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The Greatest Traders

Pivotfarm's picture





 

 

What separates the 10% that make money from the 90% that don’t?

10,000 hours.

In his recent book ‘Outliers’ Malcolm Gladwell describes the 10,000-Hour Rule, claiming that the key to success in any cognitively complex field is, to a large extent, a matter of practicing a specific task for a total of around 10,000 hours. 10,000 hours equates to around 4hrs a day for 10 years. For some reason most people that ‘try their hand’ at trading view it as a get rich quick scheme. That in a very short space of time, they will be able to turn $500 into $1 million! It is precisely this mindset that has resulted in the current economic mess, a bunch of 20-somethings being handed the red phone for financial weapons of mass destruction. The greatest traders understand that trading much like being a doctor, engineer or any other focused and technical endeavor requires time to develop and hone the skill set. Now you wouldn’t see a doctor performing open heart surgery after 3 months on a surgery simulator. Why would trading as a technical undertaking require less time?

Trading success, comes from screen time and experience, you have to put the hours in!

Education, education, education.

The old cliché touted by politicians when they can’t think of anything clever to say to their audience. The importance of education to success in trading cannot be placed on a high enough pedestal. You have to learn to earn, the best traders work obsessively to refine their edge further to stay ahead of the curve.

Think for yourself.

“NO! NO! NO!”… “Bear Stearns is not in trouble”…”Don’t move your money from Bear! That’s just silly! Don’t be silly!”

A quote from well known stock guru Jim Cramer aired on CNBC days before Bear Stearns lost 90% of its value. Many followed this call and felt the obvious pain as a result. As the old saying goes, “too many cooks spoil the broth” it is very much the same in trading. Successful traders blinker themselves from the opinions of others; they focus on their own analysis of fundamental and technical information.

Adapt or Die.

Market conditions change and technology advances, thus the conditions for trading are always evolving, the rise in mechanical trading is testament to that. The very best traders through a process of education and adaptation are constantly staying ahead of the curve and creating ever new and ingenious methods to profit from the markets evolution.

Fail to plan, you plan to fail.

The best traders have a well documented plan; they know exactly what they are looking for and follow that plan to the letter. Their preparation for a trade starts long before the market open, it is this meticulous planning and importantly adherence to that plan that helps them avoid the biggest demons for any trader, over trading and revenge trading.

“Be like Machine”

As human beings emotions pay a key role in our existence, for a trader emotions can be a source of great pain. Trading psychology and the management of your emotions in a trade play a key role in overall success. Fear and greed can cut your winners short and let your losers run. Dealing with emotions follows on from your plan; the more robust your plan the less likely you are to fall into the emotional mine field.

Know your tools

Every trader has a set of tools they use, DOM, Charts, News feeds etc. These tools are a traders bread and butter; they are the most vital part of a traders arsenal, without which it would be impossible to trade. The best traders have mastered their order entry methodology, they know all about the features they need from their charts. This mastery of their tools, allows the trader to get the very best out of the resources they have available to them and ensures perfect execution of their trading ideas.

Know Thyself

Behind all the egos and excess, the best traders know their limitations; they focus on what can go wrong in a trade, and expend a lot of energy in limiting and controlling their risk before thinking about profits. They have a heightened sense of self-awareness and focus on incremental self improvement.

Profit & Loss

The best traders focus on the trade itself rather than the P&L; they view each trade as a technical exercise and focus on getting the most out of the market in accordance with their plan. They do not think in terms of the grocery payment, the electric bill and the desire to make X amount to cover a mortgage payment. Focusing on the money behind a trade can cloud technical objectivity.

In Conclusion

The greatest traders work hard to get ahead and even harder to stay ahead. Through increased and niche knowledge they constantly adapt with the market and remain profitable in every environment. Drive, tenacity and the will to succeed is the greatest edge of every successful trader.

Harvesting profits from the financial markets - www.pivotfarm.com 

 

 


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Thu, 07/22/2010 - 11:12 | Link to Comment Eric Cartman
Eric Cartman's picture

I wish I had done this today!

Tue, 07/20/2010 - 10:45 | Link to Comment AchtungAffen
AchtungAffen's picture

What is this? The Juujitsu of a seriously unproductive activity? Why don't you use those 10000 hours with a shovel, or plowing the fields, or something that actually does something not just for yourself but for the rest as well...

Mon, 07/19/2010 - 22:53 | Link to Comment lolmaster
lolmaster's picture

bro, sorry but that guy's book is a load of crap. think SMARTER not longer and harder

Mon, 07/19/2010 - 21:24 | Link to Comment tony bonn
tony bonn's picture

there was some very sensible wisdom in this article although 20-somethings did not cause our problems....40s-70s somethings with 20-something maturity caused our financial mess....masters of the universe came to our rescue to enslave us....

