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Traits of the Successful Trader

  
  Education
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1. Find the plays that make the most sense to you.

Build from your unique personality.  Some traders will make a career of momentum trading, killing anything that is moving.  They could care less about a balance sheet or even the actual full name of the symbols they trade.   They just want to play and are damn good at it.   Some will find this intellectually suffocating.  They will want to trade all the markets, reading as much about as many longer term opportunities as possible.  This fits their inner need to learn, think, and grow intellectually.  Both are totally acceptable save if the momo trader is forced to trade macro plays.

2. Spend as much time trading, thinking about trading and talking about trading as you can possible stand.

The past years have gifted us a treasure of research on elite performance which provides a clear path for our success.  Time at our craft, experience, practice, reps gained determining plays are the road to successful trading.  Put down Boring New Book About Some New System You Do Not Understand and start reading The Talent Code, Bounce, Talent is Overrated, Mindset, Drive, Outliers, The Art of Learning.

3. Find a GREAT mentor.

And I do not mean necessarily at a trading firm.  Before Dr. Steenbarger went off-line and joined one of the great hedge funds of our time, I peppered him with questions.  Phil Mickelson, considered one of our greatest golfers ever, has three coaches watching his game.  Peyton Manning has a head coach, offensive coordinator, quarterback coach, and father providing him feedback.   There is little evidence of elite performers reaching their potential without high level coaching.

Five surprising lessons from a career on Stock Market

  
  Education
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1) Deep thought: Surprisingly few people rolled up their sleeves and thought deeply about why things in market are the way the are. What causes markets to go up and down? Why do things blow up? Why do most investors under-perform markets? Lots of myths and urban legends, not nearly as much quantitative evidence.

If you get really deep about it and study the data, there are some rules to learn. To succeed in markets, one needs to become a philosopher-mathematician.

2) Long-Term Greedy: Too many people went for the easy money, but that was never what motivated me. It was more about intellectual curiosity and honing ones craft, and less about the quick hit. I made less money compared to many of my peers, but I kept more of it and never blew up.

The phrase “long-term greedy” was coined by former Goldman Sachs director Gus Levy many years ago. You can make (lots of) money over time, but only by serving clients’ interests. Its amazing to me that view is so far out of fashion today.

3) Hard Work: There is no other field where a person of average skills and intelligence who is willing to put their head down and work hard can makes 100s of thousands or even millions of dollars a year — but only if they are diligent and patient and willing to put in the hours. (more…)

Hard Realities for Traders

  
  Education
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* If you don’t save a good portion of your earnings in successful years of trading, you won’t last during the less successful years;

* If you don’t have a solid nest egg of savings to support you while you’re learning trading, you won’t survive your learning curve;

* Everyone has a passion for trading; if you don’t have a passion for learning to trade, take a pass on financial markets and find the field of endeavor that offers intrinsic reward;

* If you’re living for your trading, you won’t make it trading for a living. Other things need to sustain you in the lean times, particularly the things that are more important than markets;

* The ratio of time spent working on your trading to time spent actually trading is predictive of long-term career success;

* In any performance field, the percentage of participants who can sustain a living from their craft is under 5%; always have a Plan B;

* No one can make you successful as a trader if you lack the requisite talents and skills; a mentor can, at best, help you make the most of the talents and skills you possess;

* Even if you are very successful as a trader, your annual income will be a fraction of your leveraged portfolio size;

* Your risk and reward will always be proportional: count on drawdowns of at least half of what you hope to make in markets;

* Psychology alone cannot make you a successful trader, but it can make you an unsuccessful one;

* Quiet markets reveal the best traders;

* Over time, your risk-adjusted returns are more valuable than your absolute returns;

* Trading is a business and, as such, must always adapt to changing market conditions;

* If you can’t make money consistently when paper trading, you won’t be successful when your capital is on the line;

* If someone promises you trading success, keep a close eye on your wallet.

