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Today we’re going to do something a little different. Today we’re going to talk about Trading in the context of your curriculum vitae and human capital. Reason being: in 2020 many people’s livelihoods were destroyed by government lockdowns and there was a massive shift to online trading as my contacts at Oanda and Pepperstone verified.
Faced with the prospect of prolonged unemployment, many people started to trade using their government stimulus checks. Brokerage accounts surged.
The question is: what is the usefulness, if at all, of learning how to trade and becoming a trader? What kind of skillset does it require? Does it increase your marketability? Does it make you more valuable?
Reality may be somewhat surprising.
Afraid of Being Fired? Become the Best at What You Do
In 2020, government lockdowns caused massive layoffs. And for 2021, many people that survived the first round of downsizing fear they will be next.
It seems like the most common “Plan B” is to become a trader, based on what happened last year: many people started to trade using their government stimulus checks and brokerage accounts surged.
What I’d like to give you are some inputs that I wish I had received back in the day before I left my job to trade full time. Many people that have come to me for coaching ultimately had little respect for their day jobs, not realising how much peace of mind and stability a regular paycheck can offer.
Instead, driven by their ego and with a total lack of gratitude for what life had given them, they were ready to throw it all to the wind in order to trade full time (without even knowing what the job of trading required or entailed).
Trading is an entrepreneurial job that takes years to master IF you receive the right information. And even with the right information, it will still take time to build up your consistency. The markets have no mercy: you cannot be a mediocre trader. You are either making money or you aren’t. Your capacity to make money depends on your own skills. A bad day in the markets can wipe out months of gains if you don’t have the discipline to sit on your hands and wait for setups; or if your position size is off. And then there’s the occasional black swan, where even your stop loss can’t protect you (think about the SNB event).
So there is no guarantee you’ll get paid at the end of the month…and that shouldn’t even be your goal. Your goal should be to grow your account to a size that is meaningful. Or , even better, create a track record and then approach a funding partner (get in touch if you have a track record already and you are looking for funding).
Going back to my advice regarding your day job, know this: the bottom 10% of people will get fired, even during the good times. There is no room for underperformers or people that don’t take responsibility for their results. Start being invaluable to your employer.
Network with colleagues, work later, be consistent, strive to be the best.
Your career is how you transform your human capital into cold hard cash. And you will want to save as much of that cold hard cash as possible if you want to become financially independent or at least have a decent quality of life during the retirement years.
Leaving my Job to Become a Trader
As you may have read in the pages of my book, when I was young and a bit too arrogant, I left my job to become a trader. So trust me when I tell you it’s almost impossible to trade your way out of a hole, if you are under pressure to perform. I learned this the hard way. As I say to my coaching students: learn from me, because I’ve most likely made every mistake in the book.
When I set out to trade:
· I had experience in the sector, having been a sales trader and technical analyst;
· I had issued proprietary intraday trading signals for clients;
· I had personally helped various clients stay out of trouble;
· I had a bachelors in Economics and a Masters in Finance;
· I knew how to manage risk to a certain extent.
And yet, having to pull a salary from the market was simply not possible. Personally, after the first 4 months I was at a point where I seriously doubted my capacity to trade (given all the pressure I was under) and I went back to full time employment for a year. This also goes back to having diversified income streams. The better your personal situation, the less stress and pressure you will be under.
You need to be in a place where you can calmly grow your account, without taking money out of it to pay the bills. But admittedly, most people just do not have that situation. This is why I have established a clear path to getting funded through FCI Markets (and more partners are on their way). If you can demonstrate a certain degree of consistency in your trading (on real money), then you need not worry about capital.
Rarely (if at all) is wealth built via trading. Wealth is built by saving up. Once you have savings, you can start to diversify. Wealth is built through a relatively small number of concentrated positions. For example, your career or your day job along with that of you companion or spouse.
Also, it’s best to not trade your own capital but instead to trade other people’s capital. The math goes as follows: let’s say you have a reasonable amount of risk capital (which should be 5-10% of your savings)…$500.000. The first year you make 20% or $100.000. To some, that may sound like a great accomplishment. Let’s say you withdraw $80.000 for living expenses. Your trading account is at $520.000. Now what if the second year you don’t make 20%. What if you make 10%? Can you break even with your living expenses if you make $50.000? Of course if you’re a fan of the F.I.R.E. movement and live a frugal lifestyle, you may even need less to live. But honestly I don’t know many people (in G10 economies) that have a family of 4 who can live on less than $30.000-35.000/yr. So the risk is that you eat up your hard earned profits, instead of compounding them. What if the third year produces a loss? What then?
