People often ask me what makes a great trader. I can really only answer this from my own perspective, because I believe trading is a very personal thing and different strategies and characteristics apply to different traders. First of all, I don't consider myself a great trader; I had some above-average success in the late 90's that led to my early retirement around age 30. However, the market conditions in which I traded no longer exist (and probably never will again) and the strategy I employed would be a sure loser in current market conditions.
So answering what makes a great trader becomes less about specific strategies and more about characteristics. I came across this article yesterday and thought it summed it up nicely. It presents the 9 characteristics of great traders.
The first characteristic is an absolute must for any long-term success. 10,000 hours. That's what it takes. The article says that's ten years experience at 4 hours per day. I took a different tack. I worked 18-hour days for about 5 years. I could not have enjoyed the success I did if it weren't for a total commitment to trading. This mean that if I wasn't at work trading, I was at home analyzing trades or studying new trading methods. The last two years I was trading, I took one week-long vacation to Tahiti and one 4-day weekend in Whistler, Canada. The whole rest of the time I ate, breathed, and slept trading. It was a horrible way to live, but it paid off in the end.
The other bit of great advice is to be like a machine. The better you are at divorcing your emotions from trading, the better your results will be. I can't tell you how many times I watched otherwise decent traders lose control and blow themselves up. It's like watching someone go on tilt when you're playing poker. When this happens to you, you need to take some time away from trading (2 or 3 sessions, or until you feel sure you've regained your composure). Emotions will kill you in this game.
Obviously, for those more inclined toward quant trading, tools are of the utmost importance. Make sure you're using the best available and that you're not ignoring obvious signals because you have a hunch they might be wrong. The tools are there for a reason and, trust me, they're right a hell of a lot more often than you are.
Any active traders have anything they'd add to this list?
I think being smart enough to know you dont know shit and dumb enough to run into a wall hard enough everyday not to kill yourself.
What about being able to learn from traders around you (ie strategies, morale support, P/L monitoring, etc.). How much of trading at that level benefits from the value added from other people on the floor?
I understand that trading can be an a very individual game, but am just curious about all the other functions that might facilitate or even accelerate P/L.
So morale was awesome because everyone knew how to have a good time, but from a trading standpoint, most of my colleagues were pretty clueless and just followed the company line. There was great energy, but no one ever came to me with a truly fresh idea.
Plus the guys I worked with were really risk-averse, which is great if you plan on being a trader for the rest of your life, but if you're trying to make a big score and get the fuck out, risk aversion is poison.
You say risk aversion is poison? Isn't this whole financial debacle centered around people throwing risk out the window and dumping the consequences on the firm? Obviously in some cases in works out for the better (yours) but what about when it doesn't.... But like you said, it was a different time back then as well.
One thing I have learned from FXTrading is to not try and hit a home run with my trades. If the market gives me 100 pips in a couple hours, I'll take it. I lost a lot of money going for the big one.
You have to be able to focus. If you can't stare at a computer screen for quite a few hours in-a-row, how are you going to trade? Or remember your positions? Or know what's happening in the market?
Aside from that, you can't be too proud. You're going to be wrong sometimes, and you're going to need the discipline to cut your positions.
Sometimes, though, you need the balls to make a call that other people dislike. In the end, you're the decision-maker, and saying 'everyone else thought it was a good idea' is not a good reason for making a call. You can't always be a follower to generate real alpha. Otherwise, you're just tracking beta. And if you're outperforming the market by doing so, you're just leveraging up your risk (which will cause you to 'blow up' in the long-run).
On a side note, someone needs to kick Alistair Darling in the nuts. Hard.
.......
Trading - Becoming a good trader (Originally Posted: 07/30/2007)
There seems to be lots of posts about prop trading/becoming prop trader/getting into trading/or what is the best shop on the street etc. All rubbish.... For all the kids who want to trade: -if you want to be a prop trader because of the potential big bonus you are in it for the wrong reasons -if you think working at the best shop will make you a great trader you are wrong -if you think that because you went to ivy school and have 4.0 you will be a great trader you are wrong -if you think there is one best trading system that makes money day after day you are wrong Figure out what trading is all about and then come back with some intelligent questions. Enough said. Cheers
Buy low sell high.
then please elaborate on your arguments since you know ALL about trading.
