Wednesday, January 31, 2007

>Trading Genius

"Trading Genius" by Louise Bedford's is a fascinating read.

She covers the same topic we've reviewed out of Psychology Today. Remember our discussion of those chess prodigies? Ms. Bedford derives her research from "The Cambridge Handbook of Expertise and Expert Performance."

As traders she discusses that we all have to deal with a myriad of patterns and situations. The complexity of financial markets is such that conditions can change on a dime. What worked yesterday may not work tomorrow. This shouldn't be news to anyone. However, what some people may be surprised to hear is that nobody is a 'born' trader. It is true that everyone has a proclivity to be good at 'something' but the Cambridge study suggests talent is vastly overrated. The study suggests that whether our talent is the ballet, surgery or computer programming, expert performers are made and not born. According to the Bedford article, genius is the result of motivation, practice and the right environment.

The research suggests a '10 year rule' where you have to apply yourself for 10 years to achieve greatness in almost any field. This held true even for people like Tiger Woods. We've covered in this column the hard work Woods put in over the years and still continues to outwork his contemporaries. Here in Arizona, a mainstay of our championship team was Curt Schilling. He was a decent enough pitcher earlier in his career but never achieved greatness until he started training with Roger Clemens, who is known for being in world class shape even for a professional athlete. Think about it. Here's a professional athlete who was already in the upper 1% of his profession who didn't achieve greatness until he worked enough to take his game to a whole new level.

In our mental toughness series, we learned that greatness in anything requires total passion. It's the passion that gets us through the rough edges. The Psychology Today research stated that 5000 hours of practice was a minimum requirement in any field. Whether it is 10 years or thousands of hours a theme has emerged, wouldn't you agree?

Why does it take so long to get there? The reason it takes so long to get to mastery seems to be the practice of 'chunking.' Chunking is the art of developing the ability to group details into easily remembered patterns that require less brain activity. Once the brain doesn't have to 'worry' about the basics, it get on with the job of recognizing the subtle shades of gray that is so necessary to become a master at anything. This goes for medicine, law, sports or trading.

In our case, it takes time to catalogue enough patterns in the market to be familiar with changing conditions. The fact of the matter is that the patterns we follow may be different from one month to the next but they are mere representations of human emotions. While change is our constant companion in this business, the one constant is human emotion as fear and greed never change. It also takes time to develop a 'chunking' methodology. These come in the form of Elliott Waves, Fibonacci retracements, volume studies, etc. Here our timing methodology works as our 'chunking' device. For example when we see a 47 bar pattern complete, the brain doesn't have to think, it looks for the candle and reacts. Just like a plumber who knows where to look for the leak. However, it did take however many years to develop that pattern recognition skill.

Take a look at your own life. Look at what you are great at and what needs work. If you are honest with yourself I think you'll find these things to be true.

By Jeff Greenblatt

You may also like to read. >Genius Or Mastery

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