Monday, October 5, 2009

Trader Development Stage Model – Version 2.0

I was delighted to see the positive response to my draft trader development stage model, which I rolled out last Tuesday in a post with the unlikely title of Draft Trader Development Stage Model and put immediately to work in an option context in The Trader Development Stage Model and the Jump from Stocks to Options. Clearly this framework resonated with quite a few traders, from beginner to advanced.

With my penchant for not knowing when to leave something alone, I thought it might be helpful to expand upon the simplified version of the original trader stage development model and introduce a second version.

The graphic below adds only two new boxes (Technical Analysis and Strategy Management) to the original stage development model, but also adds some explanatory notes, labels for clarification (Issues, Theme and Unit of Focus) and further identifies each of the three stages with what I call Unit of Focus, but can also be interpreted as a Level of Abstraction or something similar.

As was the case the first time around, I am not going to spend too much time adding interpretive commentary other than to note that the two-way arrows represent tension between issues that are closely linked, sometimes because they compete with each other and other times because they are complementary. Also, while I never spelled it out the last time around, the background colors are meant to represent when the trader is likely losing money, breaking even and finally making a profit.

There is the potential to take this trader stage development model and get much more specific with it, use it as a diagnostic, etc. For now, the current level of detail is probably appropriate for most future applications I anticipate in this space.

As this is a mental model that is highly subjective, I would be glad to field to any feedback, criticisms, suggested enhancements, etc.

For more on the trader stage development model, readers are encouraged to check out:

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