Want to be a Trader? 11 thoughts to get you started

Mod Note: Lone Wolf is the newest addition to our contributing author team. He is an independent trader/consultant, and has held several different trading positions including floor trader, liability and proprietary trader as well as Head liability trader and market maker. This spans 17 plus years in all of Canada's major financial hubs.

In the old days, on a regular basis, we used to receive internet touts on pink sheet (should be called brown sheet) "companies". Spammers would regale us with tales of quick riches, amazing opportunity and boundless moves higher in said stock followed by in one case: you know what that means. your (sic) the tader.

Of course being a "tader" you know exactly what this means: this asshole obviously can't spell.

The beginning of a trading career often started with some interesting story about some guy not showing up for work, and it was busy, and you were in the gallery….and you got the job. This was common practice on the old trading floors. You never thought much about what it was all about because let's be honest, a trading floor is exhilarating.

Today the path to trading is much different. Access is easy and wide. Trading costs are low. Information is plentiful and opportunities around the world are accessible. So if you want to become a trader, what can you do?


1) First off, you need to determine if you actually have the stomach for this.

It's a hard business with huge physiological and psychological demands. There are few activities outside of sports that will teach you more about yourself in such a ruthless and intensive way. A couple of minor online trades will help you understand a little about your reaction. If you feel sick making a transaction or indecisive and fearing loss, this part of the business might not be for you.


2) Reading a few books can be insightful and give you some background.

I would highly recommend Brett Steenbarger: The Daily Trading Coach. This one book can help you to see some of what's involved and get you going on the right track early. I would also get 2 recent books: Thinking Fast and Slow by Kahneman and The Hour Between Dog and Wolf by Coates. The latter being one of the best books I have ever read relating to the mind and physiological experiences under stress. The former will help you understand your natural loss aversion and decision making processes under normal circumstances and under duress. One additional book: The Talent Code by Coyle may provide additional useful insights into performance and intensive learning.


3) Paper trading works for some people, but in general it has little impact on your real risk and reward response.

A small account that allows you to test your ideas in real time with real money will be much more useful


4) Don't quit your day job.

Unless you are exceptionally wealthy or have another source of income, you will want to work at mastering this craft. It is unwise to leave the security of some income to pursue a career that has many periods where you won't make money or have losses. When you start out you should expect a long period of training and thought before you start trying to ramp up your operations.


5) Pattern recognition is an important part of this business.

This is a system 1 activity based on Kahnemans excellent book. Your intuition is trained over a multitude of hours and years. You will need a great deal of exposure to charts, news and patterns. The paradox to this is: not too much, because overload can be counterproductive. See: The Talent Code for intensive learning techniques to help you plan your course.


6) Do you join a firm or DIY?

That depends. The advantage of the firm is capital, contacts, information and exposure. These are huge. A decade ago a firm was the only way to get most of these. Today, you can trade at home using your own money with direct access and inexpensive fast execution. This execution was very limited at one time. However it will be very important which firm you join and what your deal looks like. A trading oriented firm with a wide array of product exposure will offer you a number of opportunities to find your niche. A well structured deal will allow you to grow and develop. On your own there is maximum freedom and room for experimentation and growth. However, without structure and discipline, countless hours and valuable feedback will be lost or misallocated. Being on your own is a less forgiving and lonely pursuit, but it's doable in today's world.


7) The Deal.

This is a very important consideration in any trading arrangement. First, you should pursue a multifaceted compensation arrangement. That means: salary or base, personal performance comp and group comp. This multi-tiered approach would be my ultimate package. Your base should be enough to pay your bills so that you are not encumbered by the psychological pressures of making everyday payments. These pressures can engender poor decisions, loss aversion, reluctance to take risk, or sometimes the opposite. Either extreme will hamper development and create bad habits. Personal performance rewards you for moving forward and group performance rewards you for your contribution to a team even if your specific personal number isn't great. This will happen from time to time.


8) Mechanism for Advancement.

Throughout Canada the Prop trading arrangements (amongst the very few that remain) are changing but the old standard is 50/50 costs off the top. Some guys also pay for their equipment. This deal was the gold standard in the 1990's combining access, capital, knowledge and exposure. As the market and the business have evolved, this deal has become an albatross. Typically your capital is limited. Your account is likely reset to 0 each month. You will have no coaching or development.

