Tuesday, February 28, 2012

The Kirk Report

The Kirk Report

Study & Practice

Posted: 28 Feb 2012 12:49 PM PST

Study & Practice

Here is a question recently received from a member…

Q:  I am a new trader with roughly nine months of experience. I work full-time and trading for me is very much a part-time hobby. For the past few months and since becoming a member, I have been devoted an average of one hour per day toward learning how to trade using both your site and a trading simulator. In your opinion, how should I properly prioritize my time between reading and learning (via your strategy reports, notebook, chart shows, recommended links and books, etc.) versus actual practicing (time spent on simulator) to gain the skills I need as quickly as possible? While I’m making very good progress as my results in my simulated trading are seeing steady and significant improvement, I would like to know your thoughts and whether you have any recommended rules of thumb to share with me.

A:  I must start by congratulating you on a number of things including the fact that you devote as much time and effort as you do, that you already understand the difference between learning and practicing to acquire trading skills, and that you’re using simulated practice trading at this stage of your early learning curve before putting real capital in play. I cannot praise you enough for the approach you have adopted especially during this early-stage of your learning curve. So, great job!

It has been my experience, both personally and in my mentoring of other traders, that skill development in trading comes primarily from experience. While you can spend hours and hours reading and studying terrific books, magazines, blogs, tweets, and so forth, if you are not also then taking what you learn from those and actively applying them in real live market situations, then you are not doing what is necessary to get the experience you need. Trading successfully, unfortunately, is not a skill you can acquire by being a passive learner.

As a rule of thumb – for every hour of study, you should be practicing at least the same amount. Those who I have personally mentored on average when we start out working together have shown that for every hour of practice, they typically spend about five times that same amount in study. That’s far too much unless you are just starting out and know almost nothing about how the markets operate.

Unquestionably, at the very beginning you’ll certainly have to be devote a lot of study time than those with any level of experience, but the faster you ramp up the time and effort devoted to real practice the better off you will be. In fact, at first you won’t even really understand how to apply what you learn through books, blogs, etc. because you haven’t previously gained the experiences that put those lessons into proper context. For example, I can stress the importance of risk management to new traders and weighing technical setups in terms of probability analysis, but until they’ve been taken to the woodshed for a real beat down in the market, they won’t have a clue to its significance. This is why both practice and study must occur simultaneously.

Through my mentoring, I also often have a unique perspective in this same regard as I track and watch their progress very closely. For example, I have a member now in my mentorship group, Eric, who averages over 80 simulated trades every single week. Another member, Timothy, who has similar amount of experience and skills to date with Eric in comparison only makes an average of 3 trades per week. Which one do you think will go through the learning curve more quickly and develop more skills?

Of course, it will be Bob providing that he also finds time to dedicate an equal amount of concentrated focus figuring out why certain trades worked well and which ones did not and why. This is why you must engage in what is called “concentrated practice,” not just trading around randomly (a problem often seen in those who use simulators versus real capital in practice). So, on both accounts, there needs to be an equal balance here between both study and practice. Both must be present in equal amounts for proper skill development.

Finally, once you acquired the skills and knowledge to produce profitable results in simulation, then you must move quickly into trading with real capital. As you will soon discover, while trading simulators will help you build skills rapidly at first, you won’t really know whether your strategies can actually work until you put real capital in play. A lot of methods look terrific on paper, but in practice they don’t work because emotion and stress becomes part of the equation. And as you’ll later learn, that’s really the most challenging part of trading once you have acquired basic skills and knowledge to trade well.