By Willem Reitsma, Group Treasurer – Imperial Holdings Limited
Many youngsters dream of being an “ace” fighter pilot, a rock star, a movie star or a famous sports personality. All of these professions have a certain mystique and fame attached to them and would seem to be out of reach for most of us mere mortals.
So why not become a professional securities trader? Surely anybody can become a trader and generate large amounts of money by buying and selling securities, currencies or commodities. In fact, it looks so easy that it is a mystery why everybody isn’t a professional trader. However, sometimes it would seem that everybody truly belief that they can generate money out of nothing by selling or buying securities, currencies or commodities. Movies such as “Wall Street” featuring the “wheeling and dealing” hero, Gordon Gekko adds to this belief by bringing into play the lure of power, riches, egos, glamour, admiration, to name but a few attractions and deceptions.
Yes, it is true that some of these attractions are in fact within reach. However, why are there only a small percentage of traders that make it to the top on a consistent basis whilst many a clients’ hard-earned savings, have been blown away by aspirant “traders” who by and large are the majority of people who engage in this brutal activity?
Only the experienced traders know that trading is not as easy as it looks and that successful trading takes immense skill, dedication and discipline.
Successful traders are truly the modern day gladiators and their weapons are their wits, talents, discipline, ability to learn skills, and the ability to use technology and a phenomenal honest knowledge and awareness of self.
So, do you still think you can be a successful trader?
You have all the credentials: the prescribed exams, perhaps a fancy diploma or degree, technical knowledge of the economy and the financial markets, knowledge of financial instruments (exchange traded and/or over-the-counter), derivatives, mathematics, statistics, regulations, tax etc.
You have even completed specific courses and have the necessary qualifications required by certain institutions or professional bodies. Not to forget that huge ego and the ability to talk yourself into and out of any situation. “I can achieve anything I apply my mind to”. Yes right!
In fact, on paper it is a given that success is just a formality. Joining a prestige financial institution, asset manager or broker provides the avenue for reaping the rewards and earning those legendary “large” bonuses.
Although all of the above is helpful and assist in opening the door and providing the opportunity to join the ranks of the “financial gladiators”, it does not necessarily ensure success on a sustainable basis. Nobody tells you about the sweat and tears and even if they did, it wouldn’t have deterred this “winner” and “achiever” or so it would seem.
However, there are a few basics that can assist in improving one’s chances dramatically! We will look at a few points I believe are the so-called basics – some of these are my own hard earned experience and others drawn from a few traders who have made trading their profession.
Making your living as a trader can be the most rewarding job in the world! Just think back to the ‘master of the universe” feeling of the bond salesman Sherman McCoy in Tom Wolfe’s “The Bonfire of the Vanities” However, losing money can be the most debilitating experience in the world as well – so take note.
Isn’t advice like “Back to Basics” “Stick to the Basics” “Get the Basics Right” a bit of a cliché? Whenever a team, sports star or an organisation don’t perform as expected the gurus come running and shouting the same wisdom – Back to Basics!
What a lot of hogwash! Or what a lot of s…, in financial trading room jargon!
Even if one can do the basics well, success is not guaranteed. The basics must be done better than the rest, it must be adapted according to the circumstances, and risks must be taken………….
Oh yes, Risk! The Swiss are one of the best trading nations in the world and they have a saying “ Everybody wants to win, but not everybody wants to Bet or Risk” – The Zurich Axioms by Max Gunther.
Where can I learn to take risk! Which university! Please tell me? I want to be a trader! I want to take large risks and make a bomb quickly! Don’t fool yourself, you either love it or hate it! You either have it or you don’t!
However, I believe a common problem is defining or deciding what these so-called Basics are or should be. Normally it is focused on the technical side which I believe is a given anyway.
I would like to propose a different set of basics:
Basic No. 1: Know yourself and be honest with yourself.
How do you feel about taking a risk? Scared, Fearful, Excited, Cautious, Careless? Do you embrace risk and uncertainty? Risk taking is the basis of trading and thus no matter how uncomfortable its feels, if you cannot get used to it and cope with it then do not even think of pursuing this profession.
Basic No. 2: Be disciplined
“Genius without discipline is only an elegant way of finishing second”
Can you take a loss? Can you take the hard decision to cut a losing position at the right time?
Do you enter the market when you believe it’s the right time or do you hesitate and miss an opportunity? Do you follow your trading strategy faultlessly? Do you take a big enough position that will make a difference or do you cop out and take a small position so that the losses will be curtailed? Discipline is a “hard-wired’ talent and cannot be learned. If you don’t have discipline please do not try and pursue a trading career.
