sharp market moves to get his read on the market. 58
This new perception—his crystallizing experience—reorganized his views of the market. What was danger became opportunity; what was frustrating now was exciting; what was incomprehensible made sense. The competence
he developed was not just that of self-control. He developed new ways of seeing and doing. His was an exercise in creativity, not therapy. 58
“Only those who have the patience to do simple things perfectly,” the saying goes, “will acquire the skill to do difficult things easily.” 60
His rage to master the game was so strong that it obliterated the normal distinction between work and play. 62
At some point in the development process, performers begin to integrate their activities into their identities. 62
The kiss of death for expertise is comfort. 64
The performer becomes so absorbed in the performance that it seems to flow effortlessly. 65
Our ability to sustain the immersion that generates multiplier effects depends upon the experience of competence. Without the perception of mastery, there can be no learning that generates expertise. 70
To a large degree, our moods are moderated by our perceptions—and especially our perceptions regarding our own competence. 70
We cannot be divided and also immersed in the flow experience that generates expertise. 71