Then learn how procedural memory works.
The day you realize trading success is about developing procedural memory, you will be on path to success.
Trading success is about developing expertise. When you try and develop expertise you train your procedural memory. Procedural memories are implicit memories. They allow us to lower cognitive load. They are learned intuitions.
Procedural memory is memory about how to do a process. It is stored in memory as one schema. A process containing say 32 steps is not stored in memory as 32 discrete step but as one sequence of step. When performing that task the brain efficiently recalls all those steps simultaneously so you can do the task effortlessly.
Procedural memory helps free up the brain to do other things. It frees the brain by reducing cognitive load. We have thousands of procedural memories developed over our lifetime. They make our life easy. For example take a simple skill like flossing your teeth, it is a procedural memory once you develop it you can perform it daily without thinking or while doing some other task without focusing on a step by step sequence.
Procedural memory also allows us to do vast number of day to day tasks. Imagine if you had to learn to drive everyday, or learn to walk everyday. Life would be impossible without well developed procedural memory. Same things happens in trading. As a trader you develop hundreds of procedural memories to make your trading effortless.
Most successful traders who survive the market for many years have developed a procedural memories specific to a style of trading or a setup.
They can instinctively trade those setups without thinking about individual processes or steps involved in that setup. They are not conscious of the steps.
A novice watching them trade many times do not understand their decisions. Many times they get out of a trade just before it hits a pothole or avoid certain trade that novice will take. Lot of it is instinct developed as a result of procedural memory development. It is like a driver instinctively hitting breaks at sign of something on the road.
For discretionary trading it is all about procedural memory development on a specific setup.
If your efforts at training procedural memory to trade a setup or style are successful then you will become efficient in trading that style.
Once you learn a setup it become relatively easy to develop procedural memory on related style or setup.
But it is difficult to develop procedural memory on another instrument or style. That is why you will see many successful traders focus on very narrow niche in the market.
Some focus on growth investing , some focus on value, some on options, some on futures, some on currencies.
Within that they focus on very niche setup. Some trade say growth stock as swing trades, some trade them as position trades. These two setups require distinct procedural memories.
Most successful traders learn by trial and error that sticking to their setup is best because when they do it the procedural memory automatically kicks in.
As against that novice traders are ambitious, they want to trade as many setups as possible. They don’t want to miss out on any style or instrument like option or futures. So they try and simultaneously develop procedural memory. That obviously leads to failure.
If we know that the key to discretionary trading success is procedural memory then why is it difficult to develop procedural memory?
To develop procedural memory you need highly structured environment.
When you learn to drive, it is done under structured environment. You learn it in stepwise manner under close supervision. There is someone sitting next to you closely supervising every step and also ensures you don’t get killed. Every month you will see some young kid getting killed in car accident, and the reason is largely to do with lack of well developed procedural memory and bravado.
As against that much of learning to trade on your own is unstructured and unsupervised process unless you join a trading firm or a Wall Street trading house or bank. You are your own instructor and you need to create your own structure and you need to give yourself correct feedback and you need to ensure you do not get killed by blowing up your account.
If you read the classic Wall Street books like How I made 2 million dollars in stock market by Darvas or Reminiscence of a Stock operator, you will see that much of the struggle depicted in those book is about trying to find a setup and a process and sticking to it. Once Darvas found his setup and developed a process it was easy. In Livermore case he went from setup to setup and from day trading to position trading before making big money.
As a novice trader if you understand the role of procedural memory in trading you would approach the task differently. You will set process goals as against monetary goals. You will focus on well developed setup idea with step by step instructions. You will try and find someone to supervise your process and ensure you do not get killed during the earning process. In most procedural memory development situation a apprentice model has shown to be most effective for learning.
When you attempt to develop procedural memory on your own, unless you are extremely motivated and driven (or the correct word according to psychologists is you have very high self efficacy beliefs) the task is difficult. That is why you will see few extremely motivated individuals make it in this field.
This is the reason most ordinary and less motivated traders fail before they can achieve profitability.
They blame markets or other things for it but in many cases the fault lies with failure to train procedural memory.
