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The Definitive Guide To Trading Mastery & Success at Trader’s Narrative

I’m going to tell you exactly how you can become a successful trader. But a word of caution. You are probably not going to like the answer. I’m not going to sell you a course or a ’system’ or anything like that. So if that disappoints you, simply skip this and go read something else.

For the few who will actually read on, here is the definitive guide to trading mastery & success:

Most people approach this subject by looking for certain types of skills, qualities or personalities that would allow someone to excel at trading. We know that analytical, as well as, critical thinking skills are important, so is a competitive streak and a friendly relationship with numbers and probabilities helps of course. Many successful traders also excel at games which involve patterns and probabilities like poker and chess. But obviously, not everyone who has these characteristics or all who are great poker players, for example, are in turn successful traders.

So what is really the key to performance?

outliers malcolm gladwellAlthough I knew the answer intuitively, it wasn’t until I read Malcolm Gladwell’s book, Outliers: The Story of Success that it was spelled out for me. By the way, I highly recommend you add this to your reading list because it will explain many seemingly disparate questions: the North, South cultural divide in the US, why Asians are much better at math, why the school year doesn’t last 12 months, etc. Anyway, getting back on point, most relevant to us, in Outliers, Gladwell explores the 10,000 hour principle: to achieve world class success in any field requires an investment of at least 10,000 hours of your time.

Of course, Gladwell didn’t invent this, as a gifted writer he brings to life the dry, academic insights gleaned by others. In essence, the 10,000 hour principle is a confirmation of the maxim made famous by Edison: genius is 1% inspiration, 99% perspiration. If you’re interested in the research, you should check out The Cambridge Handbook of Expertise and Expert Performance edited by Dr. K. Anders Ericsson, from Florida State University.

Think of a person who is considered a ‘genius’ in their field. Let’s take Mozart or Picasso. If you explore each of their lives, you soon realize that talent and practice become so enmeshed that it is impossible to separate the two. Both masters were engaged in their art at a very young age and practiced feverishly. By the time they were young adults they had done more work in their field than the average composer or artist does in a lifetime. When they hit their stride as adults, they were just warming up! They then went on to heights of accomplishment which dazzle us to this day.

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So putting it plainly, to become a successful trader, you need to invest at least 10,000 hours of your time doing just that… trading. Of course, that means that you’ll also have to think about trading to come up with ideas, read about the current market, learn about market history to put the present in context, learn different ways of analyzing the market like technical analysis, tape reading, sentiment, etc. There’s a lot there but you need to put in those hours before you can expect success.

It might help to think about this in another way. Do you expect a thoracic surgeon to saunter through one seminar on biology then flip through Gray’s Anatomy casually and then pick up a scalpel and save people’s lives? would you want yourself or your loved ones to be his patient?

So do you then see the fallacy in assuming that simply by taking one trading course and reading a few books on trading you will make money from trading next month?

What does 10,000 hours look like?

There are 250 trading days in a year and 7.5 hours in a regular trading day, so in a year there are 1,875 potential trading hours. But you also have to consider that it isn’t possible to stay glued to the screen for the whole day (nor advisable!) and that beyond the market hours, you need to do homework both before and after.

But assuming that you put in 8 hours, either trading or thinking and analyzing… then in a year you’ve got 2,000 hours. Which means that in 5 years you’ll have 10,000 hours.

What if you were really dedicated and put in 10 hours a day? and your Saturdays? then it would only take you 3 years to get to 10,000 hours.

market wizards jack schwagerAnd here’s the problem. Most people don’t want to do this. It is hard. It is frustrating. It is grueling. The average person doesn’t want to work hard, they don’t want to put in the hours, so not surprisingly, the results they get are also average (or below average). Extraordinary achievement requires extraordinary effort, fueled by passion and a smattering of innate talent.

In Jack Schwager’s must read “Market Wizard” series of books, he profiles extraordinary traders. Read their stories and you’ll soon find the thread that runs through all of them. These are traders that work hard. They think about the market, they are so creative that they actually come up with novel indicators that often bear their names. These are not your average traders because their dedication to the craft is anything but average.

Even if they start out putting in some hours, most people give up. They quit well before the 10,000 hours have accumulated. That’s why you need passion. For without it, can you imagine doing anything for 10,000 hours?

Let’s face it, if you don’t like something, you have trouble getting yourself motivated for 30 minutes. You procrastinate, negotiate and come up with all sorts of tricks to not do it. So obviously the prerequisite is that you have a passion for trading. Going through 10,000 hours is the best way to discover if you do. If you do, those 10,000 hours will fly by but if you hate it, they’ll seem like a century.

There are other variables: luck and talent. By luck I mean, when you have finished putting in your hours, are you trading in an easy environment where the wind is at your back? or in a devastating market condition that grinds even hardened professionals to a nub?

