trading-skills

Most people who aspire to land a career in equity, bond, or commodity trading have seen the cult classic movie Wall Street or its sequel Wall Street II: Money Never Sleeps. Some of our older readers aspired to be Charlie Sheen’s ladder-climbing Bud Fox, while our younger readers wish they were Shia LaBoufe’s wheeling-and-dealing Jake Moore. But we can all agree that the end game is to become none other Gordon Gekko, portrayed by Michael Douglas, whose massive trades could make or break the fate of the most successful companies. These are characters that have given countless college students dreams of making million dollar bonuses on Wall Street. Regardless of who your favorite fictional Wall Street characters are, they are characters based on people who are working the markets daily at firms like Goldman Sachs, JPMorgan, Morgan Stanley, and UBS. If you want to become of one those traders, you will need the following skills for trading.

Math

Math is an extremely important part of trading but not all trades are created equally. If you want to get into black box and algorithmic trading, you will at a minimum need to have taken advanced calculus and maybe even have a degree in physics or engineering! However, on the simpler side of the trading field, you will need to have basic math, especially odds and probability tight and wired. As Peter Lynch, the man behind Fidelity Investments, says, “Everyone has the brainpower to follow the stock market. If you made it through fifth-grade math, you can do it.

However, you need the ability to do that seemingly simple math on the spot in real-time with the markets. Think of it like a poker player who needs to calculate implied odds of each hand. As with anything, the higher the risk the higher the reward, so once you get beyond simple long-short trades into options and derivatives you can expect the math to get more difficult. For instance, if you wanted to employ the CAN-SLIM trading method by William O’Neil, known for starting Investors Business Daily, you will need some upper level college math courses. If you are looking into refining your math skills consider checking out a math course at Coursera or Udacity.

Market conditions are always changing. A trader has their eye on their Bloomberg terminal and is always planning for what to do next.

Market conditions are always changing. A trader has their eye on their Bloomberg terminal and is always planning for what to do next.

Planning

Most traders have a trading plan that they follow rigidly, and this is a personalized plan developed over time. Different traders have different levels of capital, risk tolerance, thought processes, and product focuses. The plan is a systematic program that tells you when you will enter and exit trades, and for every action there is a programmed a response. The plan needs to be solid and you always need to stick to the plan. Ultimately, it will help you mitigate risks and avoid bad decisions. Market conditions are always changing so a good trader may even have multiple trading plans. Even the best and the brightest traders on Wall Street have a plan. Take it from Fast Money commentators and traders themselves, Guy Adami and the Najarian brothers:

Have a plan; don’t chase the market; size your positions according to your taste for risk. At the least, you may be able to stay longer at the table.

Fail to plan and you are inadvertently planning to fail. Need to work on your trading plan? There check out some online guides that can help you build a winning trading plan, and then test your plan with the Chart Game or if your time horizon is long-term make som paper trades on Yahoo! Finance.

Traders in Action

Develop a solid trading plan one day you will be sitting in the hot seat…

Discipline

The stock market is  like a roller coaster. Pricing on any one single financial instrument can vary wildly on any given day based on investor, speculator, and trader sentiments.  Thus making a living trading day-in and day-out is not for the faint of heart. With thousands of dollars or more invested in a trade, it can be hard not to get emotional about it, and only a fool would think they are going to come out on top of each trade. Traders need to learn how to keep calm and cool in high-pressure situations. As Kenny Rogers could tell you, this is the one skill that is going to help you “know when to hold’em, know when to fold’em, and know when to walk away.” Discipline is really something that is learned with practice.

According to Mad Money’s Jim Cramer, one of the best ways to stay disciplined is stick with companies  you know and believe in, and  trade around core positions in those companies. So get out there and start practicing trading with demo software that is as close to the real thing as possible. Keep your plan readily visible near your computer and if you deviate from the plan and make a loss take a break. Keep calm, try to visualize the game plan, and analyze mistakes. Most importantly start with small trades, and as you build your discipline you can take more risk. Follow these steps, and in due time you will be a disciplined trader.

Discipline comes with time and practice

Discipline comes with time and practice.

To Sum it Up

In the Wall Street movies, Shia LaBouef, Charlie Sheen, and Michael Douglas make trading financial instruments look like child’s play. However, the hard reality is that making a living trading Monday through Friday 9AM – 5PM is a high pressure and high stress career. The markets can be fickle and investment pricing is extremely volatile, producing a certifiable emotional roller coaster for traders. But don’t let that deter you making a go at a career in trading. If you want to get a leg up on your competition, you might even want to consider one of many online trading courses. Everyday, thousands of traders are out there winning and losing millions of dollars, and sometimes even the ones who have lost at the end of any given year still get a hefty bonus for their investment bank employers. It’s hard to resist the allure of a Wall Street end of year payout, but just make sure you are have really honed your skills for trading – math, planning, and discipline –  before you step up to the plate!