Can a Trader Achieve Excellence by ‘Practice’?

I consider myself to be more of a short-term investor than trader.  The strategies I recommend require some time to play out and are unsuitable for day trading.  In fact, I believe options are the wrong tool for day traders (individual equities are better).  Nevertheless, a book I'm reading provides the basis for today's post.

In his recent book, Outliers, Malcolm Gladwell quoted a study by German psychologists Ericsson et al, in which it was concluded that the people at the top of their profession don't just work harder than everyone else, they work much harder.

Gladwell writes: "The idea that excellence at performing a complex task requires a minimum level of practice, surfaces again and again in studies of expertise.  In fact, researchers have settled on what they believe is the magic number for true expertise: 10,000 hours… It seems that it takes the brain this long to assimilate all that it needs to know to achieve true mastery."

This suggests that it's not innate talent that leads to becoming a star athlete, a world champion bridge player or superb musician.  Instead, it's the time devoted to practice.  Keep in mind that we are not talking about simply repeating a process by rote with no effort to develop skills.  Devoted practice leads to true skill enhancement, and perhaps some 'aha' moments of discovery.


Does this rule hold true for traders? 

When trading, it's not necessary to become the best.  Merely being 'very good' is sufficient.  You don't have to beat any specific opponent in a match or in an audition.  But to succeed, you don't want to depend on being lucky and there are skills you can develop with practice. 

What's 'good enough'?  That's an individual decision.  Becoming a better trader, via practice, increases your chances of achieving your personal goals.  As with all types of investing, risk must be taken to achieve profits.  Minimizing that risk is one of those learnable skills.  

This idea (practice trading) is new to me and I thank Gladwell for bringing it to my attention.  As a CBOE market maker, I traded at least six hours per day for 20 years, and that's more than 30,000 hours.  But, I recognize at this stage, that I did not use the time to really practice.  I did not give 100% attention to all the details of the marketplace and did not take advantage of the clues that were available to me.  As a result, I am not a 'world class' trader. 

My purpose in mentioning this is simply to encourage you.  If you are a trader with many years of trading ahead of you, and if you have the time and desire to devote to learning everything you can about this game, there's every possibility that you can become an expert.  But it's not guaranteed that you will earn a fortune, and not everyone can develop the required skills. 


How much is 10,000 hours? 

Six hours per day, 250 days per year for about 6 1/2 years. 

Or 10 years, when you practice 4 hours per day. 

And practice doesn't mean just entering orders, getting filled, and waiting a few weeks as the passage of time turns your trade into a winner.  It means watching the markets and gaining the ability to sense when certain events are likely to happen or when certain types of positions are likely to succeed.  I'm not saying you will be able to tell when the market is about to undergo a sustained rally or decline, but there are certain skills that belong to experts – skills that cannot easily be described to others.  There are things they just 'know' – perhaps without realizing they know them.

If becoming a much better trader is your goal, there's no easy path.  Practice is necessary.  And don't forget the need to use good risk management and discipline – so you don't go broke along the way.  And if you do become a great trader, humility is another requirement.  If you ever think you know more than anyone else and that you can outsmart the markets, you will probably fail – expert or not.

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