Mon, 07/19/2010 - 20:11 | Link to Comment crisptoast
crisptoast's picture

I trade the FX market.  I usually don't read blogs.  Just signed up with ZH and have read the above article and all of the comments.  Seems like time could be better spent doing something else besides this.  :-} 

Tue, 07/20/2010 - 06:30 | Link to Comment scratch_and_sniff
scratch_and_sniff's picture

It depends on the "something else" that you had in mind.

Mon, 07/19/2010 - 18:49 | Link to Comment Pooh-Bah
Pooh-Bah's picture

The 10-90 rule exists because it measures humans, not activities.  A new business venture faces the same odds.  Out of 10 people mowing lawns for a living, one of them will do quite well.  The other 9 will come up with every excuse imaginable for not excelling at running a business.

Mon, 07/19/2010 - 17:03 | Link to Comment P-K4
P-K4's picture

...and then there's the unofficial book of traders secrets:

1.) It helps to have insider information

2.) Awarding yourself options at or near zero will always net you big profits

3.) Sharing your profits with the right politician can increase your future earning power

4.) When co-mingling funds, the losers are others people money and the winners are yours

5.) The house always wins on commisions, taxes and fees

6.) If you're big enough (e.g. a billionaire), you may be able to manipulate markets to make even more

7.) Employ Hollywood sensationalism as much as possible to pump up your holdings and sell shortly thereafter

In conclusion, you can bust your ass but all you want but cheating makes a difference!

 

 

Mon, 07/19/2010 - 15:57 | Link to Comment rolo
rolo's picture

And I thought all you had to do was cut your losses, ride your winners, keep your risk small and trade with the trend?

Wait a minute, THAT is all you have to do.

Mon, 07/19/2010 - 14:55 | Link to Comment Gunther
Gunther's picture

So to trade successfully, I have to learn.

What a new insight!

But, what exactly do I have to learn?

Something like "avoid the first and last ten percent of a move because that is the most dangerous part of it" seems like infinite wisdom in comparison to this article.

Tue, 07/20/2010 - 06:33 | Link to Comment scratch_and_sniff
scratch_and_sniff's picture

How do you tell where the first and last 10% of a move is again? I forgot how to do that.

Mon, 07/19/2010 - 14:23 | Link to Comment ATG
ATG's picture

Here's a link to the 12th Meditation of Marcus Aurelius, perhaps at least as instructive:

http://classics.mit.edu/Antoninus/meditations.12.twelve.html

Mon, 07/19/2010 - 20:25 | Link to Comment mephisto
mephisto's picture

+1, good to see the stoic emperor on ZH.

Mon, 07/19/2010 - 14:10 | Link to Comment kaiserhoff
kaiserhoff's picture

I enjoy reading Gladwell, but he's a bit of a simpleton.  The guy has no specific discipline and does no original work.  He simply popularizes and comments on the work of others.  One of his examples of 10,000 hours of practice was the Beatles, for god's sake.  Now if he were describing a really tight, talented band like the Eagles, Queen, or Crosby, Stills, he might have a point, but the fucking whining, minimalist Beatles?

10,000 hours of what?  That's the point.  Most successful traders are superspecialists: quants, arbs, bond dudes, etc. to the point where only one guy in a thousand even understands what they are talking about.  There are areas where knowledge is cumulative and useful.  Comparative advantage is the key.  Ten thousand hours spent staring at charts probably won't help because prices don't repeat, and future prices will be based on things that haven't happened yet.  Crystal balls and astrology anyone?

As for day trading Taleb (author of the Black Swan and Fooled by Randomness) says it doesn't work, because short run price movements are just background noise.

Mon, 07/19/2010 - 14:19 | Link to Comment cognitis
cognitis's picture

US financial media have offered Taleb as the "wizened sage" variety of Clown. Taleb argues incoherently with anecdotes such as his Black Swan fable in order to prove markets to be falsely described by normal distributions; which argument has been universally known by option traders since before exchange-traded options, since all options are priced with "fat tails". Taleb's "hedge fund" Empirica failed, and Taleb has never demonstrated himself to either trade well consistently or else to know anything at all about trading markets. Your crediting Taleb's arguments demonstrates you both to not trade well consistently and also to not know anything about trading: you read Taleb willingly and comprehend his arguments and precepts, because you both consent and perceive makets similarly--as losers.