DISCIPLINE & PASSION

  
  Education
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Discipline – Majority of traders are not disciplined in their approach, else they would not be failing. These failed traders simply hate to hear the word Discipline! As Jack Schwager points out in his book, ‘The New Market Wizards’, “Discipline was probably the most frequent word used by the exceptional traders that I interviewed. Often it was mentioned in an almost apologetic tone: ‘I know you’ve heard this a million times before, but believe me, it’s really important’.”
Discipline allows you to more effectively plan your work (trades) and work (trade) your plan. Discipline – “Habit of Obedience” – yes the keyword being habit, i.e. have a Trading Plan and make a habit of following it. The golden rule should be No Signal – No Trade.
Passion – We may spend a third of our life working, so you deserve to feel fulfilled in what you do, you do it because you love to do it! – Yes the monetary rewards are the by-product of your success in doing things you love to do.
How can you be naturally successful at something, continue to fine-tune your trading skills, seek the services of a mentor, and stomach the ups and downs of the business and if you don’t know WHY you’re doing it? As Michael Jordan once said, “If you have a love for the game, your talent will eventually catch up to you.” So if you do not have the love for trading, will you succeed?
To sum-up this Mental skill set PAIR (Discipline / Passion): You must be disciplined AND remain emotionally detached from the market.

Defination of Great Trader

  
  Education
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Great traders that we have had the pleasure to know and to be around, on exchange floors and on trade desks, had certain repeatable traits that all level traders can learn, or take something from;

  • Empathy and the ability to listen.
  • Faith in their own ability to get things done, if life and in work.
  • Humility, and a willingness to accept defeat as graciously as accepting success.
  • Desire to work towards, and not to just expect, having more success than defeat.

They listened more than they spoke. They had two ears and one mouth and had learned to use them in the right proportion. The ability to listen, either to a mentor, to your inner self, or to the market, is critical for success.

They had an undying faith and belief in their own ability, and accepted that most things that went wrong were probably outside of their control, because they planned their work. Their brutal honesty with themselves and with others allowed them to develop a faith in their own ability that was beyond the norm.

They were humble, and understood that they were not smarter, stronger, nor wiser than others; they just knew that there were few others that had more faith in their own ability to follow something through and to achieve their goals. (more…)

Learning to Trade from a Legend-Victor Niederhoffer

  
  Education
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Study horse racing books. The odds against winning at a parimutuel racetrack are overwhelming. Yet some touts have systems that produce a profit (against all odds). Can you apply any of these horse racing principles to your trading?

• Write down trading prices (by hand). There were a ton of computers in Victor’s trading room. Yet Victor made me do price analysis by hand. He felt there was enormous virtue about getting close and comfortable with trading figures.

• All markets are related. Learn what a move in bonds does to gold. And to S&P futures or the Japanese yen. Don’t trade markets in isolation

• Only make a trade when the odds are at least 60% in your favor.

• Don’t take losses to heart. I lost $20,000 on a Friday, the first day I traded real money for Victor. I wiped out my trading account. After stewing over my losses all weekend, I offered to resign and refund my losses. Victor refused my resignation and put $20,000 back in my trading account.

• Don’t take wins to heart. I remember making a lot of money following (I thought) Victor’s instructions while he was away. When Victor returned, he was not impressed by the fact the firm made money. He told me that I had traded erroneously and was lucky to have survived my trades.

• Be a mentor. Victor was generous with his time and advice. Despite the fact that several employees exploited his generosity, Victor continued to help new traders.

•  Get out when the trade is over. All trades have a beginning and end (based on time and price). Get out whether you’re winning or losing when the time or price has been met.

• Write down your moves. Learn from your mistakes.

• Learn concentration and game strategy from champions in other disciplines (such as ping-pong and checkers).

12 Trading Rules

  
  Education
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121. Loss of opportunity is preferable to loss of capital

2. Picking safe, readable, and ultimately high probability trades is the way to go

3. Use logical profit objectives for all positions. Know your exits and stick to them

4. Markets are squirrelly animals – make your trading plans ahead of the market

5. Don’t buy new highs or sell new lows – wait for the market to come to you. Buy retracements. If you miss the train, don’t beat yourself up – another one will come by shortly

6. Above all, follow your own trading plan and no one else’s

7. Trade quietly – with the exception of a mentor, tell no one about your positions, profits, or losses. This is especially true for those who are close to you, like your wife, husband, or friends. This self-gratification process or sharing process will put you under psychological pressure to win on every trade and can be a primary reason for failure to follow your plan

8. Don’t carry a sizeable position when traveling. The market will always catch you off guard at the most inopportune time

9. You are only one trade from humility. A swelled head does not belong on a trader’s shoulders

10. Add to your knowledge before attempting to add to your wallet. Newbie traders think they can become pros with little more than a computer and hope. In this business, hope is a four letter word. Show me a humble trader, and I’ll show you someone ready to learn

11. Develop your sense of humor – you’ll definitely need it

12. Help other traders whenever you can. This is more practical than philosophical – giving keeps the ego in line and when you need help, and you will, you’ll find it.

