Matthew Kerkhoff, options expert and editor of Dow Theory Letters, continues his 14-part educational...
Are Good Traders Born or Made?
11/23/2012 10:00 am EST
The changing face of trading has made it easier than ever for a person without killer instincts but with a methodical trading program to do well in the markets, says Linda Raschke.
Are traders made or born? We’re here with Linda Raschke, who is going to answer that perennial question for us.
That’s a good question. Richard Dennis was the first person that posed that question over 20 years ago. To prove his point that he felt that traders were made, not born, he started the Turtle Project.
Just a few comments about trading now versus trading then. Trading back then was pit trading, and of course you could get away with a much more intuitive type of style. There were born traders then, and they could rely on all different types of sensory input.
But I firmly believe that you can take anybody, give them a rule set, and as long as they are of the nature that they have an even temperament and therefore can consistently follow a program, then absolutely traders are made nowadays. It’s a matter of spending the time to develop your own rules so that it works for you, and then following it consistently. It’s certainly not a function of IQ.
So the instincts that they relied on in an open and out crisis system have changed with the advent of technology?
It’s a totally different type of game now. Just like sports, you can take somebody with all the talent in the world and it doesn’t mean that they’re going to be able to be a world-class player. Perhaps they might choke under pressure.
Perhaps you can take somebody who only has average training to begin with or average talent to begin with, but yet they have learned how to do something consistently—not make those unforced errors. They have the chance to rise to the top.
So what are the implications of that in the market, when collectively you’re working with people who are built out of a binary system?
Well, obviously you want to be able to have in your own program, and have a well-defined program. You need to find something that you can do consistently. That’s really a big key to the equation. So that’s where the training is.
I do believe that I can take anybody, give them a rule set, and teach them how to follow it consistently. This isn’t the same as following a mechanical system, by the way. You can have rules or guidelines for initiation, rules or guidelines for your trade management, rules or guidelines for your liquidation. You can teach somebody to trade within these principles and do it consistently. As long as you have an edge to begin with, that’s all it takes.
You do this now with traders?
I do it with my own trading program. I’ve been trading.
You build your trade.
I’ve been trading for a number of years. So that’s my main job is to run my own program, but I can see it with myself and I can certainly see it with colleagues and other new coming people in the business.
Are there any other tips that you have to someone who is building a program or looking to get into trading a little bit more?
Well, if you’re going to think about developing your own program, you have to find something that is not what the herd is doing, OK? So you need to find some type of rule set that’s a little bit different from what you might read in your classic textbooks.
Not that you can’t get ideas. I mean, a lot of it is just doing research and getting one idea and developing that one idea. Of course, all books have value, but it’s not like there is a step A, B, C guide to trading, following a little pattern. It’s not quite the name of the game.
I do believe that it just takes just one small edge that works for you. The big part that people don’t understand about this business is that the initial learning curve is really finding the style that’s going to work for you. You’ll find that yes, trend-following programs do have an edge that might be the right type of program for many people to trade, just because they’re not going to have the temperament to follow it.
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