Trade Psychology Thoughts from a Managers Point of View

A bit of background for this post: I've spent the last 90 days on boarding 4 new traders for a prop firm (3 of which are left). After attending a management seminar last week, we decided to review the firms systems and processes to determine what improvements could be made at a management level. I thought about the struggles we were facing getting trainees over the hump into fully qualified desk positions, and these are my top observations.

1. Let's talk a bit about checklists. Veteran surgeons and pilots still use them after 30 years of experience to enforce consistency. Would you sit on a plane from one that didn't do a pre-flight safety checklist? How good are those procedural checklists that you have?

I often find it interesting that someone who is a complete novice (after about say 3-6 months training) tens to outperform an intermediate level trainee (9-12 months training). I generally find that the novice is being very diligent about their pre-market prep work ticking off every box, checking the economic data, reviewing all the overnight reports, etc.

[For reference, people are on demo for the first three months, need to show about 5% return on capital within the risk metrics before being put on a small live account, then needing to show 5% return on capital on the small live account before being placed on a dedicated desk with a specialized market]

However, the intermediate trainee often starts to feel they have the "hang of things" after about 9 months and hitting their numbers for the first few month. At that point, they often start rolling up to the computer 15 minutes before market opens, and just starts to push buttons, or rushes the prep work because they think they know it all intuitively now and don't need to do the analysis. As a result, the performance starts to dip in the red right as the new trainees are starting to hit their quotas (in the green)

2. Lesson #2: Coaching itself is a process. This is more of an observation about the senior traders who the trainees are shadowing than about the trainees themselves, but probably applies to "self coaching" concepts. Don't "wing" the coaching process. I find that when we don't make the training and feedback systematic, something gets missed in the foundation training that causes confusion. e.g. are they simply forgetting the proper math of calculating market pressure because someone forgot to cover it? Was the PMI data release trade plan miscalculated because of wrong inputs?

Are they not even going through the daily review because the senior's gotten lazy? Make the debriefing process as systematic as possible: what could have been done better, what mistakes should be corrected. Most importantly, measure how quickly adjustments are being made when performance numbers are missed. (And if those same mistakes are still being made over and over again, maybe that trader needs to be cut)

3. Are people practicing in the game or are they practicing before the game? (Maybe a bigger question is whether they are even practicing at all)

I often find that the intermediate traders who have plateaued off in performance suffer from a lack of continued practice and training. Much like in basketball, even if you're a solid inside player, that doesn't mean you can't improve your jump shot. For the trading world, sometimes this means that a good scalper should be improving their macro analysis skills and vise versa instead of being lazy and stopping their practicing of new skill sets.

However, the practice has to be done in the right way, which means not in a live setting where there are funds at risk (both because this is a bad business practice for the P&L, and also because people can't focus on the mechanics of execution when the emotions of risk come into play).

This is obviously not intended to be a comprehensive list, but simply my observations made over time as a manager.

Trade Psychology Thoughts from a Managers Point of View

A bit of background for this post: I've spent the last 90 days on boarding 4 new traders for a prop firm (3 of which are left). After attending a management seminar last week, we decided to review the firms systems and processes to determine what improvements could be made at a management level. I thought about the struggles we were facing getting trainees over the hump into fully qualified desk positions, and these are my top observations.

1. Let's talk a bit about checklists. Veteran surgeons and pilots still use them after 30 years of experience to enforce consistency. Would you sit on a plane from one that didn't do a pre-flight safety checklist? How good are those procedural checklists that you have?

I often find it interesting that someone who is a complete novice (after about say 3-6 months training) tens to outperform an intermediate level trainee (9-12 months training). I generally find that the novice is being very diligent about their pre-market prep work ticking off every box, checking the economic data, reviewing all the overnight reports, etc.

