5 Skills that can turn you into a Great Trader
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It is absolutely essential to come to terms with the fact that it would take some exceptional skills to turn into a Great Trader.
In the zero sum game of markets the competetion for money is endless and ever evolving.
A good trader is one who is able to survive the tides of the markets and navigates them with poise.
But every once in a while you will stumble upon a Great Trader.
A Great Trader is the one who’s surfing that 50 foot wave like he was born with it, while everyone else is watching in awe and wondering whether he’s going to make it.
And somehow he always does.
You see these great traders show up time and time again with ideas that work and trades that you wish that you had taken.
Well guess what, he wasn’t just born with it.
A Great Trader has worked hard, time and time again, to hone these Skills that make him great.
You can do the same. You can work on these skills too and level up your trading game.
So without further ado, let’s talk about the 5 skills that can turn you into a Great Trader.
Skill 1 : A Great Trader is qualified enough to be a Statistician for a Hedge Fund
There are 2 kinds of technical analysis.
One is reactive technical analysis.
Reactive technical analysis is based on the premise that a trader has, what we call a back-tested strategy and once the conditions for the trade are fulfilled the trader simply needs to pull the trigger.
For this a trader needs that back-tested system and the set of conditions that activate the trade at the palm of his hands, to help him take the trade repetitively.
To It’s a different thing to talk about statistics and a different thing to actually understand how in-depth one needs to go to truly build an edge.
What you need to understand is that most great traders are trading multiple markets in multiple time frames.
This means that they have several back-tested systems that apply for different asset classes and different market conditions, and they have the statistics to back up each one of these systems that they set up.
A SQN (System Quality Number) helps a trader define the accuracy of his system.
Using that number one is able to assess the risk management strategies that need to be employed for that particular system.
So a great trader would have a different setup for a ranging Bitcoin Market. We have one and you can check it out here: How to Make Money in a Sideways Market.
A different setup for a Trending Stock Market.
Another one for scalping Indices and so on.
Each of these setups would be based on this form of reactive technical analysis where there is a deeply back-tested strategy and the only manual time that one takes is to implement that strategy.
A Great Statistician would also have several automations on custom screeners to find out which are the most suitable markets and assets to trade for a specific strategy.
This is basically what hedge funds do as well and they have super computers doing all this filtering for them but every great trader who is flying solo or is trading within his own built community is doing the same.
The competition at the top is fierce and you need to build up your knowledge of statistics, data analytics and data science.
This is definitely an important Skill that can turn you into a Great Trader.
Most importantly you need to log your trades religiously.
And to not log them plainly.
You need to map out all the different strategies that you are using to trade and build a database on your own.
The more detailed your logs are the better the quality of data you can have and the easier it is for you to process it into something meaningful.
Trade Journaling is a very broads-caped topic which we will leave for another blog post.
We recommend and use Edgewonk as it’s a very powerful tool where you can create your plans and journals with great detail.
Tradervue is another great institutional level tool used by multiple trading firms as it has a very good broker integration interface.
Stocktrader is another great free journaling tool but it’s only for stocks.
We personally know many traders with their own custom excel sheets as well and these work as well as anything else, just takes one to have good knowledge of excel to create one.
Skill 2 : A Great Trader possesses the Intution of a Sage
In the first skill that we described we spoke about 2 types of technical analysis.
The first of which we spoke about being reactive technical analysis.
Which means have a statistically backed plan and trade the plan.
Yes that’s a big part of TA and most traders can actually make a living being good statisticians and good reactive technical analysts.
But there’s a 2nd type of Technical analysis that separates the wheat from the chaff.
This is called predictive technical analysis.
Predictive technical analysis is the creative part of TA.
Being a Good Predictive analyst will add to the Skills that you need to turn yourself into a Great Trader.
Many believe there are some rules to be followed as there are with every form of art but creativity is what it is.
You can’t put it in a box.