What would you like to know? Cheers
These all seem quite obvious, no?
i mean these are just a bunch of "so what?" statements .
so my question is, so what should i be if i want to do trading?
Did you answer yes to any of these "so what" statements? What should you be? There is no rigid type of person you have to be to trade. There are certain personal characteristics a good trader has...if you are serious about trading you should know if you have them or not. Cheers.
Apparently, one of these characteristics is "sounding like a complete prick." Thank you for your wonderful insight.
Oh no, some of my punctuation might be off... I wonder if Luke is a part of Grammar Police, too.
the world is relative, not absolute.
for example.
of course there's not a best system, however, there are bad systems. so the question obviously lies in whether the firm I would be working with has a solid system or a failing system.
so before you make derogatory remarks about other people's ignorance, please enlighten us with your "intelligent" insights.
Again what would you like to know? Instead of being defensive ask some intelligent questions... Cheers
tell me about your background
With attitude like this all you can be is somebody's runner on the floor...I am still waiting for something intelligent to hear Cheers
Luke, how'd you pick your product?
I worked in fx options now doing commodities options. Cheers
i understand that trading is not stock picking. That being said, what should I do in college to help me to enter the workforce ahead of the pack? Are there any quality simulations out there? And how can I get to know which products I may like over others?
DJ why do you want to trade?
Hey Luke, I will be starting in commodities trading soon, not sure what product though. Curious as to your take of the oppurtunities in oil, natural gas, and power. Oil seems more interesting to me because of its global nature, but seems like there is significantly less oppurtunity (i.e., a lot less money to be made) in oil compared to power.
I have a few more questions but hopefully we can start with this one...
Whats the likelihood of someone moving from the sales side of FX to FX options trading?
I saw a trader on tv when I was in high school and I decided that I wanted to try it. I asked my dad about trading and he didn't know anything so I did some research on what trading was and I opened a fx paper trading account. I had a lot of fun and decided that I may want to do it as a career.
Hi luke,
I did a short stint with FX options as an intern and am looking out for opportunities for a crossover to commodities. Any advice since you've been on both sides? thanks!
Junior, If you want to trade because the money factor save yourself the trouble and do something else. I cannot over emphasize you should never go into trading because you want to get rich. It will be a short lived affair. If you are a good trader you can trade jars of mayo and make decent money, product doesn't really make a difference.
Pillz, Lear the mkt, learn the contract specs, learn the strategies, learn the mkt dynamics, learn as much as you can. Enjoy. Cheers
What made you want to move away from FX options?
ah, thanks a lot. am already doing that :) Personally which do you prefer?
Is an MBA the way to break in to Trading ? I think the skills / qualities outlined above can be developed at B School
generally, a quant role involves programming (NOT VBA, we're talking matlab, C++, java). on the derivatives and fixed income side, it will also include knowledge of various theories like the ones you mentioned, along with simulation methods like monte carlo.
you don't have to be a quant to trade IRS, but many people that trade IRS are quants or have quant-like skills. there are probably also lots of people out there that have no formal training and don't know anything about programming and make a killing trading swaps based on fundamental research and gut feeling etc.
the answer to the question of 'Is an MBA the way to break in to Trading?" is yes and no.
yes: a GOOD MBA from a top-tier institution will get your foot in the door with regards to recruiting at big banks and some trading firms. a couple schools (wharton, columbia, chicago, nyu stern, mit?) place emphasis on this aspect of finance and firms will hire from these schools for trading roles. another set of schools (harvard, stanford) are extremely prestigious, and having an MBA from these schools will basically allow you to pick your job.
there are also lots of successful traders that have an MBA and having an alumni contact can always help you get your foot in the door.
no: much of trading these days is highly quantitative and requires advanced computer skills that are not taught in MBA programs. most of an MBA program has absolutely no relevance to trading. big banks and other trading firms will not care about an MBA from any but a select few institutions.
bottom line: from the right school, it helps and almost certainly cannot hurt. the real key to breaking into trading (at least at big banks) is to go to a target for your undergraduate degree and major in a quantitative / hard science program (math, engineering, comp sci, etc). if you went to a shit school and majored in film studies for undergrad, good luck!
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