Tuesday, April 27, 2010

What Competent Traders Need Most

I've written quite a few posts to attempt to guide beginning traders. But what if you're a trader who has reached the stage of competence? Now you can consistently cover costs and sustain modest profits. How do you get to the next stage of expertise, where you can make a solid living from your trading?

What many competent traders do is try to magnify their modest profits by trading more instead of by trading larger. Because they have modest account sizes, they cannot size their trades significantly, so they try to put on more trades. Such overtrading takes them out of their niches of competence and leads them to lose money.

Those traders don't recognize that they may already have the skills to become excellent traders. After all, a trader who can make $200/day trading 5 lots in the ES futures could be making $2000 a day trading 50 lots, not a bad six figure income. Given the liquidity of the market, the trades that work with 5 lots by and large will work with 50 lots. It's just a matter of growing into that size. The actual trading doesn't have to change significantly.

Probably, this issue occurs in other areas of business. The successful local restaurant might have all the makings of a powerhouse chain of eateries, but without access to capital and a managerial talent pool, that growth never happens.

That is why access to capital is key for the competent trader: either capital one has saved up or that one can access through trading for deep-pocketed firms.

The second thing that competent traders need is access to expert traders. A beginning trader, like a Little League ball player, can benefit from coaching from a more experienced person. It doesn't take an expert to coach a rookie. But once athletes becomes college stars, they require hands-on mentoring from coaches and mentors with expertise. It is not too unusual to see self-made competent golf players, traders, or singers. It's rare to see expertise develop in relative isolation.

That is because expert coaches and mentors help to mold and accelerate learning curves, to make the most of a person's talent. If you've reached a stage of competence, it is vital to use online resources, personal networking, and/or access to trading firms to learn from pros. Look at the history of great achievers in business, the arts, sciences, and sports: even the self-made greats stood on the shoulders of giants.



Ebisu said...

I'm tempted to walk into a Bank of America, sit down at a rep's desk, say to that rep, "I'd like to take out a $2MM loan to fund my trading operation", and hear their response. Then after being denied, would it be too much if I were to say, "Well, after having been bailed out by the U.S. taxpayer, you have been getting quite a low-interest loan from the FRB, to prop up the stock market and make a killing selling overbought equities to desperate retail investors, in order to keep Average Joe from grumbling about how his 401K looked a year and a half ago, so why can't you allow me to do the same"...?

Yes, in the markets, size matters.

Salsaman said...

I average 7 points a day on ES, but lack of capital keeps me from growing. How does an unknown person connect with someone with deep pockets? All the firms I contacted appeared to be more interested in what fees they could get out of me rather than what I could for us both.

PS. Your blog saved me. It's a long story, but your posts were finally integrated into my thought process to overcome the odds.

Toad said...

Great post, thank you. May I ask how long you think it takes a trader with 3 years trading experience to learn Market Profile? Thanks, Todd

Michele said...

This post is a real keeper. You really zeroed in on my current problem. Like most people, I lost money initially, for several years actually, until last year. But now I've been consistently profitable since the start of 2009.

I feel like I'm ready to "take it up a notch" but have been unable to put together a plan for doing so. I feel like you showed me the way. Thanks. Gosh I'm going to miss your blog...

ClearAir said...

Thanks for the advice Doc, pretty much sums up my position. I am attempting to address both issues.

BirdMan said...


Thanks as always for your posts.
It is not too unusual to see self-made competent golf players, traders, or singers. It's rare to see expertise develop in relative isolation.
I am unclear on this: Are you are saying that it is possible for a golfer, trader, etc to become competent in isolation but to become an expert you nedd a mentor?Thanks

Flowtastical said...

I can see why a trading firm wants to steal you from all of us. Your posts are becoming better even as the blog is winding down.

Bullseye on why I'm not taking trading to the next level. I spent the majority of my trading days making money (not enough) in the first hour and losing it back due to overtrading. It was a nasty cycle. Now I'm just trying to up my size.