Imagine if you started trading in the early 1990’s just as ECNs and more open market regulations allowed for all sorts of easy arbitrage, or if you entered trading during the bull market in the mid 1990’s. You might think that this would be a disadvantage since it would make trading appear too easy but that is only true for those that approach it with that mindset. To you, who put in 10,000 hours, that is not the case, in fact, just as you hit your stride and flex your new found skills, there is an amazingly lucrative market condition ready for you.

And by talent I mean an innate skill. What people call those who are a ‘natural’. Although they do exist, the only way it can be leveraged to leapfrog the rest is through consistent practice. Even if you have a ‘gift’, unless you develop it, others who simply put in more effort will over take you, eventually.

Let’s take an example so I can illustrate what I mean exactly. The name Steve A. Cohen should be familiar to you. If not, he is probably one of the most successful traders in modern times. There is very little known about him or his eponymous firm, SAC Capital Advisors, except that it is a force to be reckoned with. SAC regularly trades ~3% of the NYSE volume and since inception in 1992, has returned 40% to investors. This is even more astounding when you consider that SAC now manages billions of dollars in assets and that its performance fee is 50% with a 3% fixed management fee (as opposed to the standard 2/20 structure in the industry).

So how did Cohen get so good? Was he just a natural? is he a trading genius? To try to answer that, let’s rewind to 1956 when he was born in Great Neck, NY and then go forward a few years to find him as a young boy at the dinner table.

steve cohen smallCohen’s father, who worked in the garment industry was passionate about sports and he shared this with his son, poring over the scores and highlights after dinner. You could say that Steve’s love for the stock market was stoked by his father’s love for sports and especially sports scores. Steve was fascinated to discovered that there was another section in the paper with similar rows of numbers that changed daily and that they represented prices. Soon these new set of numbers became much more fascinating to him than sports score. By the time he was 13 he would regularly drop by the local brokerage office and watch the tape. In the few interviews he has given, he has mentioned again and again that what he does today has its roots in the simple act of watching the tape scroll by when he was a teenager.

Later Cohen attended Wharton, graduating with a degree in economics. While there, he was so taken with stocks that he traded between classes. Also, like many other master traders, Cohen was a great poker player. The story of Cohen’s first day at his first ‘real job’ is well known as it has been told and retold so many times it has gained a folkloric status: when Cohen was 22 he was hired by Gruntal & Co. and on his first day he made $8,000. Soon he was clearing $100,000 a day for the firm and in 1984 was given his own trading group, which he ran until he started his own firm.

Now, when most people hear the story of Cohen’s first day, their eyebrows shoot up and they attribute it to pure talent. But when you consider that Cohen was watching the tape since he was 13 and that he was trading throughout his teenage years and college, then it isn’t that surprising, is it? This by no means discounts his accomplishment but rather it puts it in the proper context.

By the time he started trading on Wall St. with Gruntal, he had approximately 9 years of experience (from 13 to 22). He quickly ramped up the hours - you can just imagine how many he racked up as a professional trader running his own group! - and within a few years had double or triple the requisite 10,000 hours.
When he started SAC Capital with $25 million in 1992, Cohen was 36 - which means that he had been trading almost continuously for 13 years. And a large proportion of those years was spent in such an intense and concerted effort, day in and day out, that it bordered on a fanatical zeal to perfect his craft. Is it surprising then, that he is one of the best?

As you’d expect, Cohen is not motivated by money but trades because it is what he loves. If he were motivated by wealth, he would have been able to stop and enjoy a life of leisure a long, long time ago.

What is Your Plan?
Because of the obvious realities of life for most, it is much easier to go through your 10,000 hours when you are young. You don’t have other responsibilities which can get in the way, you have lots of mental and physical energy and stamina, you are able to concentrate and learn very fast, and you have an open and inquisitive mind that hasn’t been polluted by dogmas.

But other than those advantages, there is nothing really that can stop you, no matter how old you are, from becoming a master trader… if you have the passion for it. Because that is what will motivate you to put in the requisite 10,000+ hours of apprenticeship. Add to that a favorable market environment and maybe a little talent, and a pinch of luck and who knows? Maybe the next generation will be reading about your accomplishments in the next series of Market Wizard books.

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15 Responses to “The Definitive Guide To Trading Mastery & Success”  

  1. 1 JL

    Excellent stuff… you might also want to check out “Talent is Overrated” by Geoff Colvin. Similar message, very powerful, great read.

  2. 2 Bryan

    Good post. I clocked up my 10,000 hrs a while back and I’m still a way off mastery,

  3. 3 Kevin Watson

    Great post…. I have been trading around 5 years now and trading is always on my mind. It is a big part of my life after family of course… I’m sure I have put in my hours than 10000 but whos counting…. not me… because I love everything about trading… The markets the ups and downs..the timing… entry, exits… my methods… everything…

    I will order the book Outliers

    Many thanks

    Kevin Watson

  4. 4 doug

    And after you read Outliers think about survivor bias and read it again. Stratospheric results always require luck as much as skill.

  5. 5 Anonymous

    The information in this article is based on the pr fabrications in articles previously published by the WSJ, NY Magazine, and a handful of other mass market media outlets.

