Sunday, November 05, 2006

Enhancing Trader Performance - Book Review

Enhancing Trader Performance: Proven Strategies From the Cutting Edge of Trading Psychology (Wiley Trading)

What Is It About?

As its title suggests, this book is about enhancing your performance in whatever market you wish to participate. To do this the author does not take the well worn path of suggesting external means to achieve greater success, such as looking for better indicators or certain price ratios; rather the author strikes out on a decidedly different course. Dr. Steenbarger places his focus on improving the one thing that most helps or hinders an investors or traders' stock market success: Themselves. By examining what it takes to be successful, how to evaluate performance, and providing a framework which an investor or trader may use to breakthrough mere competence and achieve expertise, Dr. Steenbarger has written a manual useful to all regardless of trading or investing style.

What Did I Get Out Of It As A New Investor?

The maxim that one must never judge a book by its cover applies to this tome. While this book uses examples that deal with more short-term oriented trading, its lessons are not wasted on those who seek long term success. While the book does use many examples based on traders who are short term in nature, it is more a function of clinical practice than deliberate exclusion of other styles.

To reach a clinical understanding of any subject one must have a sufficient sample size. While long-term oriented investors or traders might make one hundred trades in several years (or even one hundred in a single year) short term traders may make several hundred a month or even in a single day. Therefore, in order to understand the psychology behind human decisions in the market in a reasonable amount of time, short-term traders provide the necessary sample. Simply put, much like a clinical researcher who chooses and studies a species whose birth-death cycle begins and ends in 30 to 60 days and then extrapolates the results to the human birth-death cycle, a long term investor who reads this book should not be put off by its short term focus. To do so would exclude a valuable resource.

In reading this book, one develops an understanding that, whether short or long term, individuals to quickly choose how they will trade or invest. The book helps a new investor or trader by forcing them to ask what style of investing and what time frame works for them. Many investors lack Warren Buffett’s success not because they lack skill, but because Mr. Buffett’s performance abilities matched well with the long term style. Ignoring this fact limits your potential success simply because your skills may be better suited to another style or time frame of investing or trading. Much like Michael Jordan, no matter how much you may love baseball, basketball is what you will always be really good at.

This book also addresses the reality that one must continually strive to improve performance and adapt to changes in the markets. An important lesson learned is that bad trades or investments are much more damaging to a new investor over the long term than good trades or investments that lose you money. How so? A trade or investment that makes money but which violates the rules governing the selected system of trading will instill a self-confidence not validated by skill, but by luck. Such hubris can only lead to ones ruin once luck runs out, as it most defiantly always does.

Perhaps the most important lesson of this book is to provide an investor or trader, either short or long term, with a means to establish the discipline to have staying power in whatever market or style undertaken. The book does this by requiring the reader to think long and hard about what it takes to be successful (practice, practice, practice) and how to evaluate performance (thoughtful and objective means of evaluation).

The Good News

Without a doubt, if you fancy yourself a trader this book can improve your performance. Even if you believe you fall in the “investing” camp this book will help you. While the examples used may not directly apply, the psychology behind performance improvement applies to long term investors as it may help them move beyond mere competence to expertise.

The Bad News

Although well written this book is not light reading. It is a serious book meant for serious individuals who want to achieve personal growth and obtain something more than mere competence in whatever market they trade. If an individual is ready to stop searching for some magic tool or indicator and instead develop internal techniques that will aid them far better than any flashing buy or sell signal, than this is the book for you.

The Bottom Line

This book is a must read for a trader and a valuable addition to a trader’s library. Even if one is long-term focused this book is still a worthy read, whether purchased or borrowed, as psychology plays a role in the market no matter what investing time frame is used.

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D TradeIdeas said...

nice summary. I think the book is very modular and am therefore reading chapters out of order that match my interests - I'll eventually get to all of it though! Thanks again.

Steven said...

I agree. Depending on ones immediate needs some chapters may be more appropriate to read first.

Anonymous said...

Good summary, keep it coming!
CalTrader's Blog


Really great book.