When I was at school, they had a multiple choice assessment for all the kids when they reached the age of 13. It tested various skills and it’s aim was to give the students and their parents an idea of suitable careers they may wish to consider. At the time it was considered cutting edge and the ‘tests’ were viewed with trepidation for fear of being pigeon holed as a future chimney sweep, cobbler or window cleaner – no offence to any cobblers, cleaners or ‘sweeps that may be reading this.
One job above all others was seen as ‘the job’, it was as if getting this profession selected as a potential career was in itself a huge boost and step up the slippery ladder amongst ones peer group. Ridiculous but true.
When the results were published, there seemed to be a year group full of mostly lawyers, marine biologists (not sure how that one was triggered), teachers, explorers and a select few that hit the jackpot - ‘commodities traders’. Of course, at the time, being a trader was all red Porsches, cocktails and braces. Open outcry trading was still in existence and it wasn’t necessary to have a degree to become one of this new breed of confident, arrogant alpha males. Fortunes were made and lost and it seemed that all you needed was confidence and ‘chutzpah’. In the early 1990’s, it felt as though being a trader was the quickest and most exciting way to become very wealthy, very quickly. It helped that traders appeared to flaunt their wealth more than equally wealthy lawyers, consultants and bankers. In many ways, not a huge amount has changed, as successful traders can still earn huge amounts of money and compared to other professions, it can be done quite quickly.
There are many different types of trader. Some risk their own money and work from home, others risk their firm’s money and are rewarded with a split of any profit. Others work for banks or funds and receive a salary and bonus dependent on how well they have performed. Of course there are a myriad of products that can be traded and most traders tend to stick to one product until they have developed a mastery, or as close to a mastery as possible, of that particular product. It is rare that you find a trader that can trade several products equally well, even though the rules and skills are pretty similar.
Other traders are not traders at all. They are ‘account managers’. They are not really ‘account managers’ either. They are salesmen. I used to employ many of these type of ‘traders’ and their job was to build relationships with their clients and give advice on the markets when required. They never traded their own funds and the trade ideas mostly came from analysts. Of course, if you give advice on the stock market, you can legitimately claim to be a trader I guess, but it’s worth noting all the different types as some have lots of brains and others just have lots of chat.
Most people become traders because they wish to back their judgement against others and be rewarded handsomely when and if correct. The best paid traders will be those that deliver the biggest profits and those will be the traders with the biggest credit lines and best information, research and lowest fees. It will also be the luckiest ones, as all traders need lady luck smiling on them occasionally, I assure you.
I have met a handful of traders that claim they enjoyed the mental challenge of trading against others in the market, but most of all, I think they enjoyed the way they were able to keep score of how they were performing during the challenge and you keep score by counting your money. It all comes down to money in the end. You live or die by your decisions and results, there are no excuses or explanations required – the result is binary. You win or you lose. That is very appealing to people with personalities that don’t have a high tolerance for BS.
I see many training courses being marketed online and in print offering to ‘train people to trade and earn a fortune’ from the comfort of their own home. These courses claim they will reveal the ‘secrets’ of all successful traders and the courses tend to cost thousands rather than hundreds to attend once you have been lured into attending the first (free) session which is a series of hints and vague talk of these ‘secrets’.
Of course, there are no secrets and these courses and their marketing are cynical ways to take advantage of those most desperate to earn a good living. In fact, there are a handful of rules that every successful trader needs to stick to just to be in with a chance of making that fortune. I will share the most important ones now and they are simpler than you may expect.
Of course, in 2017, it’s less to do with personalities and chutzpah and chat have taken a back seat to technology and trading programs that execute thousands of trades in the blink of any eye. These trading algorithms are the present and the future, but if you can win more than you lose and keep your cool when others are losing theirs – you may still be able to make a fortune. But it won’t be easy.
What makes some traders consistent winners?
It is the million dollar question. Some claim to have a secret 'system' that consistently beats the odds, some have particular stocks or currencies they track religiously and know inside out. Some pay huge amounts for fancy trading software and tipping services and other trust the trading decisions to robots, in short, there are many, many firms and products that claim to have the secret to consistent profits.
99% of the products and services in the market will end up costing you money. The mistakes I see most frequently are very simple and it may be worth noting them here so you know what to avoid.
1. Money Management
It is the most important issue every trader faces. It overrules every other consideration and that is why it is top of this list. If your trades are too large for the size of your account, you face making a lot of money but the real possibility of a few bad trades wiping you out. I suggest that you use around 5 to 10% of your total account balance for each trade, this gives you the chance to get it wrong and be able to 'fight another day'.
2. Let the trend be your friend
A very wealthy man once said that 'trying to call the bottom of the market is like trying to pinch pennies from in front of a steamroller'. If the market is flying up, it's because there are more buyers than sellers and it makes sense to be one of the buyers at this point, the key is to leave the party before it ends!
3. Decide what suits you best
If you like the adrenaline rush short term trading, focus on these markets. If they are too racy for you, perhaps you would prefer a longer term market. It's worth noting that many successful traders have a handful of longer term positions but often dip in and out of short term markets when opportunity presents itself.
4. Know your limits
Some people can lose £250,000 and take it in their stride, others are miserable when they lose £25.You should have an amount of money in your mind that you can afford to lose should things go against you, and stick to it. If you start making a profit, consider taking some of it back to cover your initial deposit perhaps? If you can afford to risk £2500, trade with £2500. If you can risk £100,000, use £100,000.
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James Sanders is a London based trader and investor. He founded the UK’s largest independent derivatives broker in 2001 and left the City in 2009.