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May 3, 2013  Fri 2:45 AM CT

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"Talent" is a tricky term in the world of trading. Are the best traders talented or just lucky, or both?

It is clear to see talent when watching the best tennis players, skiers, or violinists. But you would be hard-pressed to tell if a trader is one of the best in the world or a relative newbie simply by looking at him or her. You might not even be able to tell by looking at the trader's profit-and-loss statement at the end of the day or, for that matter, the end of the month.

This is why Daniel Coyle's books, "The Talent Code" and "The Little Book of Talent," don't fit neatly in the trading world. That said, I highly recommend both to everyone. If you are a teacher, coach, or parent or just someone who wants to get better at any skill, then these books are must-reads.

TalentCode.pngI fall into each of those categories, but of course I am here to discuss trading. And while the ideas are not a perfect fit in my mind--trading is not a skill like shooting a basketball--there are some pertinent takeaways from Coyle's writings.

The author discusses a premise that he calls "deep practice"--focused practice on the edge of one's ability that involves small failure but pushes us overcome weaknesses. This type of practice is typically not fun and often not pretty, but the eventual outcome is. "The Talent Code" gives examples of the world's best--like Wayne Gretzky--falling down and "looking stupid."

The problem with this idea in trading is that failure and struggle involve losing money. So on top of the normal ego-preservation, a host of emotions are compounded by financial losses. This is one reason that practicing with "paper trading" can be beneficial, especially in options, which have so many moving parts.

LittleBook.pngMost of us do not trade in public. We are the only ones who see our profits and losses. For that reason, along with our biases and emotional underpinnings, it is easy not to get the type of feedback that is helpful.

A key component of deep practice and the acquisition of talent is quick and critical feedback. There are very few trading coaches out there, so it likely falls on you to be your own critical teacher.

That is one of the reasons that a trade journal is so useful, as we have recommended many times. Most of us have bad habits in our trading that persist because we aren't faced with the type of critical outside feedback that would help us stop.

I find that my best trading is that which I do in public. I write my reasons for getting into a trade, my reasons for getting out, and my thoughts about the trading environment. Knowing that someone might actually read what I write holds me to my stated principles and rules.  

This forces me to be more critical of my own thinking and trading. And, of course, there are also those external critics who don't hold back from giving me feedback as well--which is all part of the learning experience.
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