Traders are all different. But to be successful some things are unavoidable. This list of trader essentials can serve as a rite of passage for every aspiring trader.
1. Read These Classic Books
There are thousands of trading and investing books out there but if you want to be in the inner circle you absolutely need to first read these two classics from Jack Schwager and Edwin Lefevre. Just about every professional trader has read these two books:
2. Watch These Films
There are a few good movies about trading. The Big Short, Arbitrage, Boiler Room and Rogue Trader are good. There are also some good documentaries such as The Inside Job, The Pit and The Warren Buffett HBO documentary.
But of course the all-time classic is the 1987 original Wall Street with Gordon Gekko himself:
3. Listen To These Podcasts
There are also a growing number of financial podcasts for traders to listen to. The best is Chat With Traders with host Aaron Fifield.
Fifield has interviewed a range of interesting traders including high profile guests such as Ed Thorp, Blair Hull and Tony Saliba.
Better System Trader with Andrew Swanscott takes a similar approach and is a good listen for systematic traders.
4. Keep Track Of Your Trades
As they say what you don’t measure you don’t improve. So if you want to become a better trader then keeping track of your trades is absolutely vital. Doing so can be as simple as using a notepad or spreadsheet or as complex as using a dedicated software like EdgeWonk.
Either way, make sure you are disciplined enough to track all of your trades and go through them regularly and analyse the data. This is one of the best ways to improve your trading.
5. Get A Good Charting Setup
Charts are a trader’s ‘eyes’ so having a good setup is crucial. Having said that, charting is quite a personal thing so you will probably want to try out different platforms and see what works for you.
6. Manage Risk
Reading books and taking courses can open your eyes to different strategies and techniques for making money in the markets. However, one thing all good traders have in common is that they know how to manage risk.
Managing risk means only taking on bets when the risk:reward profile is in your favour. It means only trading when you have an edge and protecting your capital when you don’t have an edge. It also means using a position size that is in proportion to your edge.
If you know your edge then you can calculate what position size will be optimal for your trading account. Of course, you are unlikely to know your edge precisely, so always be conservative with your calculations.
7. Learn To Code
These days it is becoming ever more important that traders learn how to code so that they can backtest their strategies and automate tasks.
Even if you don’t believe in taking a systematic approach, backtesting can be extremely useful for seeing what worked in the past and seeing the effect of different risk and portfolio sizes.
A growing number of traders are moving towards python as their programming language of choice. But there are a number of languages and different platforms traders can use to test strategies such as Amibroker, TradeStation, MultiCharts and Quantopian.
8. Take Regular Exercise
Exercise has the ability to clear your mind so that you can see things more objectively and make better decisions. Just the other day I took a brisk 30-minute walk and by the end of it realised I needed to place a trade in the US ten-year note!
By taking regular exercise and staying healthy you will be in a better frame of mind every time you take on the markets.
9. Learn About Yourself
Financial markets are complex with a lot of algorithms. But they are ultimately run by human beings making decisions. It is therefore vital that you learn about human psychology and the many mental biases that get in the way of human decision making.
Learning about how your mind works can help you to make better investment decisions and also helps you interpret the financial decisions of others.
10. Do What Works For You
An approach that works for one trader may not work for another. So every trader must do what works for them. This means studying what is working for you and finding out what is not working.
We all have strengths and weaknesses. Seek to improve your process so that you are moving towards your goal. Don’t pay attention to the noise and concentrate on doing what works.
Thank You For Reading
Joe Marwood is an independent trader and the founder of Decoding Markets. He worked as a professional futures trader and has a passion for investing and building mechanical trading strategies. If you are interested in more quantitative trading strategies, investing ideas and tutorials make sure to check out our program Marwood Research.
This post expresses the opinions of the writer and is for information, entertainment purposes only. Joe Marwood is not a registered financial advisor or certified analyst. The reader agrees to assume all risk resulting from the application of any of the information provided. Past performance is not a reliable indicator of future returns and financial trading is full of risk. Please read the Full disclaimer.