Tuesday, September 29, 2009

Draft Trader Development Stage Model

One of the under appreciated joys of blogging is the wide variety of people who you end up corresponding with across the globe – and whose paths would likely never have intersected my own had it not been for the blog.

Partly as a result of the blog, I have a better sense of what goes on in the heads of other traders, what issues they struggle with and how they do – or sometimes don't – overcome obstacles to success.

I have enough anecdotal evidence that suggests there is something of a typical development path that many retail traders follow as they grow and develop as traders. In an effort to start a dialogue about this and to give the blog a framework to refer back to in future posts, I thought I would post a draft of the mental model that is forming in my head.

Frankly, I am surprised I have not seen a similar graphic and if there is one out there, I would be interested to hear about it.

Keep in mind that as best I can, I have attempted to keep the model simple. Once the basics have been debated and reformed, then it is a lot easier to add in some of the complexity.

So…without further ado, I have appended below the first draft of the trader development stage model, which is hopefully relatively self-explanatory. Note that the vertical gray arrows are supposed to represent tension between related issues (leverage vs. position sizing, minimizing losers while maximizing winners, developing an edge vs. diversification.) Also, while I consider all the issues to be iterative, I suggest that the iteration process in the third stage is continuous.

As always, all feedback is appreciated.


Unknown said...

This is great. Wish I had seen something like this a long time ago.

jgpietsch said...

Very nice. It is difficult to convey to new traders how the process is internalized over time as well. At first, your interaction is through spreadsheets and data feed. They are something apart from you At some point you internalize the metrics, you are more comfortable with the market like a friend. It becomes more intuitive and visual even as you remain guided by your edge producing indicators. Okay, well, my wife calls the S&P my second wife... so there you have it.

Mark Wolfinger said...

Very perceptive.

Newbies are ready to conquer the world. Not a good way to begin.

As this develops, it may be worthwhile to compare it with (the yet to be drawn) model for how and where the trades gains the education that allows for moving along in the development model.

It takes enlightenment to recognize that 'development' is necessary and that the trader must find the ways to survive.

Excellent original contribution.

Tim - TraderInterviews.com said...

I've never seen it diagrammed before but it makes perfect sense.

Great stuff - thanks.

Tarique Anwar said...

excellent description. i too wish i had seen something before.

Penniless Trader said...

Ahh stage one, hopefully I don't get too comfortable here.

Anonymous said...

Wow, every trader should learn your Stage Development Model. When I was new, I had no concept of the career path that you show. Charlie Wright supplements this model. He says "... there are four distinct stages of trader education: discretionary trader, technical trader, strategy trader, and complete strategy trader" and then describes each stage at http://www.elitetrader.com/tr/index.cfm?s=17&t=73 . It's part of a series of articles entitled "Trading as a Business".

Bill Luby said...

Thanks for mentioning the Charlie Wright piece, anon. He and I are definitely on the same page. As a matter of fact, the last box I edited out was all about indicators. I think I should probably post again and point to Charlie's work -- with an updated version of the trader development model.



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