In order to develop procedural memory for any given time frame or style or set up first you need to start with well defined setup with clear step by step process led out with clear explanation for each step.
For example if you were to decide to trade a swing trade setup, you need clear well defined highly structured process that you can follow and master till you can do it on your own without supervision.
That kind of process requires time and effort. Within that process the external environment plays important role. You might decide to focus on a setup and then market might go in to correction offering you no opportunity to use your setup for some weeks or months. Can you sustain your motivation during that time.
If you look at procedural memory development situations outside of trading then you will see that all of them impose enormous structure.
Dancing or ice skating is one of the skills developed through procedural memory development. If you see the process used for training dancers you will see that it is highly structured and regimented. You are given specific skill to practice. There is close supervision of the practice. There is constant feedback loop.
Enormous hours are spent on practice before a performance is attempted. The learning happens primarily from repeated practice. It takes 10 to 15 years of rigorous practice before ballerinas are considered suitable for major performance.
What does the Bolshoi Ballet Academy in Moscow do. It takes young girls from all over Russia and trains them in to ballet using a extremely structured method called Vaganova Method. The effort involved in brutal and the instructors are very demanding. It takes anywhere between 10 to 15 years of training to become good ballerina.
How are surgeons trained. They start early in med school as apprentice, do simple procedures first under close supervision. For next 6 to 10 years they perform hundreds of procedures working under a highly skilled surgeon or group of surgeon. After 10 year or more of developing procedural memory they venture on their own. My brother is world renowned cardiac surgeon and I have seen very closely how they learn this art .
The ballet training, ice skating , heart or brain surgery or trading is primarily about developing implicit memory.
Implicit memories are unconscious memories. They are formed through automation.
Procedural memory is memory about skill.
In the case of a dancer or a surgeon the procedural memory challenge is about developing a complex skill which require enormous coordination of various muscles and activities.
Through repeated practice the skill becomes automatic and a procedural memory for it is developed. Same way a good trader primarily has developed procedural memory skills related to specific setup.
Developing procedural memory skills requires breaking down a skill in to process and then mastering those processes. S
impler skills are easy to master. For example riding a bike is easy skill to develop as procedural memory skills involved are relatively easy. The time taken to learn it is small.
But if you have to learn extremely complex skills and skills requiring use of multiple skills simultaneously then the training involved for it has to simulate those situations and also allow allow the learner to gain confidence in his own skills.
That is the basis for developing procedural memory skills for commandos. We can use same learning in trading by doing set up practice like we did in January series of posts or through the boot camps held every year.
US Army, Navy, and Air force have world's best training programs. If you study the history of training skills development in these institutions you will find that they were the first to recognize the concept of procedural memory.
If you read book on expertise development, you will see that vast amount of learning about expertise development process has happened through research on training armies. .
One of the best book on understanding expertise development, procedural memory and implicit learning is Development of Professional Expertise by K. Anders Ericsson
The book focuses on understanding how highly skilled professionals learn their skills.
Professionals such as medical doctors, airplane pilots, lawyers, and technical specialists find that some of their peers have reached high levels of achievement that are difficult to measure objectively.
In order to understand to what extent it is possible to learn from these expert performers for the purpose of helping others improve their performance, we first need to reproduce and measure this performance. The book delves into research in this field.
This book is designed to provide the first comprehensive overview of research on the acquisition and training of professional performance as measured by objective methods rather than by subjective ratings by supervisors.
The book is collection of articles. In those articles the world's foremost experts discuss methods for assessing the experts' knowledge and review our knowledge on how we can measure professional performance and design training environments that permit beginning and experienced professionals to develop and maintain their high levels of performance, using examples from a wide range of professional domains.
What does the US Army, Navy or Air force do. It takes raw recruits and through a extremely structured program it converts them into exceptionally skilled warriors. It helps them develop procedural memory through a highly disciplined and structured program. If you want to understand how this is done watch the video Navy Seals Buds Class 234 Discovery Channel
If your objective is to become elite trader the training process would be similar.
The only difference is you have to structure your own training and develop your own training material and then have the discipline to train yourself.