    Myth is what men decide to accept as fact. Deciding to agree on a new version of the truth does nothing to change what is factual; it only makes those who accept distortions of the truth, seem that much more naive, gullible, or lacking in critical thinking skills.

  6. 6 skip rathnaw

    this is the best, most fantastic story of trading stocks i have ever read. i will print this out and prominatey place it so i see it often.
    skip rathnaw

  7. 7 JPM

    Interesting post on Cohen… I’ve read the book and found it a refresher. 10K hours is certainly no easy task… i wonder what would happen to multi-taskers or Jack of all trades?!

  8. 8 Craig Angus

    Wow! This is a powerfully written and extensively researched post. Like you I intuitively understand the amount of work that is required to achieve mastery; yet is it enlightening to have a goal presented in a tangible manner. It is also useful to remind ourselves of the importance of passion in what we do so that we can enjoy the 10,000 hour journey.

    Howie Meeker, a professional hockey player and hockey analyst, once said of his playing prowess that he did not learn how to play the sport of hockey until he retired. The message is clear — not only must we be on the bus, but we must also be on the right bus. That is, we must invest our 10,000 hours in activities and learning that directly support our development. Time well wasted is still time wasted.

    Thanks for this perspective.

  9. 9 Masked Financier

    I agree whole-heartedly with the major point of this post – that a trader or investor needs to spend a long time learning their trade (excuse the pun!).

    But I do think issue with one part of it – that the other two factors necessary are luck and talent.

    The third other factor that is necessary is an ability to deal with stress effectively. Putting money at risk in an investing / trading environment is one of the most stressful activities that the human mind can be subjected to. And the ability to deal with stress is something that, like talent, not everyone possesses to the same degree.

    Newsweek’s recent “Lessons in Survival” article gives an amazing insight into the stress-coping capabilities of special forces soldiers and divers compared with normal soldiers. And it seems that some people are just biologically better equipped to deal with stress.

    I’ve blogged about Newsweek’s story and the relationship with investing in detail at my own blog.

  10. 10 Jeffrey Young

    Hey Anonymous,

    It is no fabrication that it takes long hours to build world class talent. Michael Jordan practiced harder than anyone at the “TOP” of his game. Your ramblings are just that and failing to put your name on something speaks volumes about your ability to comment on something and stand behind it. Anyway enough about you. Outlier’s while obviously not a new truth is only one way to look at things and not THE way; however, the points made in the book are extremely valuable and relevant. You need good fortune (opportunity), desire, and you need to put in the hours. It is then more likely you will be successful had you not had those ingredients. There are very few exceptions to this. What is sad is there are millions who feel that genuis means success and that is the farthest thing from the truth. I will take a person who works hard at something he loves over some smart person who thinks they know everything anyday. If you are unable to get to 10,000 hours or think that’s a long time then what your trying to do is not something that you love. Find something that fits your personality and stop wasting your time. That only brings you farther away from the things you may really do well in.

  11. 11 Mahdi

    Dear Babak

    Thank you for this wonderful post. I really enjoyed it even though I had come across the 10 000 hour principle many times before. But as the great Earl Nightingale used to always say ‘we need reminding as much we we need learning’. 3 years of constant 10 hours a day work is hard but one needs to realize that those 10 000 hours will come and go anyway even if we like it or not. So we might as well put them into good use.

    I think this is must read for everyone who has their minds set on achieving a goal. I just like to add that not only do we need passion, but we also need purpose and the right direction plus a worthwhile goal to help us stay focused and on the road to mastery.

    Thanks again Babak for this great post.

  12. 12 KX

    In regards to the blog I agree that to be great at anything we have to practice, practice, practice. A great golfer doesn’t become great by only playing the tournaments. It takes hours and hours of preparation both physical and mental.

    I feel with trading though what is lacking is that there are no books or coaches that tell the wanna be trader how those 10,000 hours be spent. I have read a lot of books, listened to tapes, watched videos and attended seminars which cost a lot of money.

    I was not one who decided that trading was for me when I was young so did not get the opportunity to work in brokerage firm. I am one of many who became interested in trading later in life who juggles full time employment with trading and life. There is no one there to give me a training plan, no one to check that my technique ( e.g golf swing) is correct, no one to bounce off ideas, no one to keep my motivation up when the times are tough and I am not at my peak and no one to share my successes with. I have been trading for 8 years and I am determined to succeed. I want to become a full time trader and to achieve that I have to achieve consistency in my trading results. This is where I am right now this is what took me all this time to understand. Without it I cannot become a full time trader.

  13. 13 PJ

    I do not totally agree with this article. Whilst many hours must be used to practice trading to be successful, using shoddy information to develop a distorted view of the market will merely set you back further. Thinking smart and trading as an informed trader means less practice required to be successful.

  14. 14 Avg Joe

    Fantastic post! Very insightful & so true… PJ’s comment - idiotic.

  15. 15 paul gray

    Im a slow sure learner so maybe 15000 more reasonable but Ive got time.
    Thanks for the help.

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