7/9/08

I have found wso to be in general very academic when it comes to trading, but also very quant based. The general theme is that more math = more money. Honestly I feel this is just not the case. Markets are nothing more than the average of all market participant beliefs at a given time. The market is never wrong, it is always right. That does not mean that significant risk adjusted returns cannot be achieved.

I pose this question to all of wso - What makes a good trader?

The most essential trait I feel that makes a good trader is someone that is consistent. Consistency really is key, sure there will be guys that have terrific years but then give it all back the next year. For the profitable traders they will fall somewhere in the extreme of great highs and lows. What creates consistency? Your ability to make decisions under extreme pressure and completely quell the anxiety. A good trader is one that is able to accept when they are wrong and move on to the next trade. Having a mental repitioure is crucial to building consistency.

The second most important trait is that you must come to truly accept the risks associated with trading. You must be willing to realize that any results from trading are the results that you created. Markets provide the ultimate freedom. In most cases (unless carrying extreme size) there is always a way to get in and out.

Third, there needs to be a positive attitude and belief system in place. Good traders believe they have earned their return and do not attribute it to luck.

Your ability to make decisions under extreme pressure and completely quell the anxiety. A good trader is one that is able to accept when they are wrong and move on to the next trade.

Comments (17)

7/9/08

Well, I think that it doesn't matter. As long as you are a cash-cow for the firm, and you get your huge bonus at the end of the year, it doesn't matter. Some people were born to trade, some weren't. People have certain qualities that make them awesome traders, whether it be intuition, luck, math or quant skills or something bizzare, as long as you make money, its all good. I, for one am an asian man who went to princeton, Im trading on a BB FICC, I would say Im good (I'm up 24% so far), but theres this guy I know, didnt go to an ivy, or graduated high school, for that matter, but he is a way better trader than me.

http://www.jasonbondpicks.com
7/9/08

q: what makes a good trader?

a: knowing you are not that good.

7/9/08
wutangfinancial:

q: what makes a good trader?

a: knowing you are not that good.

Touche

7/28/08

Also knowing how to cut losses.

7/9/08

this bapebanker guy has been posting about how he went to princeton in many different threads. WE GET IT. You went to a target. so what. Many of us here went to the ivys. Nothing special.

7/9/08

errr...i think you guys are missing bapebanker's point, which is that it DOESN't matter whether or not he/you went to Princeton.

Summing up his post, he's saying that 1) some people were born to trade and 2) There's no specific set of qualities that makes a good trader. Some of them are good bc they are extremely good at math. Some are good bc they were born with the "instinct", etc.

7/9/08

"What the hell does your trading at BB FICC and went to a target have to do with what it takes to be a good trader?"

Dude, stop being a tool. Those two things have very much to do with being a good trader.

Target School - Means he received a top education from some of the world's top professors. Don't you think listening to Mankiw teach you macroeconomics then just reading a textbook, will give you a step up?

BB FICC - He is in the environment to learn from some of the best and brightest. He hs getting firsthand teachings from great traders. As well as access to large pools of capital and unique strategies and models.

If you seriously don't think that BBs and other top firms can not just get brains and make them great traders, you are mad jaded.

Furthermore he speaks that even with all his advantages, someone without these can still succeed and surpass him. That is his point, and he hit it bang on.

The traders I worked with said its all about discipline. Having the discipline to find that specialized niche strategy that works for you and sticking to it. Having the discipline to think ahead and change that strategy when you see it compromising. As well with what you said, having the discipline to never give it all back.

7/9/08

40% skill; 60% luck & risk taking

7/10/08

"In my opinion level of education matters little to nothing in being a sucessful trader. A certain level of formal education may be required yes, and certainly to get into good programs its mandatory. I do not think formal education gives anyone a leg up in trading no."

it depends entirerly on product. good spot fx trader might not be good structured traders and vice versa.

for the more structured products, some handle on the math is critical.

7/10/08

If you read Market Wizards, the series of books interviews top traders and they have some common threads. I think there is an element of pure talent that cannot be taught. Some people have an athletic type ability to feel out the market. Also, it is important to be very disciplined and stick to strategies and control emotion. I think good traders match their specific skills to what and how they trade.

www.sharpeinvesting.com

7/10/08

Market Wizards is probably the best trading book ever written. PERIOD.

"Oh - the ladies ever tell you that you look like a fucking optical illusion?"

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.

7/11/08

be the Big Swinging Dick....thats all it takes.

[*,...,*]

7/12/08

imho to add to that the top traders possess the ability to assimilate information from many sources to get a big picture.

7/13/08

I have edited this thread to get it back on topic because i really want to see what people think. Anyone that reads my posts know I have a strong opinion about formal education, your not goin to change my thoughts on it, and i wont change yours.

I pose the question again, what makes a good trader?

"Oh - the ladies ever tell you that you look like a fucking optical illusion?"

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.

7/20/08

Your post sounds like a summary of your interpretation of market wizards. I'm going to go out on a limb and say that you don't trade. I stopped reading your post at the line "Markets provide the ultimate freedom... " because it was too cheezy and pseudo-philosophical.

The problem with the question is that this board sees "Trading" as a single pursuit. As Jimbo pointed out, you need different skills depending on your product and your desk. It doesn't sound like most people even differentiate prop vs. flow, where the personalities and skills required are usually quite different even for the same product.

If you want to sit at a computer screen watching FX or equities tick up and down and try to whip your trades around to catch some momentum, more power to you. I wouldn't give you my money. Maybe that's what they have kids doing at those prop shops, I'm not sure, but most legit operations have better ways to make money. Most deep liquid markets are already watched so heavily by people with experience, fundy hedge funds, technical/quant hedge funds, that they are fairly efficient short term.

Desks that make money consistently have some specific value added that allows them to do this.

On the flow side that's usually straight forward, you take the bid/offer while minimizing your risk. What's required of you is being connected enough to get market color, understanding enough about your product to not get run over when you take risk on, develop relationships with clients so you have people to take the bid/offer from, etc.

On the prop side it varies a lot more. You could have statisticians teasing out likely short-term moves in the FX markets. You may have ex-consultants/management specialized in an industry doing analysis on those companies. Could have bankers doing risk arb....In those situations a different skill set and knowledge base would be helpful.

In my experience on a structured products prop desk, what differentiates traders from most smart people is a deep understanding of risk and an intuitive feel for rich vs. cheap. Of course, it helps to understand the product and model and ultimately the trades put on are defensible through the analysis, but the quants who build the models don't necessarily have that "feel." What the feel brings is a second check when it is time to pull the trigger on a trade, you may opt out even though the model points you in one direction.

On the education side, my desk prefers mathy people. That said, its not the case that more math is always better. An intuitive understanding of multivar and calc based probability is probably enough. Explaining convexity and how an monte carlo OAS model works to someone without that background would be challenging. For other desks it may be totally unnecessary, a flow equity trader probably doesn't have much use for such things.

7/20/08

Inciteful post. A good look into the world of trading I dont see myself going into. No I dont trade yet (for an institution) but I do extensively trade my personal account. Market wizards IMHO is the greatest book on trading ever written without question and I really took to heart the teachings of what the people said, simply put I would not be sitting here typing this post or where I am today without it.

Are you implying that short term momentum trading is an inferior strategy, the way you talk about it and prop shops came off very condescending.

"Oh - the ladies ever tell you that you look like a fucking optical illusion?"

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.

7/24/08
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