What follows is PART ONE of a three part interview with Dr. Doug Hirschhorn, author of the book 8 Ways to Great, frequent CNBC contributor, and well known peak performance coach, whose clients include many top traders at hedge funds and banks around the world. The topics discussed will include the following:
PART 1
The most important factor in a trader’s success.
Why top traders seek the benefits of coaching.
Are top traders born or made?
Trading is the hardest way to make great money.
Are female traders better than their male counterparts?
The role of fear and fear?
PART 2
Thinking in probabilities: Probability + Payout = EDGE
Risk vs. Reward.
The average winning percentage for top traders.
Process trading explained.
A great baseball analogy.
PART 3
Proper goal setting.
The C.H.A.M.P. Process.
Accountability.
8 Steps to successful journaling.
Treating the trading game as a business.
The best books to read.
Four differences between sports and trading.
The primary goal of 8 Ways to Great.
PART 1
CHT: Welcome, Dr. Doug. I appreciate you finding the time to meet with us today.
DH: My pleasure. Thank you for having me.
CHT: As a trading coach to many of the top traders in the world, what do you think is the most important factor of their success?
DH: The single thing I found that differentiates those guys from the rest of the pack is they actually have a very high level of self-awareness, which means they understand how they are hardwired as human beings. They have been able to develop a trading style that matches up with their personality and then they only make trades when the market is paying that style.
CHT: Can you explain why top traders need coaching? Because that does sound funny, that a top trader would need coaching; and can you share some of the areas they most need help with?
DH: The top traders, like elite performers in any field, look at the game in terms of absolute performance. Meaning, they want to literally be the best they can possibly be in whatever it is that they are doing. So these are like the people that get a 95 on a test and they want to get a 99 or 100; for the simple reason that there are 5 more points to get. What happens in the performance pyramid is that when you are lower on that curve, improving is actually easier. But as you go up the ladder, and get higher and higher, it takes a lot more effort, a lot more focused energy to actually get that incremental little bit of improvement. So what these top performers do, is they retain me to hold them accountable and push them to that next level of performance. Now in trading, what that often means is I help them think about their decisions in a more deliberate way so that they are able to get bigger in trades that they wouldn’t normally get bigger in. I get them to push their comfort zones and stretch outside those comfort zones. So it’s not a matter of saying, well that guy makes a lot of money, so why would he want to get better? For them, it’s not about the money. It’s more about wanting to be the best they can possibly be. Stretching their comfort zones and getting bigger in trades is one way that I help them do that.
CHT: Awesome. Do you think, then, that anyone can be successful at trading, or are some people just born to do it? The nature versus nurture argument.
DH: 100%, I believe anybody can be successful. Now the degree of success varies, but if success means profitable, then I do believe anybody can do it. I do quite a bit of speaking at a lot of the Trader conferences across the country. I do it as an opportunity for me to give back to the industry and meet with some people that I wouldn’t normally have the opportunity to interaction with. What I try to help them understand is that while my clients may run multimillion dollar hedge funds and be super successful at what they do, on a fundamental level, they are not necessarily smarter than the average person. They’re not any more gifted, they weren’t born with any special, remarkable talent. What they’ve done is, they’ve just learned to identify areas that they need to compartmentalize and then figured out how to exploit areas of their success so they can be more profitable. When I break the elements down on what differentiates mediocrity from greatness in trading, it actually comes down to having better risk management and thinking in terms of probabilities and not emotions. Most people don’t realize it but trading is a game where the average winning percentage on any given trade, is about 50% across the board for traders at all levels of success. A lot of people mistakenly think that you have to be right more often than wrong in order to be successful, but it really isn’t about that. It’s about how much money do you make when you are right versus how much money do you lose when you are wrong. That’s what separates mediocrity from greatness in trading. Anyone can can learn how to think more objectively and gain more self-awareness so they can manage risk better and develop a trading style that’s more conducive to profitability given their personality and the type of market they are in.
CHT: Do you think beginning traders enter the trading game with false expectations due to all the get-rich-quick schemes that are promoted in various media outlets? If so, how can these false expectations affect their initial chances of success?
DH: I do think a lot of people go into the trading world thinking that this will be an easy way to make a lot of money. There is a saying that I have embraced over the years which is “Trading is the hardest way to make great money.” What makes trading so psychologically tempting is that the barrier to entry is minimal. You can open an account within minutes, and then you can actually push a button and start trading seconds after that. For this reason, I think people get caught up in treating trading more like a hobby than like a business. When I interact with people who are struggling in their trading, I’ll ask them, what career they had before they started trading. Some people were managers, successful business owners, teachers, lawyers, accountants, engineers, you name it, I have heard it all. I then ask them how they became successful in their previous career and they tell me things like, “I had game plans. I did my research. I took smart, calculated risks. I was patient.” That is my point exactly. If people treated trading the same way they treated their other income producing careers, then they would increase their likelihood of being successful at it. Not a single person has ever told me that they opened a new business on day one and turned a profit on day two so why would they expect it to be any different in trading? The reason, as I mentioned before, is because the barrier to entry in trading is minimal and that gives trading the psychological illusion of being “easy.” That’s a very frustrating concept for people, but they have to accept that even though on the surface it seems simple (the market goes up, down or sideways and you can push a button to get involved), they have to respect the fact that it does take a large degree of patience, discipline, and understanding about the nuances of how to be successful in the trading world. But once again, if it’s done the right way, and with a process that’s put in place based on the persons’ unique personality, I do believe anybody can achieve success at a trading career.
