So you think you can trade? Our stock market and trading columnist Greg Secker puts you to the personality test
With the media often portraying City traders as reckless and arrogant, it is hardly surprising that they have gained a negative stereotype. The current global recession, coupled with various reports of rogue traders, has caused their reputation to be tarnished even further, with many outraged members of the public brazenly claiming that they could do a better job of trading the markets.
But what does it really take to become a successful trader?
Contrary to popular belief, top traders have to be disciplined, humble enough to know when to cut their losses, and able to listen to the advice and instructions of others.
So here are the top five traits needed to make a great trader:
As the recent financial crisis has shown, when influential traders make a single mistake at the top, the repercussions are felt globally. Given what is at stake, trading on behalf of an investment bank, money manager or hedge fund is a huge responsibility, and traders need to be conscious at all times of what their positions are doing.
However, the need to focus on the safety of a trade does not just apply to those at the top. Whether you are trading with millions of dollars of company funds, or a few thousand pounds of your own personal account, you have to ensure that the risk factor is as low as possible.
A good rule of thumb, and one that I personally recommend, is to never stake more than 1% of your account on any single trade. This applies to all accounts, no matter how big or small. Therefore, if you have a £10,000 account, you will only risk £100 at a time. Whilst to some this may seem an insignificant percentage, this type of low risk strategy is employed by some of the best traders across the globe.
Besides limiting exposure a safety-focused trader knows to hedge his trades in times of high volatility. One of the most common ways of hedging is opening a forex options position in the direction opposite to the hedged trade.
2. Calm under pressure
Trading is notoriously stressful. In a professional capacity you will regularly have to juggle information and questions from brokers, colleagues and clients, whilst maintaining your focus on the movements of the markets.
With the knowledge that you’re trading your own money, personal trading can be just as nerve-wracking!
One of the most important characteristics a trader can have is the ability to keep calm under pressure. Trading is often fast paced, and there can be large sums of money at stake, so it’s not for the faint hearted.
As with anything, the more you know and the more information you have readily available, the calmer you’re likely to feel. Traders have to be committed to learning and practising their skills over a period of time. Unless you’re very lucky, you can’t expect to make a million overnight!
The best traders in the world use established systems and strategies (based on regularly occurring patterns in the markets) to identify trends and place trades. Having said that, some of the best individual trades are the result of traders using their initiative.
It is said that there are three steps you need to master before you can achieve ‘Trading Greatness’. Firstly you need to maintain a low risk strategy, as highlighted in point one; secondly you need to be familiar with the various market trends and strategies; and thirdly you need to know when to use your discretion.
‘Trader discretion’ is built on a framework of low risk trades and strategy, but it allows for a more dynamic approach, letting traders use their initiative to interpret and react to market conditions.
Whilst this type of trading is at the heart of great traders, it can become perilous if you’ve not first mastered the other two steps. Beginners who go into trading blind, using only their discretion to make decisions are simply reacting to the markets without really appreciating the implications of their actions or knowing the full cycle of the trend their acting on.
As in learning any new skill, it is imperative that you have patience, and don’t try to run before you can walk.
Discipline is key. Whether it’s knowing when to cut your losses if you’ve made a bad decision, or having the confidence to stick to your plan and hold out for the long trade even though it’s had a bad start, every aspect of trading takes discipline.
Whilst many view traders as irresponsible or rash, in reality it’s quite the opposite. Every move a trader makes has to be well thought out and reasoned, using not only tested strategies, but also the most up-to-date information available. Being able to keep abreast of all this and more takes a huge amount of organisation and self-discipline.
5. A thirst for knowledge
Even the best traders have something to learn, and in order to stay on top of their game they are constantly researching and investigating the latest trends and systems. By their nature, markets are fluid and constantly changing, meaning that no single strategy will stand the test of time forever.
Some of the most successful ways to keep up to date with the latest developments are to attend financial briefings and trading seminars, network with other traders and compare notes, and quite simply, do your own research.
No matter how successful you become, always remember you have something else to learn.
Greg Secker is the founder and CEO of trader coaching company Knowledge To Action. Former vice president of Mellon Financial Corporation, Secker is a world-renowned Forex trader with trading floors in London, Sydney and Cape Town. An experienced speaker, Greg has shared the stage with the likes of Richard Branson, Donald Trump and Alan Sugar. In 2010, Greg established the Knowledge to Action Foundation, a not-for-profit organisation dedicated to improving the lives of disadvantaged children.