Quote from jcl:
Thanks, this gives me some stuff to look into. At a first glance though, they seem not to have statistics on newbie traders.
Kahneman did research in the 1990s about the performance of professional traders, using data he got from trading firms he consulted. He found that top traders achieved an average annual return of 3% over market. More remarkably, the correlation coefficient between the yearly performances of individual traders was zero. No trader was found who consistently performed above average. This seems to suggest that a "trading talent" does not exist. Kahnemans suggestion to the trading firms was to remove the bonus system, as it had no effect on trader performance.
SSRN has thousands of papers on trading, although obviously if you are looking for something very specific, it might not be available.
If you want to look at a slightly different approach to analyzing trader performance and performance drivers, you can look at this paper
http://www.pnas.org/content/106/2/623.full
The findings suggest that short-term trading talent is innate and a result of hormonal influences on the ability to "read" the market. I like this because I generally believe that biology pretty much determines everything in this life.
This paper tackles the "luck vs. skill" question over the longer term and concludes that the empirical data don't support the "luck" hypothesis.
http://www.lmcm.com/868299.pdf
Frankly, I think anyone still thinking trading is luck is living in the past.
The main reason that I say this is because I've come to the conclusion that trading is best thought of as process analysis. The market is a machine for creating fluctuations. Those fluctuations unfold according to a specific process. The process has some practical limitations, but is ultimately very flexible. The ability to analyze and document processes is most definitely a skill, not luck. Therefore, the trader who can most accurately and comprehensively document the market's fluctuation process must be the most skillful trader.
I use the example of Elliott Wave as an example of skill in analyzing and documenting the fluctuation process. This is not because I believe that Elliott Wave is the correct analysis of the process, but because it gives an indication of the form a correct analysis would take. I have found (and corrected) 4 fundamental errors in Elliott Wave and created a "superset" of wave theory at a much more generic level. This new variation of wave theory has enabled me to identify over 50 logical (not visual, this is not "pattern recognition"; one of Elliott's fundamental errors was the emphasis he placed on the visual) structures which are present in any market. There is one logical structure which is actually "illogical", which I call my "wildcard" structure. Because its logic is unclear, I avoid it. But the key point is that I can identify it. I've basically turned everything the market does into one giant algorithm for generating trade signals. Elliott Wave could be considered a "subset" of my theory, so I've actually inverted the relationship between the earlier theory and my own.
Each logical structure has a expectancy associated with its corresponding trade trigger. Some expectancies are positive and some are negative. I take the trade triggers with positive expectancies and avoid the ones with negative expectancy. Interestingly, there are more negative than positive expectancies, which means that I spend less time in the market than out of it. Which is fine by me because I want my time in the market to be as efficient as possible.
As a result of all this, I can tell you at any given minute whether you should be long, short, flat or (and this is where my strategy differs from most) waiting for a negative expectancy trade to play out in order to take the next positive expectancy trade, in a given market and what your odds would be in that trade. I can tell you to the minute and the tick what needs to happen in any given situation in order for a trade to trigger. What I can't tell you is whether a trade will trigger or not. That's for the market to decide, not me.
Now, I've either built the trading world's largest monument to being "fooled by randomness" or I have some level of skill in analyzing the market's fluctuations. I like to think it's the latter.
At least I think you'd have to agree that the way I've approached trading makes it possible to consider it a skill vs. just trying to get lucky.