CHT: Great. The next question has been controversial, but I’m going to ask it anyway. I’ve heard you mention numerous times on CNBC and other media, that you believe women are hardwired to be more successful at trading than men. Why do you believe this to be true?
DH: It’s funny, I’ve been talking about this for years and here is the story behind it. About 10 years ago, I was employed in-house with a trading firm, and they had over 1,000 proprietary traders across the country, 30 of whom were women. So the gender breakdown was 3% of the firm were women and 97% of the firm were men. This alone was not a big surprise in the trading world. What was remarkable was that out of the top 50 traders in the firm 5 of them were women. What meant was that 16% of the women in the firm were among the top 50 producers compared to only 4% of the men at the firm. No matter how you look at it, that is statistically compelling. Well, then a couple of years passed, and I was working with traders at many hedge funds and banks, and I began to get more specific about what issues really got in the way of a traders’ performance? And what were some of the key elements that contributed to success? What I realized was, a lot of the coaching I was doing involved having to deconstruct or compartmentalize stereotypical, male oriented traits like aggression, stubbornness, lack of self-awareness, ego and pride so the traders could perform at higher levels. On the other hand, the things that I was adding to their skills set to help them improve their performance were stereotypical female oriented traits like openness to self-awareness, being able to examine issues from a variety of perspectives, acceptance of flaws and weaknesses and welcoming mistakes and errors as learning opportunities. In general, those are things that women tend to be more open and receptive to. It reminded me of when I was doing my doctorate in sports psychology at West Virginia University, and I’d work with men and women’s teams. There was a clear difference between having a group of men in a room and asking them to talk about their fears and anxieties compared to asking women athletes to do the same. The men weren’t interested in doing that at all. It took months to get them to break down the male ego barriers, whereas the women’s teams, within minutes, were sharing information, learning from each other, growing and not viewing it as a sign of weakness. Men and women are just hardwired differently. For example, when a man is driving a car, (and let’s assume he doesn’t have his GPS) if he gets lost, he’s not willing to stop and ask for directions. For some reason, most men view this as a sign of weakness or inadequacy; whereas women, have no problem stopping and asking for help. They actually think it would be stupid not to stop and ask for help. The collection of my experiences and observations over the past decade have convinced me that women are hardwired to be more successful than men in trading.
I am currently working closely with some large world banks to develop their women into being traders, because I believe if you start with a better foundation, you can decrease the time it takes to be successful. Now that doesn’t mean that men are destined for failure in trading. I am not saying that at all. What I am simply saying is that we shouldn’t assume men are better traders just because more men are traders. I think there are some elements that women come to the table with that makes it easier to build on, and in the performance enhancement world, it is easier to start from a strong foundation and build something up than it is to deconstruct something and build from scratch. I think trading has always been a male dominated occupation because at it’s early stages trading was only done on a trading floor which was a very aggressive and physical environment better suited for men than women. What’s happened in the past two decades, as we’ve all seen, is that trading is now electronic. It’s a level playing field. You can be 80 years old. You can be 13 years old. You can be a man or a woman. It doesn’t really matter because we all have access to pretty much the same information and resources, so now successful trading is about having someone understand their edge (competitive advantage), establish game plans, execute them consistently and manage the risk along with way. In my opinion, the traditional male trader mentality of “go big or go home” is not the path to greatness.
CHT: You’ve been known to say also, that the markets are not driven by fear and greed but rather by fear and fear. What do you mean by that?
DH: I remember the first time I made this statement, I was actually at CNBC, and I was doing a video blog. I made the statement, and the whole news desk looked at me like I was crazy. They’re like, what are you talking about? The doc has lost his mind. That goes against everything we’ve ever heard of or talked about in the market. And then I started to explain that it’s really not fear and greed that move the markets, it’s actually, if you think about it, fear and fear that move markets. That’s because traders are either afraid of missing out on opportunities, which is what causes markets to go up because traders start to chase the prices, or they’re afraid of losing money, which causes the markets to go down because they’re trying to scramble to cover losses. So fear is the core driver, it’s not fear and greed, it’s actually fear on both sides that moves the markets both up and down.
Make sure you come back for PART 2 to be released tomorrow, August 18 and PART 3 Thursday, August 19.
DISCLAIMER: There has not been and will not be any exchange of compensation for this interview. Dr. Hirschhorn is kind enough to share his knowledge with those who might benefit; therefore, the value is to be determined by its recipients.