Three stages of trading objectives.

  
  Education
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To make money every trade. At first, I did not have the ability to make money every trade.  After I had the ability to make money on most trades I realized it was a horrible objective.  If you want to make money on every trade you are always waiting.  You can never take that much risk and hence the rewards are very small.  I was trading 1′s and 2′s to start, which was the right thing to do.  I would watch my mentor take every trade, no matter how dog shit it was.  As a 1 and 2 lot trader you do not have the same luxury to take dog shit trades because you can only trade one way.  Because of the flexibility he had he could do more and the truth is no matter how good or bad a trade looks we don’t know until we are in it. Getting the most out of a trade is the mark of good trader.  Risk is always related to reward.  There is very little money in making money on every trade.  This type of trading is like making 100k and keeping 80K

To make huge chunks of money.  After I realized that objective did not work for me I shifted to the extreme.  I started to swing for the fences whenever I had the ability.  It is nice when I was right but I struck out a lot too. At this point, I did not respect trading.  I did it because money made me a bad ass.  Well as you know you hard to pay your bills with bad ass.  This type of trading is like making 200k and keeping 80k.

Here are the major risks of having both of those objectives.  The first is making small amounts of money no matter the situation.  Eventually you will get in a hole because statistically you are behind.  Trading every situation the same is bad.  The second objective is trying to make huge amounts of money on every trade.  If the first trades were the best and I stopped it was great.  If the first trades were bad, I was forced to stop.  It made it hard to learn.

Defining A Great Trader

  
  Education
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Great traders that we have had the pleasure to know and to be around, on exchange floors and on trade desks, had certain repeatable traits that all level traders can learn, or take something from;

  • Empathy and the ability to listen.
  • Faith in their own ability to get things done, if life and in work.
  • Humility, and a willingness to accept defeat as graciously as accepting success.
  • Desire to work towards, and not to just expect, having more success than defeat.

They listened more than they spoke. They had two ears and one mouth and had learned to use them in the right proportion. The ability to listen, either to a mentor, to your inner self, or to the market, is critical for success.

They had an undying faith and belief in their own ability, and accepted that most things that went wrong were probably outside of their control, because they planned their work. Their brutal honesty with themselves and with others allowed them to develop a faith in their own ability that was beyond the norm.

They were humble, and understood that they were not smarter, stronger, nor wiser than others; they just knew that there were few others that had more faith in their own ability to follow something through and to achieve their goals. (more…)

G. C. Selden Trading Psychology – Hunches And Gut Feelings

  
  Education
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Recently most traders probably have spent a great deal of time managing risk and emotions. I know I have. When it comes to correctly gauging and dealing with emotions it is paramount to analyze your reactions in a detached way. The best way to get objective insight is to imagine taking a step back and then ‘watching yourself.’ It’s as if you were your own mentor or trading coach. This is not an easy task. Good results require emotional detachment, a lot of experience and the ability to honestly assess the degree of trading proficiency you have attained. Ultimately it will tell you what those gut feelings you are occasionally experiencing really are worth. That’s exactly what G.C. Selden addresses at the end of his classic trading book : ‘Psychology of the Stock Market’ which was first published in 1912. Here’s an excerpt dealing with ‘hunches and gut feelings.’ Lots of additional and valuable insight for traders is provided. Enjoy!

 

An exaggerated example of “getting a notion” is seen in the so-called “hunch.” This term appears to mean, when it means anything, a sort of sudden welling up of instinct so strong as to induce the trader to follow it regardless of reason. In many cases, the “hunch” is nothing more than a strong impulse.

Almost any business man will say at times, “I have a feeling that we ought not to do this,” or “Somehow I don’t like that proposition,” without being able to explain clearly the grounds for his opposition. Likewise the “hunch” of a man who has watched the stock market for half a lifetime may not be without value. In such a case it doubtless represents an accumulation of small indications, each so trifling or so evasive that the trader cannot clearly marshal and review them even in his own mind. (more…)

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