My wife and I have suddenly become addicted to My Kitchen Rules and MasterChef Australia. Naturally, this has us constantly thinking about the cooking world and perhaps visiting Australia to partake of the outstanding food found there! I read a really good article on Usability from Dr. Jakob Nielsen’s Alertbox and couldn’t help notice the cooking analogy he used. I hope Dr Nielsen forgives the similarities and direct quotes from his article, but it occurred to me that trading options has a similar analogy.
Trading Options is like cooking dinner:
- Traders need the outcome: Just as you need to eat, traders need to make money. Just as a chef improves their cooking with learning, traders can be more profitable if their trading has been improved through learning
- Any trader can perform the most basic trades: Most anyone can fry a burger, boil an egg or buy stock and write a covered call against it.
- Any trader can learn these basics pretty fast: They are not difficult concepts.
- There is a level of excellence past the basics: Going to Alain Ducasse’s Le Louis XV in Paris and ordering the gourmet menu for 310 Euro (per person) is vastly different than eating something you cooked yourself at home in 30-minutes. Similarly, a trading professional can give you insights and guidance to help improve your trading that are much deeper than you’d get from a non-professional trader.
- Skill levels form a continuum from novice to expert; it’s not a dichotomy. Anytime you learn something new, your performance improves. Trading and cooking are particularly suited for continuing training as everything you learn will remain useful for years and years. This is why ongoing training is essential: your trading performance improves with every piece of information you learn.
Dr. Nielsen continues the cooking analogy further. I’ll quote his article and change the usability references to trading references in green.
- Although multi-star gourmet restaurants are wonderful, there's also a place in the world for modest neighborhood restaurants. Similarly, you should sometimes hire a second-tier trading education firm or even a third-tier local trading group instead of bringing in a world-class trading educator. Reading forums, attending occasional seminars from different sources broadens your horizons.
- Even if you can afford it, you shouldn't eat out every day. Your waistline benefits from getting more modest meals most of the week. Similarly, it's good for your trading if many day-to-day trading activities are performed by the traders themselves. The more trading guidelines you know, the fewer trading mistakes you'll make.
- Variety is the spice of life. Mexican, Indian, Chinese, Japanese, Italian, French. All great cuisines. Why pick only one? Similarly, combining many trading methods — such as user technical analysis, fundamental analysis, guru newsletters, books, blogs, financial web sites — offers insights into trading system design and optimal execution. Experienced traders have a very rich toolbox that goes beyond the simpler methods that anyone can use after a few days' training. Experts learn their craft over years of constantly improving themselves.
- Sometimes it's nice to have others do the work. Much as I love Indian food, I never cook it. Too much work to mix and roast the spices. And I don't have a tandoor oven. The people who specialize in these things can do it faster and already have the right tool for the job. Some traders outsource their trading with auto-trading or investing in funds to do the work for them.
- There's value to being an outsider who's not restrained by your personal set of rules or “the way things are usually done.” In cooking, sometimes you want the chicken done differently than your grandmother's sacred recipe demands. In trading, the person who takes a fresh view can see new things.
As Dr. Nielsen says, it's really a matter of balance. Experts do add value to your trading. Experts will likely have better trading results than you have. You should take responsibility for improving your trading. Anybody can trade. The basics are simple enough.
I hope Dr. Nielsen forgives the flagrant use of his article, but the comparison was too good to ignore.
Thanks Tom, great post.
“Your trading performance improves with every piece of information you learn.”
Danger lies within. The more you learn about baking a good muffin the worse it can become. The more you learn and read about indicators, numerous different strategies the worse your trading can become. Sometimes it is best to stick with a good old muffin recepie and leave it alone.