You will likely be paid only based on what you make: so no profits after costs means no income. And often accounts are margin based, meaning you cannot utilize short sales to offset absolute capital. In other words you are operating like a sophisticated client. Why is this important? If your deal does not allow you to advance: increasing capital, coaching to develop your skillset, account growth and expansion of capital use and products….you will have a very difficult time advancing as a trader. Any deal that exploits you without a benefit that is clear to discern should be avoided. In other words you must determine what the mechanism for advancement is. The deal in the current environment is more important than ever.


9) A Trading Desk.

If you can get a job on a trading desk, particularly institutional in a large firm, you will get a lot of excellent feedback. These desks provide room for juniors to develop and experiment…and I'm not talking exclusively about getting lunch and coffee skills. Being exposed to large institutional orders and clients is a long term advantage for a budding young trading professional. These orders move markets and the managers that generate them can demonstrate the thought process involved.


10) Chart and Fundamentals.

The opinion on these ebbs and flows amongst the community. You will find many trading types that succeed using either method or using both. There is no right or wrong answer. However, your capital position and time horizon may have a bigger impact on which of these tools you choose to use. Longer time frames and larger capital bases tend to benefit from a more fundamental approach, where the charting seems to be more useful in shorter time frame lower capital based trading activity.


11) Quants.

I am not well versed in this area other than my reading and observation. Quantitative studies can provide valuable insights into trading decisions. Currently this area seems to be dominant, but like most things in the market I expect this to ebb and flow as well. If you have math and programming skills, I would be looking closely here. There will be no downside to getting some exposure to this area.

Hopefully this primer will give you some food for thought. Remember; if you want to succeed as a "tader", make sure you can spell it….and avoid brown Sheet stocks like the plague.

Comments (21)

 
Mar 22, 2013 - 2:02pm

This reminds me of an article I read a long time ago based on *Madoff* below is a passage of the article:

""He said Mr. Madoff also warned him off of day trading. "I was trying to get into day trading and he's like, 'That's not for you. That's for individuals like me with millions to spare,' " he said. "

 
Mar 22, 2013 - 4:50pm

Tepara:
This reminds me of an article I read a long time ago based on *Madoff* below is a passage of the article:

""He said Mr. Madoff also warned him off of day trading. "I was trying to get into day trading and he's like, 'That's not for you. That's for individuals like me with millions to spare,' " he said. "

I believe one of Madoffs issues was that he didn't actually do any transactions.

 
Oct 11, 2020 - 8:12pm

Tepara

This reminds me of an article I read a long time ago based on *Madoff* below is a passage of the article:

""He said Mr. Madoff also warned him off of day trading. "I was trying to get into day trading and he's like, 'That's not for you. That's for individuals like me with millions to spare,' " he said. "

-------------------------------------

trading with https://3commas.io/blog/what-are-oracles

The really important and necessary for every person wanted to be the trade information. I think, these facts are too important to find data on them. Together with the complexity to do so. That is the reason why people are looking for the possibility to make sure in them.

 
Mar 22, 2013 - 2:50pm

Hey Lone Wolf, write this yourself or from somewhere? Either way, great read and extra points if it was self wrote!

"I am not sure who this 'Anonymous' person is - one thing is for certain, they have been one hell of a prolific writer" - Anonymous
 
Mar 22, 2013 - 4:48pm

I'm a front-office quantitative trader at a quant and macro-oriented hedge fund, and from my view-point (the quant world), most of what the OP writes is basically bullshit. It is *impossible* for any human being through their "experience" and the development of their "intuition" to *consistently* outwit the models and algorithms I and my cohorts in the quantitative finance industry develop every day.

Prop shop trading is a dying industry and the business model is flawed. Basically they recruit a bunch of mediocre people (people who think "a lot" is spelled "allot", for example), put them all in a room, and let them trade like a few thousand dollars. Now *statistically* some people will earn a lot of money, and some will lose. The only problem with the prop shops is they think they people who earned money are skilled, when really they're just lucky. Take two mediocre people recently recruited to work at a prop shop - one longs AAPL, the other shorts. Someone is going to be right.

I will give OP some kudos for talking about having the "stomach" for the job, but basically as long as you're not a pussy it shouldn't be that big of a deal. Also almost nobody works on exchange "floors" anymore.