You’ll see great traders come up with the wackiest and the most original ideas for their technical analysis.
Their confidence and willingness to go out there is what sets them apart.
When one hones into the intuitive ability coupled with the ability to be pure and objective, you can get in-tune with the market and literally know what’s coming next.
This is a skill that any trader would find hard to teach and most traders feel it’s something that comes naturally so they don’t figure out a way to teach this.
You can also refer to an article on the 7 tips to quickly boost your Traders Intuition.
We at subverto feel this is something that can be attained by any trader.
If you read our article on The Most Powerful tool to become Successful we lay the foundation to how anyone can hone into their intuitive abilities.
Another thing that can help with gaining creativity and harnessing a creative attitude is to be free from stress.
While trading with a large amount of capital, or with a very money oriented approach, this can be hard at times.
You should know the best traders never trade for the money.
Money is only the byproduct of accuracy.
Stress not only harms the body and it’s immune system but greatly inhibits ones creative abilities.
A good meditative practice, running, dancing, playing a sport or anything that enables one to be completely immersed in the moment will always reduce stress and increase ones creative potential.
Just sitting in front of the screen all day can not only be damaging for the eyes and the mind but can also tunnel the mind and restrict the flow of new ideas and energy.
All great traders value the time that trading enables them to have and have interesting hobbies outside of trading.
This fuels their creative ability and intuition hence making them excellent predictive analysts.
We believe meditation is a fantastic tool that not only helps one harness the power of intuition but also enables you to be happy and manifest success in your live whatever your definition of success may be.
Subverto is geared towards assisting you in your journey to gain this intuitive ability and to be able to trade in the zone.
Skill 3 : A Great Trader has the Risk Management Skills at par with the Best Gamblers in the World.
Yes we know you’ve heard and read about risk management.
You’ll hear many traders say risk management is key.
And the next sentence will initiate you into saying don’t risk more than x% per trade.
Or your risk % depends on the size of your portfolio.
What they don’t tell you is that risk management has been thought about so deeply by so many different pioneers you can’t even begin to imagine how complex you can make it if you really want to.
Perhaps the greatest secret to top trading and investing success is appropriate position sizing.
And all great traders and trading firms know that.
So to many people’s surprise, being an exceptional risk manager is another Skill that will Turn you into a Great Trader.
Part 2 in our article series of 20 Common Trading Mistakes and how to fix them has a great tip on risk management that we shared with you.
Fact is, that too is only the tip of the iceberg.
The main areas of how to trade portfolios that are traditionally discussed extensively are
(1) price forecasting and,
(2) what and when to buy.
Historical back-testing of Mechanical Trading Systems has inherent advantages.
It assists portfolio managers in determining:
- an optimal position sizing method (how much of your trading capital to bet on a single trade),
- evaluating risk quantification tools (loss of capital is
predetermined prior to the trade),
- and exit strategies (“Should I stay or should I go?”).
Position sizing is the determination of what fraction of a portfolio’s total equity to risk on each trade or investment.
How many Dollars do you want to risk on the next investment?
Along with a logical stop strategy (different risk for losing and for winning positions) to quantify your market risk position sizing is the most important part of a portfolio management strategy.
Position sizing is to expose a fraction, a fixed percentage, etc. of your capital to daily volatility on a given trade.
It is the part of your business plan for trading the market that tells you “how much” you should risk in any one trade or investment.
The question of “how much” should be a function of the equity in your account.
If you haven’t heard or know about the Kelly Criterion you haven’t really dived deep into money management.
John Kelly, who worked for AT&T’s Bell Laboratory, originally developed the Kelly Criterion to assist AT&T with its long distance telephone signal noise issues.
Soon after, the method was published as “A New Interpretation of Information Rate” in 1956.
What do money management and data transmission over phone lines have in common? Uncertainty.
Problems associated with data transmission are very similar to issues a gambler or trader faces in determining the optimal amount of money to trade at any given time.