[For reference, people are on demo for the first three months, need to show about 5% return on capital within the risk metrics before being put on a small live account, then needing to show 5% return on capital on the small live account before being placed on a dedicated desk with a specialized market]

However, the intermediate trainee often starts to feel they have the "hang of things" after about 9 months and hitting their numbers for the first few month. At that point, they often start rolling up to the computer 15 minutes before market opens, and just starts to push buttons, or rushes the prep work because they think they know it all intuitively now and don't need to do the analysis. As a result, the performance starts to dip in the red right as the new trainees are starting to hit their quotas (in the green)

2. Lesson #2: Coaching itself is a process. This is more of an observation about the senior traders who the trainees are shadowing than about the trainees themselves, but probably applies to "self coaching" concepts. Don't "wing" the coaching process. I find that when we don't make the training and feedback systematic, something gets missed in the foundation training that causes confusion. e.g. are they simply forgetting the proper math of calculating market pressure because someone forgot to cover it? Was the PMI data release trade plan miscalculated because of wrong inputs?

Are they not even going through the daily review because the senior's gotten lazy? Make the debriefing process as systematic as possible: what could have been done better, what mistakes should be corrected. Most importantly, measure how quickly adjustments are being made when performance numbers are missed. (And if those same mistakes are still being made over and over again, maybe that trader needs to be cut)

3. Are people practicing in the game or are they practicing before the game? (Maybe a bigger question is whether they are even practicing at all)

I often find that the intermediate traders who have plateaued off in performance suffer from a lack of continued practice and training. Much like in basketball, even if you're a solid inside player, that doesn't mean you can't improve your jump shot. For the trading world, sometimes this means that a good scalper should be improving their macro analysis skills and vise versa instead of being lazy and stopping their practicing of new skill sets.

However, the practice has to be done in the right way, which means not in a live setting where there are funds at risk (both because this is a bad business practice for the P&L, and also because people can't focus on the mechanics of execution when the emotions of risk come into play).

This is obviously not intended to be a comprehensive list, but simply my observations made over time as a manager.

Maybe to highlight the "psychology" piece summarize it a different way: it is ironically the initial success that people achieve that causes them to start failing the next series of breakthroughs. If you'll permit me one Star Wars analogy, it's like Skywalker telling Yoda that he's not going to finish his training and jump straight into fighting Darth Vader. Does Luke now have a few skills up his sleeves? Yes, but that feeds a sense of over confidence that the training either doesn't need to be completed or one doesn't have to train as hard during the next phase to achieve mastery.

I like this post a lot, especially the part about the checklist.

IMO many people could benefit hugely by having a good checklist to break down any complex task, and to prepare for one. I certainly would, and now I'll put something together for morning prep and for individual trades.

Thanks for bringing this up into the foreground. It's very valuable.

Bob.

This is by no means complete, but I put it together after having read some of the posts on FIO. The one I was especially inspired by is this one by @lancelottrader

What psychological shift did you make to become profitable? I think it's been through trading..that I truly realized that I was ADHD. I should have known by my inability to focus in high school and grade school plus always being totally unorganized. Also, I always had trouble completing tasks. In trading …

• Did I prepare for today?
• Am I in the most conducive state to trade?
• Is the door closed?
• Have I assessed the current volume profile situation?
• Have I assessed where the market is right now?
• Thinking like an institutional investor - Would I be able to articulate to others the trade I'm about to take?
• Am I prepared NOT to take any trades today?

This is by no means complete, but I put it together after having read some of the posts on FIO. The one I was especially inspired by is this one by @lancelottrader

What psychological shift did you make to become profitable? I think it's been through trading..that I truly realized that I was ADHD. I should have known by my inability to focus in high school and grade school plus always being totally unorganized. Also, I always had trouble completing tasks. In trading …

• Did I prepare for today?
• Am I in the most conducive state to trade?
• Is the door closed?
• Have I assessed the current volume profile situation?
• Have I assessed where the market is right now?
• Thinking like an institutional investor - Would I be able to articulate to others the trade I'm about to take?
• Am I prepared NOT to take any trades today?

Edit: some bullet points are of course specific to myself. For instance, on occasion I would open up the trading platform, see something and almost instantly would jump on a trade. A bad idea, at least for me. So some of the points in the checklist helped me refrain from that behaviour.