 
Mar 22, 2013 - 5:29pm

STIBOR:
I'm a front-office quantitative trader at a quant and macro-oriented hedge fund, and from my view-point (the quant world), most of what the OP writes is basically bullshit. It is *impossible* for any human being through their "experience" and the development of their "intuition" to *consistently* outwit the models and algorithms I and my cohorts in the quantitative finance industry develop every day.

Prop shop trading is a dying industry and the business model is flawed. Basically they recruit a bunch of mediocre people (people who think "a lot" is spelled "allot", for example), put them all in a room, and let them trade like a few thousand dollars. Now *statistically* some people will earn a lot of money, and some will lose. The only problem with the prop shops is they think they people who earned money are skilled, when really they're just lucky. Take two mediocre people recently recruited to work at a prop shop - one longs AAPL, the other shorts. Someone is going to be right.

I will give OP some kudos for talking about having the "stomach" for the job, but basically as long as you're not a pussy it shouldn't be that big of a deal. Also almost nobody works on exchange "floors" anymore.

Thanks for your input.

I agree that trading in the algorithmic environment has vastly changed the playing field and while these skills are not enough on their own they are helpful; and yes a quant aspect to any equity trading today has some clear advantages.

The prop model, as it has been run at many firms (precisely as you describe) is flawed and dying I agree.

Mediocre people: yes, some definitely, (and there are some in every facet of the business) but there are a number of talented individuals who have operated through many market cycles. Markets change, and so do the skills required to operate in them.

Thanks for pointing out the spelling error. Sometimes that auto correct algo in the software gets away from me.

I wasn't at an exclusive prop shop but within a firm, and I can confirm the "bull market for brains" aphorism. Those guys blew up when things went south and were gone in one short cycle.

Have you written something here yet? I would be interested in hearing more from your point of view.

 
Mar 22, 2013 - 5:46pm

STIBOR:
I'm a front-office quantitative trader at a quant and macro-oriented hedge fund, and from my view-point (the quant world), most of what the OP writes is basically bullshit. It is *impossible* for any human being through their "experience" and the development of their "intuition" to *consistently* outwit the models and algorithms I and my cohorts in the quantitative finance industry develop every day..

Any advice on getting a trading gig w/o programming knowledge but with an academic background in stats/quantitative methods/etc.?

I'm getting sick of finance and being in my mid-20s I feel like my window for trading is closing. I know I would have to start as a junior trader or even in ops and don't think I would be a good candidate to do that type of work if I reach my late 20s. I'm also not looking to pursue a quantitative PH D to be a 35-yr old intern at firms such as D.E. Shaw.

Any realistic market out there?

 
Best Response
Mar 22, 2013 - 7:05pm

mb666:
STIBOR:
I'm a front-office quantitative trader at a quant and macro-oriented hedge fund, and from my view-point (the quant world), most of what the OP writes is basically bullshit. It is *impossible* for any human being through their "experience" and the development of their "intuition" to *consistently* outwit the models and algorithms I and my cohorts in the quantitative finance industry develop every day..

Any advice on getting a trading gig w/o programming knowledge but with an academic background in stats/quantitative methods/etc.?

I'm getting sick of finance and being in my mid-20s I feel like my window for trading is closing. I know I would have to start as a junior trader or even in ops and don't think I would be a good candidate to do that type of work if I reach my late 20s. I'm also not looking to pursue a quantitative PH D to be a 35-yr old intern at firms such as D.E. Shaw.

Any realistic market out there?


From my perspective there are basically 3 big styles of trading right now that together employ the most peeps:

1. What I do, which is fully automated/algorithmic, buy-side trading on behalf of a decent/sophisticated hedge fund. It typically requires a strong math education (or strong math book-reading abilities, which is basically the camp I'm in), and - yes - programming (C++ for production, python/matlab for backtesting and analysis).

2. Sell-side OTC/algorithmic execution only. Basically you are my sales contact at a big-ass bank. I do not value you, unless you know something about an exotic credit derivative that I do not.

3. Buy-side execution-only. This shit is MONOTONOUS AS FUCK, involves lots of mouse clicking and manual data entry, and is a slowly dying career (as me and my cohorts in group #1 above slowly make all of these people unnecessary burdens on society). It basically involves a good hair style, usually a strong/decent undergrad school (which I don't have, by the way), and good bullshitting abilities. Expect to be unemployed in T+3 (years).

Honestly, for you, from a strategic perspective, I would NOT be targeting "trading". Lots of other ways to make it rain without putting yourself through the nonsense described above.....

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