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FX traders seek coaching in battle for dominance

by on September 30, 2012 8:03 am GMT
 

Sun Sep 30, 2012 4:03am EDT

* Coaching for traders thriving despite cutbacks

* Electronic trading has increased stress levels

* Self-confidence seen as key to trading success

By Nia Williams

LONDON, Sept 30 (Reuters) – In the take-no-prisoners world
of foreign exchange dealing, asking traders to look inside
themselves and confront their inner demons may seem a forlorn
endeavour.

Yet some banks are turning to performance coaches to give
their traders an edge in the battle to make money in the $4.5
trillion dollar a day FX market.

This soft skills approach contrasts with the popular
stereotype of FX traders hurling prices — and abuse — at each
other across the dealing room floor.

But while some dismiss techniques to develop a “clear-headed
space” in which to trade as touchy-feely gimmickry, many are
keen to embrace any tactic to outwit other market participants,
whether human or machine.

“I talk about performance enhancement rather than
psychology. It makes it a bit more approachable for guys who
have still got a bit too much testosterone and ego,” said trader
performance coach Steve Ward.

With trading margins squeezed and bank cutting jobs, former
physical education teacher and sports performance coach Ward had
expected business to dry up.

In fact, the last year has been one of his busiest ever.

Trained in techniques including stress management and
performance psychology, Ward also employs strategies underpinned
by cutting-edge neuroscience research. Some exercises are
focused on meditation to help develop attention and awareness.

Many financial market traders might baulk at such ideas and
Ward acknowledged that in the male-dominated environment of some
dealing rooms stigma may be attached to talking to a coach.

Steve Goldstein, who worked as a FX rates and fixed income
trader for 25 years at institutions including Credit Suisse and
Commerzbank before becoming a coach, agreed.

“People still use the term shrink. There are a lot of games
in trading rooms that people play amongst themselves and look
for signs of weakness,” he said.

Both Goldstein and Ward said many of their clients were
successful traders with 10 to 15 years experience who had lost
their way and needed to regain self-confidence.

WHAT MAKES A GREAT TRADER?

Most traders and coaches agreed the most important attribute
for making money in financial markets is self-confidence. Along
with discipline and a clear process, it can help traders run
profitable bets and cut quickly out of losses.

Without it traders may start second-guessing decisions,
doubting their instincts and over-reaching for trades, said
Graham Davidson, director of FX trading at National Australia
Bank. He had a period of coaching around six months ago after
slipping into bad habits that led to a 12- to 18-month “rough
patch”.

“We talked about all kinds of stuff. It was mostly
trading-centric but equally you have to be able to look inside
yourself and figure out what motivates you,” Davidson said.

“If you understand your subconscious and what the drivers of
your behaviour are you can become a better trader.”

A trader’s motivation could be to provide for his family,
achieve status or protect his position within the hierarchy of a
dealing desk. It may just be the satisfaction of being right.

Goldstein uses a questionnaire with new clients, including
questions such as ‘If you could stand back and watch yourself
trading – what advice do you think you would give yourself?’

He described the questionnaire, filled in during a 2-1/2
hour introductory session, as a debrief on all aspects of
trading — the psychology behind it, a trader’s personal demons,
strengths and weaknesses, and their edge.

Heads of trading at four investment banks told Reuters they
were either using coaches themselves or had heard of increasing
demand. Steve Ward said he estimated the number of dedicated
trading coaches had doubled since 2006.

“These guys are in demand,” said Hugh Killen, global head of
FX at Westpac in Sydney.

Even banks unwilling to use an external coach increasingly
recognise the benefit of supporting new recruits.

“It’s very 1980s to drop them in the deep end and tell them
to start quoting customers on day one. I have always taken an
active role in training grads from the moment they set foot on
the desk,” said Mark Johnson, global head of FX cash trading at
HSBC.

“Psychology is a huge factor in trading. If you address
traders’ individual needs then those traders will have a higher
performance, but I doubt that any external coach could quickly
recognise these frailties without an awful lot of background
from us.”

TOUGH TIMES, NEW TACTICS

A new pressure on traders — and a reason some cite for the
increased use of coaches — comes from the growth of hyper-fast
electronic trading.

In its latest survey, the Bank for International Settlements
said spot algorithmic trading — in which a computer determines
how orders are placed — rose to 45 percent of trade on the EBS
platform in 2010 from 2 percent in 2004.

More electronic trading means fewer traders, while
high-frequency algorithms can identify money-making
opportunities and execute trades faster than a human can spot
the prices.

“A lot of traders are struggling to compete against the
boxes,” said John Coates, a Cambridge University neuroscientist
and former trader with Goldman Sachs and Deutsche Bank.

But, in the battle between man and machines, there are signs
high-frequency trading is facing a backlash as banks and
regulators focus on the human touch.

“Our ability to generate gut feelings makes our body the
most sophisticated black box on the market. I have heard of
pretty big players pulling the plug on their boxes and putting
money back into humans,” Coates said.

But it may be some time before traders’ psychological
well-being is put on a par with their technical know-how.

Many traders remain hostile to the idea of discussing their
personal demons with a coach. A trader who admits needing help
and wants to talk about his mental state risks mockery.

This could be more true in London than New York, given the
UK’s traditional antipathy towards the idea of therapy.

As one London-based FX trader said when asked if he had ever
used a trading coach: “Nah, are you kidding? It just sounds all
namby pamby and American.”