Becoming an Expert Trader


It may take 3 to 5 years to become a good trader. Becoming an expert could take even longer. No one can teach you to press a few buttons on your computer and make money. There are no magic formulas. What it takes is:

1. a sound working knowledge of the basics;

2. an understanding of the traps and pitfalls that you face in the market every day; and

3. above all else, it requires an understanding of yourself.


What it Takes to Become an Expert

Scientists have conducted extensive research into what it takes to achieve mastery in a particular discipline. Karl Anders Ericsson and his colleagues studied top performers in a wide variety of fields and identified a specific type of practice, which they call deliberate practice, that is required to achieve excellence (Ericsson and Charness, 1994). Ericsson observes that deliberate practice can be identified by:

1. performance with full concentration, focused on generating improvement;

2. special exercises designed to improve performance;

3. graduated tasks, with easier skills being mastered before more difficult skills are attempted;

4. close guidance and timely, accurate feedback on performance.

Ericsson also found significant uniformity, across a wide range of fields, in the amount of deliberate practice required. To achieve excellence takes about ten years, and about four hours of practice a day. Whether you want to be an Olympic athlete, a research scientist or an expert trader, there is no substitute for hard work.


Know the Basics

A few hours reading will acquaint you with the basics. If that was all that you need to know, trading would be simple. If you read a Spanish dictionary from A to Z, you would still not be able to speak the language. Like learning Spanish, what you require is fluency in the language of the charts:

1. candlesticks or OHLC bars

2. volume

3. trends

4. trading ranges

5. support and resistance

6. chart patterns

7. time frames

8. cycles

You also need to understand:

1. the influence of market and sector indices;

2. the interaction between various equity markets;

3. the impact of interest rates; and

4. the interaction between equities, bonds, currencies and commodities.

It takes hours and hours of practice, analyzing charts and applying the theory, before you will achieve any form of fluency. That is why so many traders head off after indicators - in search of a short cut.


Traps & Pitfalls

You need to acquaint yourself with the tricks of market professionals. Again, there is no substitute for experience. The best way to learn is to trade. You are bound to get burnt a few times; having your stops shaken out or being suckered into chasing the price up, only to see it fall. Obviously, if you know that you are likely to get burnt, you don't want to burn all your capital in the process; so start trading with as small an amount of capital as is practical.


Know Thyself

Understanding yourself is the hardest lesson of all to learn. Confronting your own human failings is no pleasant task; and one that most of us avoid at all costs. We all start out thinking that we are bullet-proof; that we know better; that we will never fall into all the obvious traps. All too soon we are drawn like moths to a flame, committing the same mistakes as the "suckers". Only through experience can we learn how to control this.

This above all: to thine own self be true

~ William Shakespeare: Hamlet ACT I Scene 3


Attitude v. Ability

If I had to sum it up: Trading is 90% attitude and 10% ability. Most of us have the ability to become a successful trader. But few have the right attitude.

A successful trader should be both canny and self-disciplined.

Canny is a Scottish word meaning:

1. shrewd

2. worldly-wise

3. thrifty

4. circumspect

5. cautious

Self discipline requires:

1. self-control

2. a systematic approach

3. thorough research and preparation

4. accurate performance measurement

5. attention to detail

Both of these attitudes can be learned, but it takes time to develop new thinking habits. The only way is by deliberate practice.

Prudent, cautious self-control is wisdom's root.

~ Robert Burns