Sunday, 1 February 2015

Quote for the day

“Keep an investment diary and re-read it from time to time but particularly at moments when there is tremendous exuberance and also panic. We are in a very emotional business, and any wisdom we can extract from our own experience is very valuable.” - Barton Biggs

The 7 Skills A Trader Must Have

There are seven skills that a trader needs in order to survive and be successful. Without discipline, no trading system will be successful. Without risk management, a trader will certainly blowup their account. Without passion, a trader will not have enough energy to get from new trader to rich trader. Without perseverance, new traders will quit after experiencing resistance, failure, and monetary losses. Without a strong work ethic, a trader will not have the necessary edge over other traders. Without flexibility, a trader will be broken by the markets. Without focus, a new trader becomes a jack-of-all-trades and the master of none. 

1. DISCIPLINE: The trader must have the ability to control their emotions and follow a plan. Discipline is a required skill in trading. Without it, a trader is either a gambler or trading based on fear and greed. Without discipline, a trader will be gamed by those in control of their emotions. 

2. RISK MANAGEMENT: Risk management must be a top priority for a trader to survive in the markets. Structuring the risk per trade to be no more than 1% or 2% of trading capital, is imperative. A trader must be able to survive 10 losses in a row. These strings of losses come around more often than a new trader would suspect. If a trader loses just 5% of their trading capital in each of ten trades, that means they are down almost 50% and need a 100% return just to get back to even. At this point they are ruined. 

3. PASSION: A trader must love to trade. Without a passion for the markets and trading, the new trader will not survive the learning process, because anyone with common sense would think that trading is not worth it. Passion will be needed to bring a trader through the learning curve and eventual losses. 

4. PERSEVERANCE: A trader can never quit. A trader will have many bad days, bad weeks, bad months, and in the beginning, even bad years. The ability to keep going despite hardship, is imperative. 

5. WORK ETHIC: There is no easy money in trading. Even the easy money in bull markets is usually taken back from newbies in the next bear market cycle. Being a trader is probably equivalent to getting a bachelors degree in a college, rather than a law or medical degree. A new trader’s tuition will come in the form of books, tapes, videos, seminars, and newsletters, and trading losses. Expecting to start making money trading from day one is like someone going up to a doctor and saying “Hey, how can I make a quick buck in the medical field?” 

6. FLEXIBILITY: A trader must have the agility to quickly realize they are wrong, and act on that by taking a small loss before it becomes a big loss. There are no crystal balls. Good traders play probabilities and try to go with the flow. Most new traders will never accept that trading is not about being right every time. In reality, it is about losing small when wrong and winning big when right. Expect a 50%-60% success rate, and understand that your wins have to pay for your losses. 

7. FOCUS: Being an expert on a specific market, currencies, commodities, futures, options, or stocks, will lead to more success than dividing your attention into too many areas. A small watch list allows you see everything, and understand your own trading vehicles better than the majority of traders, giving you an edge over others that drift between methodology.

These seven skills are more important than the trading system itself.