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A Trader’s DNA

Alex Preda King's College London
 

The following is a guest post authored by Alex Preda. He is professor of accounting, accountability and financial management at King’s College London, a TT CampusConnect™ partner school since 2013. His principal research activities relate to global financial markets, and his research interests include: strategic behavior in financial markets; decision-making and cognitive processes in electronic anonymous markets; market automation and trading technologies. His publications include, among others, Framing Finance: The Boundaries of Markets and Modern Capitalism (University of Chicago Press, 2009), Information, Knowledge, and Economic Life: An Introduction to the Sociology of Markets (Oxford University Press, 2009) and Noise. Living and Trading in Electronic Finance (University of Chicago Press 2016, forthcoming).

What makes a good trader? It’s an important question and one that preoccupies those in capital markets. I have the opportunity to interview a number of traders to see if I can determine what makes them tick and what kind of characteristics are essential for success. Here are some of the insights I gleaned.

I discovered that it is more than a trading strategy, available capital or a particular trading philosophy. For these to be effective, they need a firm foundation. I don’t know if I can say someone is born a trader, but I can say there are certain attributes to a trader’s personality that are significant for successful trading and constitute a good trader. If these questions seem more psychological than financial, it’s because they are. Needless to say, these questions preoccupy traders, both institutional and retail, as they try to improve their performance. In similar fashion, interview questions probe candidates to determine if they have what it takes to ensure the success of a trading desk.

Even when the markets were pit traded and physical prowess mattered, height, energy and a loud voice could take a trader just so far. These were trading tools available to some, but they were wasted if the individual lacked the essentials. Today’s tools are electronic and automated, but in the same spirit they are only as good as the individual using them. Even though traders today monitor computers and trading strategies are automated, firms still look for certain qualities that define a trader.

The traders I interviewed, without exception, said the psychological attributes matter. This is the backbone of any technical skill, trading strategy or information an individual may possess.

While my list is not exhaustive, these are the traits that were discussed the most:

Self-Awareness: Knowledge and awareness of your own personality or character. When a trader understands their strengths and weaknesses, they can capitalize on the former and minimize the latter. I had the opportunity to interview two traders who were husband and wife. Both were successful and both were very much aware of themselves. While he compartmentalized his life and dealt with trading separate from the rest, she approached life more holistically. Both were successful and their self-awareness contributed to their success.

Discipline: Trading involves developing a strategy, but it is not easy to follow one. Every trader can plan their trade, but trading one's plan is what good traders strive to do. A good trader has the capacity to admit when they are wrong and act accordingly. Those who stubbornly resist what the market is communicating have brief careers.

Impassivity: Since a career in trading means repeating successful trading strategies, a good trader manages their emotions. A good trader is capable of keeping an even keel every day, which means not being carried away by profitable trades or being demoralized by losing trades. Cognitive psychology and behavioral finance have often emphasized overconfidence as a root of biased trading decisions.

Intuition: A good trader should be able to find those market inefficiencies others have missed. Having said this, no trade is foolproof, and the unforeseen is just around the corner. While grounded in experience, a good trader can and will act upon intuition. By incorporating experience, market activity and available information, a good trader will be able to derive insight that may not be apparent to others. Working hand-in-hand with discipline, the ability to be receptive and understand what the market may be communicating means having an open mind.

These qualities were underscored most by the traders I interviewed. They, as well as other traits, are interdependent and work in concert with each other. The fact that there is overlap accents how important it is to understand all of them. It emphasizes that the technical skills of a trader are built upon the psychological makeup of the trader. A successful trader possesses not only technical skills and knowledge, but also a certain mindset applicable to trading. You could say it’s in their DNA.

Five Questions with Matthew Zimberg of Optimus Futures

Matthew Zimberg
Matthew Zimberg is the founder and president of Optimus Futures, a boutique futures trading brokerage that caters to retail and institutional traders via online trading platforms and stable data feeds, commodity trading advisors, and algorithmic trading systems. They are an independent introducing broker with multiple Futures Clearing Merchant (FCM) relationships, which allows them to deliver flexibility to their clients.

Matthew has over 18 years of experience in the futures and commodities markets and a deep understanding of low-latency trading technologies, advanced technical analysis and methodologies, and trading software development. He also is a big advocate of risk management.

Brian Mehta, CMO
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Real Good in Real Time

When I was a business school student in college, a standard exercise was to pick a number of securities, carefully roster them in a notebook and register the closing price each day throughout the semester. Information was gleaned from The Wall Street Journal, and when the dust settled, some students made money and some lost. I’m not sure we learned much given that we read about how our portfolio performed instead of actually experiencing the market and engaging with it.

How times have changed. For the better, I might add.

Now students can experience market dynamics, not just read about them. University professors understand that students need to move beyond the classroom and actually experience what they have been studying.

carnegie mellon university

Carnegie Mellon University

Carnegie Mellon University (CMU) is one example of a school that’s providing students with that real-world experience by leveraging our software through the TT CampusConnect™ program.

CMU offers both BS and master’s degrees in computational finance, a discipline that first emerged in the 1980s. Sometimes called financial engineering or quantitative finance, computational finance uses mathematics, statistics and computing to solve finance problems.

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A Chat with “Chat With Traders”

Aaron Fifield

Aaron Fifield, host of Chat with Traders

Aaron Fifield is a developing trader and host of the Chat With Traders podcast. Each week, thousands listen as he interviews successful traders and financial thought-leaders to extract their best insight. His inquisitivity goes beyond the mic. On the trading front, Aaron is learning how to code and pursuing algorithmic trading systems. This week, we’ve turned the tables on Aaron. And here are five questions with him.

Brian Mehta, CMO

How did you got involved in trading and what was your path to where you are now?

Aaron: After a short stint of trading a demo account, I went live with a $5,000 account. It was all very new and I'd never done anything like it, so I of course made a bunch of mistakes, i.e., taking positions far greater than I should have, paying too much for brokerage, making irrational decisions and falling victim to FOMO.

Skipping forward a few years, I'd had mixed results. My account went from red to green, green to red, and the cycle continued—and a frustrating cycle it was. It's worth mentioning, during this time I slowly drifted away from the “Gann way” and began to formulate my own strategies and setups—but still, mixed results.

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