Basic No 3: Develop and Follow a Successful Trading Plan
The market does not owe you anything! Don’t try and get even by persisting with a losing strategy. Review and adapt or select another trading strategy if one does not work after faultless execution over a sufficient time frame. Select an appropriate trading strategy that suits your personality, risk profile and capability. Don’t fall into the trap of “complexity is better” rather go for ‘keep it simple” and execute flawlessly. The market will soon tell you if the strategy is not working!
Basic No. 4: Be unemotional
If you are losing money – it is not you that is wrong! It is your trading plan or strategy if you executed the trading strategy flawlessly. If not, then it is your discipline that is faulty and should it happen frequently and should you only execute the strategy infrequently, then the market will take money from you. Do not second-guess your strategy or the market. If you do, get out and pursue another profession.
Basic No. 5: Have confidence in your ability
“Success does not depend on intelligence, better analysis, better knowledge but on a set of attitudes, that allows you to remain disciplined, focused and above all, confident in spite of adverse conditions” – Trading in the Zone by Mark Douglas
Basic No. 6: Use the power of your mind
Positive affirmations, visualisation, sensing etc. feed your sub-conscience mind with positive energy and needs. Trust your 6th sense and act on an inspiration immediately – do not try and rationally explain or analyse everything. Do not tolerate any negative thoughts or doubts. Read “ Mind Power by John Kehoe” for a good summery of these concepts
Basic No. 7: React on your trading strategy and don’t think about what will happen next.
Nobody knows what will happen next! Follow a set of rules and act on those signals immediately and adhere to your risk parameters diligently.
Oh! You thought that we were on our way to the so-called “Ten Basic Rules”. Isn’t it? Admit it! If fact, there are hundreds depending on your own unique psyche and attitudes. That’s why I stopped at seven or was it because research has proved that no one can remember more that 7 things at once? Even financial gladiators!
Most people who have completed a degree or qualification know that they can learn a concept or the characteristics of a product/instrument or a market. However, learning about the market or a concept needs to be converted into action. Learning “How to Trade” has nothing to do with “Actual Trading” or must I unwillingly accept that it could just a little bit.
The old paradigm of believing that if you can learn something, you can do it well is not valid in trading. The new paradigm is that you should have the natural talents, in particular the talent of “discipline” (it cannot be learned – you either have it or you don’t). You may have the talent but it may need to be nurtured and discovered but otherwise you have a natural flaw for being a successful trader – period!
The underlying premise is that “Whatever I belief I can do I can do well” And “I can achieve anything I put my mind to”
If I can learn and understand a concept I can and will apply it effectively to achieve success, no matter what!
The new paradigm encapsulates the concept that notwithstanding the fact that skills can be learned, success is only possible should the natural talents be present, such as discipline, courage and appetite for risk etc.
This basic concept is based on research done by GALLUP and recorded in the book “First Break all the Rules” by Marcus Buckingham & Curt Coffman. Unashamedly, adapted to the trading profession by myself.
By now you must be saying, “Who is this? Who does he think he is?” How can he tell a person if he or she can or should trade or not?
If you do feel that way – believe me you should pursue some other career. Stay away from trading and save yourself a lot of pain and suffering – not to mention the financial losses.
If you feel a bit uncomfortable – good! You are on your way to becoming a good trader. A little caution is not altogether bad and can provide the vital difference when there is a tendency for a rush of blood to the head.
If you feel totally comfortable with what was said – beware, but go ahead and always use your own common sense and 6th sense. You can’t blame anybody or anything – certainly not the market!
We are all unique and there is a trading style for all of us. We may, however, not all be able to execute that style ourselves and that is why there are so many hedge funds, asset managers, gurus and the like to cater for many risk profiles and needs.
However, should you be one of the “lucky ones” that have the talents and ability to obtain knowledge and skills and combine them into a successful strategy and execute it flawlessly through discipline, adapt or select a new strategy when things don’t go right, then have the confidence to back yourself and reap the rewards of one of the most dynamic and fulfilling professions in this world. Embrace the life of the “Financial Gladiator”
However, like all great sports teams or performers don’t forget to use a coach to assist you in obtaining your goals and honing those natural talents and developing the required skills. Using a “trading coach” can achieve great results. Look forward to hearing from you!
Willem Reitsma- Group Treasurer – Imperial Holdings Limited