Along the way there will be several setbacks and ability to persist under those circumstances is critical. Besides that you should survive the self training phase without blowing your account (which very few would do).
That is the enormity of the task involved in becoming a successful trader. Which most novice have no idea about. They set goals like to make 500 dollars per day without having a process to do that. Or they spend time developing a trading plan which does not take into account the time required for developing procedural memory. Or they look for shortcuts.
Behind every successful self learned trader you will find similar story of extreme efforts and extreme frustration and then slowly discovery of profitable method. Unfortunately most people will not tell you that.
The Stockbee Advanced Bootcamp will give you an insight into the process. As many of the traders attending it have been practising their skills and craft for many years before gaining enough confidence to do this for living.
If you want to become good at trading keep the essence of procedural memory development in your mind everyday :
- structured environment
- supervised practice
- extensive practice
When you try to develop procedural memory on your own, you are your own supervisor, mentor, instructor, motivator and so on. Besides that you are developing your own syllabus. As against that in any structured environment they have studied procedural memory skills required for the job and have template to develop such skills in others.
That is the big challenge for trader who tries to learn trading on his own. And it is also the reason for high failure rate. What can trader do to survive such learning process and become successful:
Understand that learning to trade is about developing expertise. And specifically it is about training procedural memory.
Understand that procedural memory is task specific. So specializing in a setup is extremely critical.
Once you select a setup then you develop procedural memory specific to that setup. A trader who is good at trading say momentum stocks on 3-10 days has developed a procedural memory specific to that setup.
Understand that selecting your trading time frame is critical. If you want to be day trader the kind of procedural memory development you will need is very different from if you decide to be swing trader.
Understand that less number of setups you focus on better it is.
The entire logic behind the procedural memory development process is that it allows you to overcome cognitive load.
The more setups you try and trade simultaneously more is cognitive load. When your short term memory gets overloaded you tend to make mistake and get frustrated.
First master one setup then you will find mastering other setup easier.
Understand that there are no secrets in this business. The real secret is your ability to develop procedural memory.
Procedural memory can only be developed through "How to " kind of knowledge. If someone gives you a secret way to put stops as a software plugin. It is perfectly useless. Because it does not allow you to develop your own procedural memory skill.
Similarly someone gives you 3 picks daily and does not tell you in significant detail how that person actually arrived at those picks, what scans he used, what software he uses, what analytical methods he used to arrive at those 3 picks from 100 other stocks meeting same conditions , you will learn nothing. It will not help you in anyway to develop procedural memory.
Understand that many profitable traders are not conscious of how they develop their own trading skill and how procedural memory work. in fact most would not have even heard of procedural memory unless they had background in psychology or are involved in training.
That is why instead of asking a trader how and what he does, it is better to meet them face to face and observe what they do. Procedural memory is best developed through face to face interactions as it allows you to clarify process and completes feedback loop.
Understand that profitable traders can not verbalize the process they follow. Procedural memories are implicit memories they can not be easily verbalized. A person who possess a skill in particular kind of trading may not be aware of steps he or she is following.
Psychologist and those who study procedural memory use special techniques to build procedural maps to understand such skills. Often you will read a interview or watch an interview of famous trader and you will see that the person does not tell you much about his process. Often they give you generalities , why because they are not aware of their own procedural skills.
So if you ask the most prolific day trader on the Timeline about his trading , it is unlikely he can help you much because so much of his skill is implicit. He or she knows how to do it , but can not verbalize how they do it. It is not possible for every skilled trader to verbalise their process. There are many gaps in their explanation and actual process.
Understand that once you develop procedural memory it is on autopilot and it is lifetime skill. Once you learn a process it tends to become part of you as long as you keep using it. That is why learning to trade can be your best retirement strategy. You will see some old traders on Stockbee site who are trading into their 70’s
Understand that procedural memory is not developed through hard work. There are many hardworking traders but they do not necessarily make lot of money. Why because they may not be having right procedural memory. In fact once you develop procedural memory you don't really need to work hard. that is the essential role of procedural memory.
If you want to be successful rader there is one thing you can do today and that is to narrow your focus to very small setup idea and develop procedural memory about it.