Mon, 07/19/2010 - 14:34 | Link to Comment kaiserhoff
kaiserhoff's picture

which argument has been universally known by options traders...

There's a classic piece of bullshit.  You seem to have spent far too much time mindlessly reciting the Koran, and pounding your head on the floor.

I'm not a disciple of Taleb, although I think his grasp of applied statistics is excellent.  I'm simply pointing out that stat analysis can help determine the art of the possible.  Traders waste a lot of time and energy.  We can and should target our efforts to our own natural talents and life experience.

Mon, 07/19/2010 - 15:13 | Link to Comment cognitis
cognitis's picture

Thanks for your response. If you estimate Taleb to be expert in Statistics, shouldn't you necessarily expect Taleb to presume normal distributions to accurately and truly describe markets? If any reason other than that of Statistics accurately and truly describes markets, wouldn't you expect disciples of that other reason to better than a statistician describe markets?

Mon, 07/19/2010 - 17:32 | Link to Comment Sucks_to_be_Smart
Sucks_to_be_Smart's picture

Being an expert in statistics does not necessarily force you to assume a normal distribution for any "market".  Please explain how you came to that conclusion.  In fact, almost all markets don't follow normal distributions of daily, weekly, monthly returns.  ND is just assumed in the classic Black-Scholes option trading model assuming Brownian motion and a bunch of other outdated, simplified assumptions for the ease of use and practicality. 

I think the main point here was that this article literally did not mention luck ONCE, which is plain ignorant.  All those other quick to judge conclusions you wrote in your previous post are without warrant.

 

Thanks a bunch

Mon, 07/19/2010 - 18:30 | Link to Comment cognitis
cognitis's picture

Thanks for your response, but please accurately render my arguments: I never used "force (compel?)". All statisticians and their methods perceive propositions or data according to the discipline of Normal Distribution: T-Test among other methods measure truth by variance from values expected under the Distribution; so for statisticians, whether or not stock prices are "random" depends solely on whether or not prices are normally distributed. Taleb as described by prior postor is an expert in statistics, so that postor estimates Taleb to measure truth according to the Normal Distribution (I trade but I wouldn't introduce myself to prospective clients as a violinist, right?). I argued that statisticians such as Taleb should be ignored having rejected statistics as a discipline for accurately describing markets; instead I argued that one should pursue the discipline or ratio that does describe markets accurately. And luck or fortune plays no role at all among professional traders, as only tiros "get lucky".

Mon, 07/19/2010 - 20:23 | Link to Comment mephisto
mephisto's picture

Cognitis - there is a huge amount of data now available showing that the normal distribution is inadequate to describe equity markets (for example).

The statistical discipline you are describing is usually applicable in time-independent situations where small sections of your sample don't interact with each other too much. In markets however, because each tick follows each other, there is some influence from one to another. Equity markets can have a memory, and as such they can reflect fear and greed.

Imagine running a survey on people who could communicate with each other before answering your questions - that skews your results and not surprisingly the normal distribution isnt the correct tool any more.

Equity markets actually follow something called a Levy Distribution. Option traders know this. (Or at least use models written by those who know this, without personally knowing it. Many option traders have the mathematical skills and attention span of a cheesy fart, but hey.)

Not sure how much detail to go into here, the subject is huge. Book reference is Bouchaud & Potters.

http://www.amazon.com/Theory-Financial-Risk-Derivative-Pricing/dp/052174...

 

Mon, 07/19/2010 - 20:00 | Link to Comment Sucks_to_be_Smart
Sucks_to_be_Smart's picture

My friend,

I have to politely offer a different opinion.  the normal distribution is but one of a large set of continuous distributions.  having done a simple 2 second google search: http://www.xycoon.com/continuousdistributions.htm you can see that there are literally hundreds and thousands of distributions when you adjust their parameters.  Your t-distribution mention and t-test is just estimating a normal distribution with a less than infinite sample size and finite degrees of freedom.  Some statisticians argued that asset prices or at least equity returns followed a normal distribution.  It resembles that of a normal distribution.  Clearly it is not as equity returns exhibit signs of skewness and kurtosis (fat tails), and the normal distribution does not have skewness and has a kurtosis factor of 3 which is not what you get from calculating it from historical returns. 

 

For the sake of a simplistic model, some statisticians argued or assumed a normal distribution for equity returns.  Taleb actively acknowledges that the real distribution is not normal and thus his whole strategy was to buy otm calls/puts as he thought they were undervalued in the event of a black swan event.  I'm not saying he's right or wrong, but those are the facts. 

