Trading Tips

Trading Education and Trader Development – What You Need to Think About

In response to my Take the Trading Long View post from the other day, Brett Steenbarger has posted Three Winning Characteristics of Training Programs for Traders. Based on his experience observing and working with trader training programs at a number of trading firms, he’s outlined the important elements of what they do, and by extension what you should do for you own trader development. The three features of the effective programs are: 

  1. Teach Real Information
  2. Provide Opportunities for Skill Building
  3. Blend Standardization with Individualization

Basically, Brett is saying is that what you should seek to get out of training program you enter into (paid or otherwise) is practical specifics (techniques, set-ups, money management, etc.), the chance to extensively practice what you’re learning, and the opportunity to adapt things to your own unique needs. I definitely agree.

Think about taking a math class. The instructor teaches you specific techniques to solve problems. They then provide you will problem sets so you can practice applying those techniques, with feedback in the form of grading. As part of the course you are shown specific application of the methods taught, but the overall objective is to prepare you for using them yourself in whatever fashion suits your needs moving forward.

Now consider the most common trading education programs being offered these days. How many of them match Brett’s criteria above?

Not many. Most stop at the point of teaching you something and fall flat at stage 2 – skill building. How many programs, seminars, and the like actually include supervised practice as part of them. Very few. And let’s face it, no matter how much practice you get during a weekend seminar, it’s not nearly enough since it isn’t real world. And if you don’t get proper skill-building, you will never be able to advance to stage 3 – individualization - because you just won’t have the depth of understanding necessary.

Take a Tip from the Big Market Players
There is a reason why investment banks spend a great deal of time developing new traders for their operations. Their training programs can include months of classroom training followed by months more of being clerks on the trading before they’re ever allowed to take a position (The book Liar’s Poker includes a great view of the training program and early development at a major investment bank). The banks want to be sure the people they are letting put their money at risk are well prepared. Doesn’t it make sense for you to take the same approach with your own trading development?

Consider something else. Investment banks don’t just allow anyone into their training programs. They have rigorous process to identify candidates they feel are likely to succeed in their environment. Those for whom the trading desk would not seem to be well suited are left out, others are filtered out during trading, and then even within the program individuals are seperated into specialties. Think of that like your own process of figuring out which market, timeframe, and approach you should be using in your own trading.

A Solid Foundation Required
Also think about prerequisites. One doesn’t just jump into calculus without having gone through algebra, etc. first. Similarly, Goldman Sachs isn’t going to bring someone into their training program who doesn’t have a college degree (or at least some offsetting experience). They want their trainees to have a solid educational foundation. It works the same for you. Make sure you have a strong knowledge base before you jump head-long into the markets. Don’t skip steps.

It’s very easy to fall into the trap of seeing the enormous profit potential of the financial markets and get so excited about achieving those types of returns that you rush things. You fail to take the time required to really learn what you should know. You jump at anything seeming to offer the potential to work. You don’t take the time to think about how you should approach the markets.

Generally, this leads to one of two outcomes. Either you lose loads of money and/or quit in frustration, or you eventually realize the need to back-fill you knowledge base and return to the trading educational arena to do so.

Do yourself a favor. Start with the simple stuff and progress from there. Take your time. Don’t rush into the markets. Traders who attempt to start trading without a solid foundation are almost guaranteed to fail. The traders who know what it’s about – and I’m not talking any highly complex or secret things here – are quite happy to take the money from those who don’t.

Second, make sure you know what your needs are before considering any trading education or resource product. If you know swing trading the stock market is what makes the most sense for you, then by all means buy that book. If you haven’t even spent the time figuring out what timeframe best suits you or whether stocks are even the right thing for you to trade, then it’s rather foolish to spend the money. And it goes without saying that you should be very clear on what you’re getting from any trading education product or program before parting with your hard-earned cash.

Thirdly, if you’re contemplating a trading course or other educational product or program which isn’t something specifically informational only then refer back to Brett Steenbarger’s list. Does it fulfill all of his criteria? How does is match up with other effective educational programs (like school classes) you’ve taken?

If you keep these things in mind, you will avoid wasting both time and money (not that I think spending money is a bad idea – see When Free Isn’t and Paying Makes Much More Sense), and probably have a much more meaningful and worthwhile trader development experience.

By John

Author of The Essentials of Trading