Have You Peaked?

Are you getting better at investing? Find out how to challenge your status quo and improve your investment process.
Ryan Hysmith
Sep 27, 2021
6 min read
Have You Peaked?

Have you peaked?

I’m not talking about your strategy’s performance or your skill at market timing. I’m talking about your pace of improvement. Are you getting better at investing?

Anders Ericsson and Robert Pool’s Peak: Secrets from the New Science of Expertise is packed with wisdom. I couldn’t help but apply many of the book’s early insights to the world of trading. The book got me thinking about my personal growth, being intentional, and the process of improvement. 

Have you thought about growth and improvement recently? How long have you been approaching the markets the same way without adding tools to your toolbox? 

For many of us, we work fervently at the onset of the trading journey, learning new skills constantly. As time passes, our progress slows and is replaced by routine. 

I’d like to challenge the status quo.

“The amateur pianist who took half a dozen years of lessons when he was a teenager but who for the past thirty years has been playing the same set of songs in exactly the same way over and over again may have accumulated ten thousand hours of ‘practice’ during that time, but he is no better at playing the piano then he was thirty years ago. Indeed, he’s probably gotten worse” (p. 18).

Sound familiar?

Maybe you are happy with your results. Maybe you aren’t, but you haven’t done anything to improve your processes. You don’t have to settle for using the same tools in the same way forever and ever with your progress flatlining. 

When was the last time you pushed yourself to learn an entirely new investing skillset?

Have you looked longingly at the mathematical concepts behind options pricing and wanted to know how it all works? Have you wondered how a better understanding of technical analysis could broaden your perspective? Do you hear people talk about Kelly criterion or position sizing techniques and want to know more?

Now is the time to dig in and learn something new. 

What is purposeful practice? 

Purposeful practice has well-defined, specific goals, is focused, involves feedback, and requires getting out of your comfort zone. 

“Get outside your comfort zone but do it in a focused way, with clear goals, a plan for reaching those goals, and a way to monitor your progress. Oh, and figure out a way to maintain your motivation” (p. 22). 

Passion for trading and the financial freedom on the other side of profitability are potent motivators. A rising equity curve and improving performance metrics show progress. However, motivation in trading and the desire to succeed don’t equal trading success.

Focused practice with clear goals may seem more difficult to pinpoint in trading than improving your time in a 5K race, but traders (knowledge workers) can implement similar strategies as performance athletes to improve their performance. 

Finding the End of Your Comfort Zone

If you don't push yourself beyond your comfort zone, you will never improve. So how do you determine the bounds of your comfort zone and then attack it?

“Getting out of your comfort zone means trying to do something that you couldn’t do before” (p. 19). If you don’t know where the end of your comfort zone is, you probably haven’t pushed yourself recently. 

The end of your comfort zone is different for a thought exercise like trading compared to a physical exercise, like running a mile. Yes, purposeful practice looks different for different fields.

There are similarities, but the structure and body of knowledge for different fields require different deliberate practice applications. Development for an options trader is different than development for a runner. Development for an options trader is also different than the development of a chess player.

Traders need to approach the market with both consistency and curiosity.

Consistency through repeatable processes gives you a roadmap and allows you to track performance.  Many of us have consistency down pat. 

Curiosity looks like experimentation, searching for a new edge, and practicing new skills. I don’t believe finding the end of your comfort zone necessarily means adding more risk to positions or your portfolio. Instead, finding the end of your comfort zone could be an intellectual exercise of deliberate study and exploration of a new topic. 

Peak describes “purposeful practice” as a way to grow and push beyond the comfort zone. Exercise your intellectual curiosity. You don’t want to be like the piano player performing the same music in the same way for thirty years, do you?

Growth chart

Putting It into Practice

What does purposeful, deliberate practice look like in practice?

“Deliberate practice is purposeful practice that knows where it is going and how to get there” (p. 98). James Clear’s The Beginner’s Guide to Deliberate Practice provides a template for deliberate practice. “Deliberate practice always follows the same pattern: break the overall process down into parts, identify your weaknesses, test new strategies for each section, and then integrate your learning into the overall process.”   

Let’s consider an actionable example of purposeful practice for options trading that could be replicated to another trading discipline.

Consider a hypothetical options trader name Ryan. Ryan wants to learn more about hedging his options portfolio. He knows there are lots of options (pun intended) for hedging his portfolio. He’s so overwhelmed by all the different options that he fails to hedge at all. Tired of his own complacency, he set out on a structured, intentional practice for improving his portfolio protection.

First, Ryan identified his goal. He wanted to learn three different strategies for hedging his options portfolio to protect against market declines of more than 10%. He reviewed his historical performance during market downturns to establish a baseline and determine the extent of his strategy’s exposure.

Then, he identified resources on the subject. He purchased three books on portfolio hedging and printed several online articles on the subject. He decided to study three hours a week until he had read all the material he gathered, taking notes along the way. When he finished reading, he would summarize his findings and pick the approach that made the most sense to him. 

Finally, Ryan would explain his findings to two friends (mentors) he respected and get their feedback before incorporating the hedging strategy into his investment approach.

Ryan’s approach may not be perfect. But, he followed a systematic approach. He broke down the process, set goals for his pace of completion, and sought feedback.

To summarize:

  • Have a reason for why you are reading or listening. 
  • Develop a progression through your practice plan.
  • Measure your progress. 
  • Find a mentor. Work with someone at a higher level than yourself. 
  • Channel what made you successful in another domain.

Pick any improvement goal you want. Maybe you want to better understand the drivers of your historical performance. Study price charts of winners and losers and review past trades to guide your performance.

This type of review develops a mental model of your trading and allows you to monitor and judge your performance and better identify opportunities.

Trading with consistency helps you develop better recognition of opportunities because you develop mental models for identifying high-probability setups.

Conclusion

“The brain, like the body, changes most quickly in that sweet spot where it is pushed outside—but not too far outside its comfort zone” (p. 41). 

Isn’t that the same with our trading? Too much risk, too little flexibility, too much time in our comfort zone pulls us away from our performance goals. Tackle that topic you’ve always wanted to study. Take a class. Watch a course. Join a group. Explore. But do it in an intentional, purposeful way.

Treat improvement as importantly as you treat the process. Track your results, and don’t let your progress peak. 

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