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.