1) "Measures of general basic capacities do not predict
success in a domain" - Experts cannot be distinguished by their superior
intellects or other cognitive talents. This suggests that, while certain inborn
traits and lack of capacities might prevent the development of trading
expertise, the presence of particular native talents cannot ensure
success.
2) "The superior performance of experts is often very
domain specific and transfer outside their narrow area of expertise is
surprisingly limited" - Being an expert in one domain does not predict
expertise in others; a person can be a highly accomplished trader, but not
expert in other areas. Moreover, a person can be an expert scalper or portfolio
manager and yet fail at other forms of trading. This is the notion of "niche" that I describe in my book: the
successful trader has found a particular sphere of success that expresses his or
her skills and interests.
3) "Systematic
differences between experts and less proficient individuals nearly always
reflect attributes acquired by the experts during their lengthy training"-
A saying among expertise
researchers is that practice does not make perfect; perfect practice makes
perfect. The expert is one who has undergone a structured, deliberate process of
training that builds competencies, offers extensive feedback, and draws upon
intensive effort over time to internalize knowledge and skills.
What does this mean for traders? Here are three
conclusions of my own:
1) The majority of
traders are looking for expertise in all the wrong places. They look for
*the* right trading charts, indicators, setups, or systems. They are like
beginning golfers who think they'll succeed if they only get the right set of
clubs. Because they hope to get "the answer", they expect success in a year or
two. The research is unequivocal: expertise develops over a period of many
years. If those years are not structured properly, traders will repeat a single
year's experience ten times; they won't acquire ten years of
experience.
2) The vast majority of
offerings in trader education are not structured for expertise
development. Seminars, books, Web articles and blogs, weekend
courses--all can be useful in imparting information. But expertise development
is not simply about the accumulation of information; it is about skill
development under realistic, challenging conditions. No doctor, athlete, or
musician could acquire expertise by attending seminars or reading books alone.
The same is true for traders.
3)
The
reason most traders fail is that they never enter a path of expertise
development. It is rare to find training programs of any quality and
substance at proprietary trading firms; one finds mentorship at investment banks
and some hedge funds, but this is very hit or miss depending upon the commitment
of the mentor and his/her skill in imparting skills and structuring a learning
process. The independent trader has even fewer resources to generate and sustain
an accelerated learning curve. There is much more to acquiring expertise than
keeping a journal and trying to follow a simple plan.
So what does a
trader need to progress from being a novice toward becoming competent toward
exhibiting expertise? A curriculum: a structured process, like physicians
undergo, that begins with information and understanding and then progresses
steadily through skill development. In my next post on this topic, I'll explore
what such a curriculum might look like.