The gambling community got wind of Kelly’s equation and realized its potential as an optimal betting system.
It enabled gamblers to maximize the size of their bankroll over the long term.
Today, many people use it as a general money management system for gambling as well as investing.
There are two basic components to the Kelly Criterion.
The first is the win probability, or the probability that any given trade will return a positive amount.
The second is the win/loss ratio.
These two factors are then put into Kelly’s equation which is:
Kelly% = W−[ (1−W)/R]
W=Winning probability R=Win/loss ratio
To understand this better, let’s take up an example.
Assume I have a trading system which has produced the following results, for sake of simplicity, let’s assume this is a trading system to trade just one coin.
Given the above data –
W = Total Number of winners / Total number of trades
R = Average Gain / Average Loss
Average Gain = 158
Average Loss = 80
R = 158 / 80 = 1.975
Let’s plug these numbers into Kelly’s Equation.
Kelly% = W−[ (1−W)/R]
Kelly% = .6 – [ (1-.6) / 1.975]
Kelly% = .40 = 40%
As per the original school of thought – Kelly’s percentage is a direct representation of how much capital one should expose for a trade. For example, for the 11th trade on ETHUSD, Kelly’s Criterion suggests a capital exposure of 31%.
But I think this can be a little tricky, imagine a trading system with great accuracy – the Kelly;s Percentage can turn out to be 70%, suggesting a capital exposure of 70% to the next trade.
Not a very smart thing to do if you ask me.
However, you may ask why not?
After all a system with 70% accuracy is a great, so why not maximize the bet?
This is because, there is still a 30% chance to lose 70% of your capital!
Given this, here is a simple modification to Kelly’s criterion.
Let us go back to the percentage risk position sizing technique we discussed earlier in the chapter.
We defined the percentage risk as a technique wherein the exposure to a trade is defined as 1.5% (or any percentage) of the capital.
Given Kelly’s criterion, we can modify the exposure as ‘up to 10%’ (or any percentage you deem suitable).
What does this mean? This means for a given trade, I would not expose more than 10% of the capital.
This also means that capital exposed could range from as low as 0.1% to all the way up to 10%. So how do I decide?
We can use Kelly’s percentage here.
For example if the Kelly’s percentage is 30%, then I’d expose, 30% of 10% or in other words, I’d expose 3%.
If the Kelly’s percentage is 70%, then I’d expose 70% of 10% or say 7% of the capital on the trade.
So higher the Kelly’s percentage, higher is the capital exposed and vice versa.
Apart from Kelly’s Criterion there are several other pioneers using other more complex methods and position sizing deserves a blog post of it’s own, but you should have understood by now how deep this rabbit hole can go.
To be a Great Trader your Risk management Strategy has to set you apart and this is a key Skill that defines the longevity and success of your trading career’
Skill 4 : A Great Trader possesses the Patience of a Siberian Tiger
John Vaillant’s The Tiger is part natural history, part Russian history and part thriller;
It tells a gripping and gory story of what it’s like to stalk — and be stalked by — the largest species of cat still walking the Earth.
In Russia’s Far East, subarctic animals — such as caribou and wolves — mingle with tigers and other species of the subtropics.
It was very nearly a perfect habitat for the tigers — until humans showed up.
The tigers that populate this region are commonly referred to as Siberian tigers, but they are more accurately known as the Amur tiger.
Amur Tigers brave the most difficult terrain and compete with humans for their prey.
In this story, a tiger was shot by Vladimir Markov a poacher who was highly familiar with the terrain.
He had a team of hardy hunting dogs and several guns to protect him.
The tiger was wounded (it takes a lot to bring one down) and escaped.
It recovered- slowly, but it knew exactly who had shot it.
The tiger stalked the man, by scent, following him back to his highly secured lodge where he systematically terrorized the man.
Vladimir was a real tough customer.
The tiger shredded anything the man had touched that was left outside and then he slipped back into the forest.