 

Luck is a HUGE factor in trading.  having spent time on a bulge bracket trading floor with "professional traders", I don't agree with your statement.  No professional traders can predict all the events liable to happen in a day/month/year to alter their positions or their potential positions.  this is a naively purist statement.

Mon, 07/19/2010 - 23:37 | Link to Comment scratch_and_sniff
scratch_and_sniff's picture

 

http://www.stat.sc.edu/~west/javahtml/CLT.html

Get the fuck outta here with your luck schmuck.

If i know at any point, that there is a greater probability that one thing will happen over another in a large enough sample size, i can do the following; run every trade in the sample set, over the time it takes to finish. This will let any probabilistic edge play out, whether the edge is technical or otherwise, central limits theorem will act as it has since the dawn of time. I am not depending on luck, I’m depending on the bog standard facts of reality. If i am depending on anything, i am depending on getting myself motivated to sit at the screen all day...is it luck that nothing should distract me in the process? well, thats another matter.

BTW, the traders who were depending on luck in NT's book blew up, hence the point of the book!! You must have been making the tea at that buldge- bracket, because you really weren’t paying attention if you think they employ people to be lucky.

 

 

 

 

Mon, 07/19/2010 - 14:05 | Link to Comment cognitis
cognitis's picture

Fortune or luck by definition play no role in speculation.

Mon, 07/19/2010 - 13:54 | Link to Comment anony
anony's picture

Gee, and not one single syllable about the role of Lady Luck in the whole piece.

NOTHING of great import was accomplished without a great deal of good luck. (and inside information).

 

Mon, 07/19/2010 - 13:47 | Link to Comment Gully Foyle
Gully Foyle's picture

Awww, Fuck! Cognitive Dissonance changed the bullshit he spews.

Goddamn it! Another mind numbing multi-part series of blather and gobbledygook just around the corner.

 

 

Mon, 07/19/2010 - 13:47 | Link to Comment anarkst
anarkst's picture

"What separates the 10% that make money from the 90% that don’t?"

 

What fool would participate in such rigged markets?

Tue, 07/20/2010 - 00:48 | Link to Comment SuperBull
SuperBull's picture

Jedi Master...

Mon, 07/19/2010 - 13:11 | Link to Comment Sucks_to_be_Smart
Sucks_to_be_Smart's picture

I apologize if you find the tone of my post abrasive but this sounds like a new trader advice column, which i would argue is not up to par to ZHs standard of reporting.  This is essentially an advertisement column  for the providing website.  What gives?

 

And...

Recent?  That book came out 2 years ago.  Hmm... what's happened to the state of international financial markets in the last 2 years?  Everything turned on its head.  Basically the entire game changed.  I have a slight semantics problem calling anything 2 years ago recent... maybe i'm biased...

I'd suggest the site responsible for the recap also do a recap of Taleb's Fooled By Randomness.  Where is the 10-90 % split statistic coming from?  This sounds slightly like inference of similar qualities from a group of traders who are still around--which has a slew of problems with the conclusions--where is the accountability for randomness?  A lot of trading is luck.  Or educated guess luck, right place right time, etc.  I feel like the best one here is don't be too greedy.  know when to get out.  my main problem.  if you aren't doing or abiding by the other ones...then what are you doing?

 

-1 sorry!

 

Mon, 07/19/2010 - 12:58 | Link to Comment lettuce
lettuce's picture

this was a fun book to read. i'm surprised nobody has even mentioned that point on this thread as of yet. the 10,000 hours rule was a neat concept about which to ponder.

Mon, 07/19/2010 - 12:20 | Link to Comment Alexander Supertramp
Alexander Supertramp's picture

Sisyphus would be proud, Pivotfarm.

Mon, 07/19/2010 - 12:06 | Link to Comment DavidC
DavidC's picture

overleveraged and luckylogger,
I agree.

i went to a great seminar in London a couple of months ago where three successful traders were presenting. Two of them quoted the 10,000 hours. One of the two showed quoted responses to questions from successful people - Tiger Woods (golf, not his personal life!) responded to each question with 'Practice, practice, practice'.

A good posting.

DavidC

Mon, 07/19/2010 - 12:01 | Link to Comment akuacumen
Mon, 07/19/2010 - 11:58 | Link to Comment Tic tock
Tic tock's picture

Anyway, what are the odds Bette Midler is a tranny?

Mon, 07/19/2010 - 11:55 | Link to Comment RottingDollar
RottingDollar's picture

Only relevant point is “Be like Machine”.   Problem is we have machines and making the trader soon as extinct as the dodo.   

