Push Your Trading to the Limit

09/27/2011 1:30 pm EST

Focus: STRATEGIES

Gary Dayton

Founder, TradingPsychologyEdge.com

Dr. Gary Dayton advocates "deliberate practice," which elevates learning and pushes the trader to the outer reaches of their abilities and comfort level.

We all know as traders that we need to practice our craft to become better at it, maybe with paper trading. But there are other ways you can do that.

Our guest today is Dr. Gary Dayton to talk about “deliberate practice” and what he means by that. Dr. Dayton, first of all, what is deliberate practice?

Well, thanks for having me, Tim. Deliberate practice is a specific way of approaching learning about the market. You know, the myth out there is that great performers in any field, whether it be trading, professional or Olympic-level athletes, surgeons, even psychologists, the myth is that it’s something inborn, it’s some talent that we have. Traders just have this set of traits that are better able to handle risk than the rest of us.

Well, that’s not true. Forty years of good, solid psychological research shows that performance across all these different disciplines isn’t about talent, isn’t about inborn qualities.

It’s all about what we call “deliberate,” or “deep practice,” which is practicing a specific way that’s actually very uncomfortable.

It’s practicing at the very edge of our abilities, and when we’re at the edge of our abilities, we’re going to fail; but we pick ourselves up over and over again until we develop the skills to be able to operate out there on the edge.

What deliberate practice does is elevates our learning and our insight into the market.

NEXT: How to Conduct a Deliberate Practice Session

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What does that mean in practice then? Do I paper trade, and is that what we’re talking about here?

Yeah, what you want to do, Tim, is you want to set up specific task-relevant goals to help yourself improve your trading.

So, for example, let’s say we have a trade set-up and it’s a long-side trade set-up. Well, deliberate practice would suggest that you take 60 days’ worth of data and you go through bar by bar looking for that trade set-up and then paper trade it, if you will, or SIM trade it as it occurs; but don’t do it mindfully. Be very mindful about that and instead be very deliberate about it.

When the trade set-up works out well, what were the conditions that occurred? Note those down.

If it doesn’t work out, what were the conditions that we might be able to see next time that would tell us not to take that trade or perhaps use lighter leverage in that trade?

What happens when this trade goes extraordinarily well; when we hit a home run off of this trade set-up? What were the conditions then that occurred? Note those down.

So do that for 60 days’ worth of data and then do it again and again until you become a master at that trade set-up.

That’s what everybody from Olympic-level athletes to top-level surgeons do; they practice their craft.

A major league baseball player wouldn’t think ever about setting foot on the baseball diamond without having had a lot of practice behind them. Traders shouldn’t think about going in front of the screen without practicing their craft as well.

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