The man was aware that the tiger was stalking him and bunker-ed himself inside, but then, one day he ran to another hunter’s lodge ( armed to the teeth) and reported his fears.
He asked his neighbor to keep a look out for an aggressive, furious tiger nearby.
When the hunter was escorted back to his home, it seemed okay and the neighbor left him alone.
Promising the hunter he’d return if he heard the dogs barking.
A few days later, the neighbor returned to check on the hunter and he found a scene of carnage.
The tiger had silently killed the pack of 10 mean dogs.
The door of the house was shredded and what remained of the hunter was grisly.
Like a house cat plays with a mouse, the tiger had toyed with the man for a day.
Every gun had been gnawed and destroyed.
The hunters had seen tigers react to guns before and they realized that the tigers were smart enough to target the guns as the weapons.
In this Story the Tiger spent days healing himself, tracking his prey, planning the kill and taking out every obstacle in the way before finally making the kill.
This is exactly the psyche needed to be a Great Trader.
Patience is another Skill that once mastered can turn you into a Great Trader.
To have a great hit rate, a trader needs to be very picky about what he wants to trade and what conditions he wants to trade in.
A trader needs to know when to apply the systems he knows and when to sit out of the market
i.e in which conditions they work the best.
He will sit out and wait if the conditions in the market aren’t providing him with a strong edge.
A trader also needs a meticulous plan, which then needs to be tracked and followed with great patience before finally pulling the trigger.
Even when a trader is in a trade, a great amount of patience is required to not cut the trade or succumb to ones emotions.
To follow the plan and mange the trade correctly.
Which means to be able to track the trade every step of the way.
To take profits where necessary and compound the trade where required.
Most traders just take a trade and have a take profit level.
Great traders know how to extract the maximum profit from the market, while giving away the least amount of money back.
It requires a great amount of patience and persistence to sustain this efficiency.
To be a Great Trader you need to be resolute with your levels of patience.
Just like the Great Siberian Tiger.
Skill 5 : Every Great Trader has the Humility to keep on Learning no matter how much he knows
A great trader knows that his ego will undoubtedly act like a wall between himself and his long-term goals.
So he makes sure he doesn’t inflate or assert it.
We all know the market is an ever evolving creature with a mind and life of it’s own.
The complexity of the market continues to increase exponentially.
Why are great traders humble?
Experience, for one.
After a while, great traders realize that the market is bigger than they are.
Once you think you have the market pegged – that you have it all figured out – that’s the beginning of the end. You can only last so long.
Time and time again we see masters of the past, unable to cope with the new environment, the new stage, with it’s new set of rules.
Warren Buffet, with his spectacular record in the early years of his career has now been underperforming the S&P 500 over the last decade.
You see this on a larger scale in the statistics of the percentage of national wealth held by people of different age groups.
It’s always going to be the youngest population that will be expanding it’s wealth the fastest as they have a very high degree of adapatability and their ideas are what are transforming the world.
The older generation simply struggles to keep up.
If you’ve been around in crypto long enough, you’ll know that it’s much harder to trade Bitcoin now than it was from 2013-2015.
You’ll also notice a lot of the traders who’ve been in crypto pre 2016 have faded in the background.
Some because they made a lot of money but many because they simply couldn’t keep up with the increasing complexity of the market, others because they went bust hodling during the bubble.
As the markets continue to evolve, Great Traders will continue to adapt.
They will fine tune their systems according to the change in the markets.
This drive to continue to expand on ones skillset and the constant thirst for knowledge is what turns a good trader into a Great Trader.
Always continue to build on what you have already created.
Trading is an endless learning process as the markets are never static.
As A.I. starts to get more and more complex, and High Frequency Trading becomes the norm, it’s essential as a Trader you constantly bring your A game to the fore each time you sit on your trading desk.
A Great Trader will do whatever it takes to stay on top.
Do you have it in you to be that trader?
Happy trading !