Monday, January 11, 2010

What Beginning Traders Should Look For in a Trading Career

In my post on pursuing trading for a living, several traders have responded that my point about the odds being stacked against success could be said of any field: the odds of getting rich are slim. That misses a crucial point, however: in many career fields, a competent practitioner can make a decent living: as a teacher, a store manager, a nurse, etc. In performance fields, such as acting, golf/tennis/basketball/track and field, and trading, competence does not guarantee an income. The percentage of people making a living from their performances is quite small; the same cannot be said of teachers or salespeople.

That is why going off to pursue trading is more like going to Hollywood to pursue acting and less like going to school to train for a healthcare career.

I am not suggesting that people *shouldn't* pursue trading careers. I am only recommending that those serious about trading:

1) First find out if they truly possess interest and aptitude by trying trading out in simulation/paper trading mode before committing time, capital, and effort;

2) Pursue quality training efforts that offer structured curricula and that teach skills that are relevant to one's own interests and talents;

3) Seriously consider affiliating with trading firms that offer sufficient capitalization (if not well-capitalized on your own) and discounted commissions/fees to keep overhead to a minimum;

4) Affiliate with traders (within a firm or online) that are experienced and that encourage mutual learning, mentorship, and support.

Your odds of sustaining a trading career are greatest if you can locate yourself within a learning, performance culture. That does not guarantee career success, but it maximizes the odds that you will be able to transform your interests and abilities into concrete trading skills.



E-Mini Player said...

Spot on Doc! Low/insufficient capitalization on top of a retail commission structure is a big hurdle to overcome; especially when just starting out.

DG's Trading Forum said...

Dr. Brett,

I'm reposting this question from the other thread, where I had responded. I'm trying to get your take on what the general quantification of "edge" is, in your experience.

'Do you have specific statistics for what an "edge" would look like to differentiate between luck and skill over time? Would you say that any method with positive expected value per trade has an "edge"?'

Ionized said...

Without the proper mentors, I would not have made it this far, and I certainly would not keep going.

First I found an expert in TA and learned charting from him, spending months in self-study using his hints as a guide. I then found an expert in the style of trading that I find most enjoyable, and am still learning from him.

Most importantly is your own aptitude to learn. Do you believe in failure, or do you believe that you can only learn and grow? Learn the holistic processes necessary for growth, there are numerous resources available online for free to get one started.

Trading is a continual process of learning, growth, and effort. Even the top traders review their performance for areas of improvement, I suppose one might say mostly the top traders...

Michele said...

"Seriously consider affiliating with trading firms that offer sufficient capitalization"

Insufficient capitalization - that's me. So how exactly does one go about affiliating oneself in such a manner? I checked out SMB's web page and it seems they want you to pay them $5000 for the privilege of going to work for them.

I know of no other job (at least no legitimate job) where you have to pay the company to hire you. Anyway, if I did have a spare $5K lying around, I'd add it to my trading account to become better capitalized. Can't you walk into a broker's office and say "Here's my statements - I outperformed the Dow last year by x%. Hire me."? said...

Great article, thanks for posting... Highlights exactly the things that I faced when I started out.

Ionized said...

Michelle, not sure how SMB works, but there are definite advantages of joining a prop firm with $5k, as opposed to having a retail margin PDT account which you must maintain at $25k and never fall below. With my $25k retail account I had 100k buy power, and with the $5k prop firm I also have 100k buy power (20x leverage.) Plus, at least at some firms, the idea of a margin call goes away, instead you are allowed to dip into your $5k buffer, as long as you don't destroy it completely. With a retail account, if you go below $25k they can and will margin call you faster than you can take your next breath.

You are not technically working for a prop firm at first, just treat it like a brokerage account with fringe benefits. Now if you are being offered a 'job' with one, yes then I would be suspicious of having to pay them first. The firm I am at isn't offering a job, but they do claim that if one is profitable then a job might come from it if one is interested. Apparently people join these firms hoping to get hired in some cases.. Not me though, it is just a super brokerage account in my eyes, with better support, better tools, direct market access, and better capitalization than any retail brokerage I have seen.

whoop spy headed down...

david said...

Interesting, thanks Ionized. My initial reaction to paying money to a firm was the same, though it doesn't seem as bad if I consider it as a brokerage account. As long as I'm free to take my 5k with me (assuming I haven't lost any of it) should I choose to leave then it may be a good idea.

Although I disagree with those who say retail traders can't be profitable, I should make it clear that I'm assuming said traders are not active day traders. If one is trading 10 times a day as in the example Brett provided then by definition the gains will all be small gains. Between the cost of losing/scratch trades, the bid/ask spread, slippage, and commissions I think it would require a great deal of skill for anyone to be consistently profitable trading that frequently, and almost impossible for a retail trader. And if retail platforms are really shoddy and give inferior price fills as Brett suggests then that makes it even worse. So in that respect I do agree with Brett's premise.

Hermit48 said...

I belong to a prop firm that makes you put up 12k and they then give you $10 max loss per day till moving to next level of $30, 2 weeks later $60, then $120, etc. It takes a long long time to lose 12 grand if you cant get past the first level of $10 per day and my thoughts are that if you can just last and work out the kinks in your can win!

If one does not have this option available, the second best thing in my opinion is to paper or sim trade until one doubles a 5 or 10k account before even thinking about using real money. Do you guys have any concept of how many people would give their pinky to say they wasted 4 years trading, never made a dime on paper and gave up than to have said they blew thru their entire life savings..."and" lose 4 years of your life!