Mon, 07/19/2010 - 14:57 | Link to Comment i.knoknot
i.knoknot's picture

don't fall for that one, RD.

having "the machine" with the dark-pool fiber connection is a good start, but somebody has to program "the machine".

if you are going to play against the 100 year machine, expect to lose a few rounds when you go in...

the article advice is good, although it will seriously bother those who are *still* looking for the silver bullet.

that would probably be best defined as insider info/trading.

and the article does assume a rational market. 10,000 hours might enable one to find signal in this noise.

"be careful out there"

Mon, 07/19/2010 - 23:08 | Link to Comment scratch_and_sniff
scratch_and_sniff's picture

10,000 hrs...i could take a plebe off the street and turn him into a good trader in a few days. Sit him down, tell him to hit the button when ever the 2 little lines cross, no exceptions, and to set a stop. Do it consistently and every time he dosent do it, hit him in the face with a fucking cicket bat. Out pops a trader.

Sat, 07/24/2010 - 01:20 | Link to Comment i.knoknot
i.knoknot's picture

after reading that, i'm picturing that scene in ghostbusters where the dude in the psych-lab is getting zapped when he's guessing the cards wrong (and bill murry is flirting with the chick)... then (lost in the background of the scene) the guy starts getting the cards right... bill murray doesn't notice or care. classic.

zap the newbie when he loses money... :^)

Mon, 07/19/2010 - 11:53 | Link to Comment mephisto
mephisto's picture

Love the tags to this article.


Sadly the rest is just standard stuff. It's not wrong, but I'd expect more from ZH is all.

Mon, 07/19/2010 - 11:52 | Link to Comment Tic tock
Tic tock's picture

Yeah, but you've got to keep thinking how to sort out the mess, can't lose it too much, got to know when the odds are you're right- and if it'll make a difference.

Mon, 07/19/2010 - 11:44 | Link to Comment PicassoInActions
PicassoInActions's picture

I hate this article , cause i do totally opposive all the time and ofcause lose all the time.

While i understand what i am doing it wrong, somehow i still manage to do it wrong.

 

Mon, 07/19/2010 - 11:40 | Link to Comment luckylogger
luckylogger's picture

I must agree with overleveraged..

This is the best thing I have read today.

Have been trading futures for 6 1/2 years now and I have hit every cycle described more than once. Any good trading site should be constantly reminding us how dumb and human we really are !!!!!

Mon, 07/19/2010 - 11:31 | Link to Comment the grateful un...
the grateful unemployed's picture

What I want to know is how to sell trading systems to people who think they can make money trading. Theres a lot more money in that, and you sleep at night, then if you're really good, you sell trading seminar training so other people can sell trading systems. Or possibly even third level marketing schemes.

Mon, 07/19/2010 - 11:30 | Link to Comment Careless Whisper
Careless Whisper's picture

if you can follow the ideas in this post you will make money. it's a lot harder than it looks.

 

Mon, 07/19/2010 - 11:28 | Link to Comment Reese Bobby
Reese Bobby's picture

Statistically there has to be a top 10 in any sample.  A one variable model is usually to poop on?  In my experience good traders are simpletons in an admirably adaptive way…

Mon, 07/19/2010 - 11:24 | Link to Comment Overleveraged_a...
Overleveraged_and_Impatient's picture

This is a good article. New traders should realize that no message board, FAQ, article, book or any reference is going to make them a good trader. They tend to focus their time on searchin for the Holy Grail online, but the fact is nothing will teach you besides experience.

My reccomendation is for everyone to go out and lose money. Thats right, LOSE money. Lose until it hurts. Lose until you stop sucking at trading. But lose what you can afford, like 100$ at a time maybe.

If you're a good trader, you should be able to take 100$ and build it to whatever fortune you'd like.... So get in, be wrong, get frustrated, debate suicide, get on a winning streak... get margin called after your winning streak, lose more, hate life.. but KNOW in the back of your head that this is what you'd like to do and it will pay off.

Tue, 07/20/2010 - 01:29 | Link to Comment Overleveraged_a...
Overleveraged_and_Impatient's picture

I don't touch equities. Only Forex.

And I don't listen to hypes, tips, i stopped caring about 95% of 'fundamental' data and I don't let anything but my own discretion determine a position. I stick to the charts. The charts are just about all you need. Sometimes news may take you quicker from one price to another, but its all on the charts.

Mon, 07/19/2010 - 23:01 | Link to Comment scratch_and_sniff
scratch_and_sniff's picture

You didnt say how i should lose it?

Tue, 07/20/2010 - 01:10 | Link to Comment Kobe Beef
Kobe Beef's picture

Try trading front month natural gas options. This loses me money every time.

Do NOT follow this link or you will be banned from the site!