The Wisdom of An Experienced Trader

I recently got this communcation from an experienced trader. I thought it was very wise and worth sharing. There’s a lot of very good advice in here, and it is especially applicable to me:

“I have traded for over 30 years. Some of those were a struggle but many of them were great. In my first trading job I sat on a trading desk at a primary dealer in Chicago. I had been on the floor learning the business and was a broker. I kept talking to guys and finally met the head trader at that primary dealer. Over time, he liked me and gave me my first trading job. Before that I had traded customer money and my own small account. There were over 30 guys who traded for a living on the desk at the primary dealer. Each one traded a little differently. I tried to learn a little from each one of them. I was successful but just barely for a few years. I never could get over the hump and make real money. I went to Mark Douglas, who ran a trading psychology business. After talking to him, I realized that I was trading to make a certain amount of money and no more. I was effectively limiting how much I made by my trading decisions. I was undercutting myself without knowing it. He suggested that I set up a foundation and put a % of my winnings in that. That way I was not just trading for myself but also for the people who would benefit by my foundation. As silly as it seems, it worked. I just had to understand what my motivations for trading were. I already had the tools. I just needed to learn how to use them more effectively.

Over the years, I have traded on many trading desks, from hedge funds to prop desks to CTA’s. The guys who made it were the ones who learned what worked for them. See what your risk parameters are first. Learn money management. That is more important than anything else. Determine a trading style that works for you. Make sure your money management will keep you in the game. Take the emotion out of the equation. That is what people mean by saying making money is boring. If you trade for the thrill of it, you will lose. Play the odds and stick to your game plan. Don’t second guess yourself. Learn to control your emotions but use your gut when it is working for you. When you are hot trade more aggressively. When you are cold, trade conservatively and patiently. Limit your losses each day to a set amount. If you lose that stop trading. Watch the markets. They will tell you when conditions are ripe and when they aren’t.

You learn about yourself first and then you learn the markets. Find what works for you. Ignore the rest. Keep it simple and add things that seem to work for you. Try different styles and methods. See what works for you and incorporate that into your trading style. Watch and learn the markets. They change over time and you must change as well. Remember that there are millions of ways to make money. Successful traders learn what time frames work for them.

I wound up being an event trader. I traded when the conditions in the markets were ripe for me. I traded technically also. The hardest thing for me to do was to stay with my winners. I tended to want to fade markets, but finally learned that I could make more money if I traded longer term in options along with trading short term in futures and cash Treasuries. I wound up trading differently for each time frame. I kept them separate. Once in a while a short term trade was a winner and I moved it into my long term trading drawer. If my gut changed, I would move some of my long term trades back into my short term drawer.

I hope that helps some. Remember that the first thing you must do is understand yourself. Then look to the money management side of things. That will take some of the emotion out of it. Then try to understand the markets as well as you can, both technically and fundamentally. Look for trading methods that fit your risk parameters. If they work, add them to your repertoire. Keep learning more things to add to your trading basket. Eventually, you will be able to compartmentalize things and be confident in your methods and money management tools. Then just do it!

Markets go in rhythms. Trading can be easier if there is a group of people who are giving money away. That has happened over periods of time in the past. In the 1980’s the Japanese started to trade Treasuries. They traded in herds. They all got in at the same time and had the same positions on and also got out at the same time. Many traders made a lot of money trading at that time. Later the S&L’s were having troubles and firms took advantage of that to profit from trading. Recently both hedge funds and quant firms had troubles that created large profitable situations for certain traders. The sub-prime troubles created a situation for some traders to greatly profit.

One of the keys to trading is to try to understand which groups are losing money and to adapt your trading to take advantage of those groups. Realize that there are traders who trade different time frames and thus have different risk parameters. Markets have a way of finding the weak hands. Try to understand who are the weak hands and try to take advantage of them..

You should also chart your trading. See which types of trades are making you money. See if you are exiting well. See how many days you are profitable and how many days you are very profitable. Look at your risk parameters for all your trades but also look at your daily risk parameters. Make sure you are winning more days than you are losing.”

Tags: , ,

4 Responses to “The Wisdom of An Experienced Trader”

  1. Tyler Says:

    Hey Prospectus,

    Thanks for the great post.

    Tyler

  2. Tradertomdotnet Says:

    Really truthful about trading. Nice to see some wisdom from a veteran.

  3. John Says:

    great post pro!

    “After talking to him, I realized that I was trading to make a certain amount of money and no more. I was effectively limiting how much I made by my trading decisions. I was undercutting myself without knowing it. He suggested that I set up a foundation and put a % of my winnings in that. That way I was not just trading for myself but also for the people who would benefit by my foundation. As silly as it seems, it worked.”

    -john aka mr. white folks

  4. Prospectus Says:

    John AKA MWF: good to hear from you! Don’t be a stranger 🙂

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: