Explaining Market Success - Explaining Market Success Brett...

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Explaining Market Success Brett N. Steenbarger, Ph.D. www.brettsteenbarger.com Numerous books have been written on the topic of trading success. Nevertheless, it is unclear how expert traders obtain their expertise. Several explanatory models are implicit in market writings: 1) The psychological model – What makes great traders, this model asserts, is self- mastery. Great traders don’t necessarily possess better trading methods or secrets, but apply common wisdom more consistently, with less emotional interference, and therefore with better risk management. Developing trading expertise is a function of developing oneself in this model. 2) The scientific model – What makes great traders according to this model is superior research. Markets exhibit cause-effect relationships, and these relationships shift over time. The role of research is to uncover these patterns and capitalize upon them. Such a model is, in a sense, the opposite of the psychological model. It hypothesizes that, once you discover inefficiencies in the marketplace, these can be incorporated into mechanical systems that eliminate any troublesome human elements from trading. 3) The hidden pattern model – Success in the marketplace, this model emphasizes, is a function of understanding. Patterns exist in the marketplace that do not shift over time, but also that are not necessarily observable on the surface. The role of the great trader is to successfully decipher and apply these universal patterns. This is not so much a function of research as experience; such approaches to
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This note was uploaded on 08/11/2009 for the course FINANCE Fixed Inco taught by Professor Proflim during the Three '09 term at University of Adelaide.

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Explaining Market Success - Explaining Market Success Brett...

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