• Markets
• Economy
• Federal Reserve
• Housing
• Energy
• Digital Media

Defining Features of Market Pros

I've been meaning to revisit a post by Doc Brett Steenbarger on the 5 defining features of "Market Pros," and the long holiday weekend is as good a time as any.

The Doc notes that these "five features stand out. Pretty much everything else follows from these five:"

1) The less successful traders are anticipating market movement and trading accordingly. The highly successful traders are identifying asset class mispricings and trading off those.

2) The less successful traders are trading particular instruments and pretty much stick to those. The highly successful traders recognize that any combination of trading instruments can be considered an asset class and appropriately priced (and gauged for mispricing).

3) The less successful traders think of their market as *the* market. The highly successful traders focus on interrelationships among markets that cut across nationalities and asset classes.

4) The highly successful traders place just as much emphasis on understanding markets as predicting them. The less successful traders don't ask "why" questions.

5) The less successful traders are convinced they have proprietary information of value that they must not disclose to anyone. The highly successful traders use their proprietary information to selectively share with other highly successful participants, thereby gaining a large informational edge.

The other interesting observation was a new phrase he coined: "analytical creativity."

Good stuff, Doc.

Sunday, July 02, 2006 | 08:41 AM | Permalink | Comments (10) | TrackBack (0)
add to de.li.cious | digg this! | add to technorati | email this post

Comments

Oh, what a bunch of pap. Simply a collection of opinions, stated as fact, with no supporting data. Without defining "trader" the assertions are meaningless. He could be talking about anything from Joe Sixpack trading long only equities in a cash account to Goldman Sachs and their entire "book" of instruments.

Take assertion #2: " The less successful traders are trading particular instruments and pretty much stick to those. The highly successful traders recognize that any combination of trading instruments can be considered an asset class and appropriately priced (and gauged for mispricing)"

How does he account for the many, many extremely successful pit traders who essentially trade a particular instrument in a particular futures market...say a beans or cotton futures trader, for either their entire career or long stints of it after which they may simply switch to another single instrument? See: The New Gatsbys: Fortunes and Misfortunes of Commodities Traders by Bob Tamarkin.

Secondly, how many non-retail/non-small scale "traders" does he think don't use pairs of instruments to hedge or play statistical arbitage/reversion to mean plays on ratios?

This guy is making broad based statements that do not reflect reallity because he attempts to compare methodologies used by different trading factions (i.e. hedge fund, mom-n-pop retail, prop shops/arcades, i-banks/MMs proprietary, etc) as if they were one group called "traders".

Even when I was a young neophyte trader I was putting on stat arb plays (did very well at times playing ratio mean reversions in things like HUI:Gold), option hedges, intra-sector long/short pairs, etc.

Steenbarger comes across to me as a leech who can't make his own stake trading and attaches himself to trading circles as some performance guru using a bunch of psychobabble BS.

Here's all you need to know about trading psychology in 3 easy bullets:

1. Emotion is your enemy. Find out whether you can detach emotion from your methodology. If not, stop now and hire someone who can, or go the DollarCostAvg/MPT route or go to Vegas and put it all on black. If so, proceed. Scaling out your trading to larger time frames can be helpful in managing emotional influences.

2. The easiest way to eliminate the emotion problem is to use a primarily mechanical method/models with a statistical edge and follow the method without fail. See: Dennis, Richard.

3. There are no gurus. If they were that good/talented, they wouldn't be selling and thus destroying the usefulness of their "methods", but instead applying it and making themselves very wealthy. Most of the best have a statistical edge whether through their sheer size and ability to move markets, access to inexpensive capital, access to (inside) information, front running upgrades etc.

Posted by: Alaskan Pete | Jul 2, 2006 3:14:28 PM