Professional Trader Discipline and Trade Disposition
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What they found
The authors examined the complete trading records of 334 professional futures floor traders on the Chicago Mercantile Exchange in 1995, trading currencies, livestock, and other contracts. All traders held losing positions longer than winning ones, showing the disposition effect exists even among full-time professionals. But the degree varied a lot, and traders who held losers longest relative to winners (least disciplined) had the worst subsequent performance and were most likely to leave the business, while the most disciplined traders were the most successful. Discipline, measured this way, was a persistent trait.
What you can use
- Even professional futures traders held losers longer than winners, but the ones who did it least were the ones who survived and thrived.
- How quickly you cut losers relative to winners is a measurable statistic in your own records and it predicted professional success.
- Discipline was stable over time within a trader, so it is a trait you can measure and work on rather than a mood.
Caveats
One year of data from 1995 pit trading; the traders were market makers, so their holding periods were minutes. Discipline is inferred from holding times.
Tags: professional, disposition-effect, discipline, futures, floor-traders
Summaries are our own reading of the paper, not the authors' words. Educational only, not advice. Discuss it in Book Club.