To make a long story short: if you’re interested in trading the financial markets, your objective should not be to trade your own capital. Your objective should be to trade other people’s money. Here’s how I would do it:
· Maintain my day job, to keep the pressure off;
· Find a mentor (someone who actually trades for a living) and pay him to learn (your day job will allow you to invest in your own education);
· Trade around my day job, until I reach consistency with certain risk metrics (because we’re talking about crafting a long-term career, not just making money here & there);
· Explore the environment: do I want to trade for a fund? Do I want to be a systematic/quantitative trader? Or do I lack that skillset, and am comfortable settling for the rules-based discretionary side of the business?
What is required to be a successful trader over the long run?
Being a trader means you need to make money over time (long-term), not every day or every week or even every month. You will make money as long as you have a trading edge.
Edge = win% * avg win% - loss% * abs (avg loss%)
Without a positive rolling expectancy, you will ultimately go broke. The market is not an annuity. The market does not consistently reward the same style. This leads to the next question:
How long will it take me to build a robust trading strategy?
There’s a story about a lady who asked Pablo Picasso to draw something on a paper napkin. Picasso did so, but then asked her for a small fortune in exchange! The lady exclaimed: “you want me to pay you a fortune for having drawn just 3 lines in 3 minutes!” To that, Picasso replied: “It took me 30 years to know how to draw those 3 lines”.
It’s kind of the same thing with trading: it takes a long time to perfect a strategy. In my coaching, I help traders learn a strategy in the 1st month, start demo trading it in the 2nd month and hopefully walk away with a decent handle on things in the 3rd month. But that’s just the beginning of the journey. I’m still constantly looking to simplify and perfect what I do.
And do not make the mistake of thinking that systematic trading is simpler. There are some good books out there on systematic trading by Robert Carver and Andreas Clenow. There are courses taught by Ernest Chan and Laurent Bernut. However, to be a competent systematic trader you need to be both a competent trader AND a competent programmer.
Are You Saying I don’t need a Degree in Economics?
While formal education is not strictly necessary to become a consistent trader, a university degree can help in some areas. If you want to become an algorithmic trader, you are going to need to know advanced math, computer programming and the basics of finance at a minimum. Being an Ivy League graduate and having programming skills is also a basic requirement if you want to get your foot in the door at Citadel or some other large hedge fund.
But even if you don’t want to learn programming skills and are content playing the rules-based discretionary angle, you will need to work on certain basic skills:
Learning how the markets move, which requires relevant screen time. I’m here to help, but if you want free material then look up some of Linda Raschke’s material.
Patience: you need to be a patient individual. Be the Jedi, not the Sith. You will need to learn to let the market offer quality trades.
Grit: perseverance in the face of strings of losses.
Passion: you will need to actually enjoy the process of trading to a point.
Analytical mindset: the ability to look at a problem from different angles.
Basic calculus.
Financial literacy.
So while not being necessary, having studied economics and finance in school definitely helps. However, don't get a degree in Economics and Finance if your sole objective is to trade the markets. Go through Economics and Finance with the objective of becoming an accountant, a financial controller, an equity analyst or some other job that is aligned with your degree and has a reasonable probability of giving you stable employment. That way you will have a salary and will be able to save up so by the time you have perfected your trading skills, you'll actually have risk capital to trade and build your track record on.
But if your interests lay elsewhere, do not fret! My own dad didn't have a background in economics. He did something completely different. But on the side, he studied the markets and eventually transitioned to trading full time. But this was only possible because of the savings he had accumulated (with my mom's of course) via his career.
What Skills does a Trader Possess?
We need to bring this conversation back to the actual job of trading and just how valuable you will be to prospective employers if you want to maintain a day job, or a side job that can pay the bills while you trade.
Ultimately, my experience has taught me that:
Your value as a trader is directly proportional to your capacity to make money. End of story. If you’re a mediocre trader, no serious firms will want to fund you or bring you aboard. Firms will want to see at least 1-2 years’ worth of consistent performance on real money, with decent risk adjusted metrics (Sharpe Ratio, Ulcer Index, Calmar Ratio, etc.) before they will even bring you in for the interview.
However, trading is an entrepreneurial job that requires the same level of dedication as professional athletes. There’s nothing easy about trading. And to make things worse, there is no “middle ground”: if you’re not making money with your trading, then you’re still learning. You either make it, or you don’t. In some lines of work, there are many shades of competence. In trading, there isn’t. You are either a trader that can make money, or you cannot. You can’t do it for the money. You will only succeed if you are interested, passionate and determined.
In the spirit of helping you become more valuable to prospective employers, and also gain skills that can be used in multiple environments, here are some venues I would strongly suggest looking into:
1. Learn to code. Python and R are two common languages that are used in the financial industry. By being a trader AND by coding your own work, you will be much more valuable to prospective employers because your skills can be used for more than just your own trading model.
2. Stay away from websites like seeking alpha, zero-hedge, CNBC. Unless you want to trade unexpected news events (which in my humble opinion can be used as a satellite model, but not a core trading model) you can ignore the news. Also, when traders backtest their strategies, they do so on cold hard data, ignoring fundamentals or sentiment.
3. Read up on the best trading books ever written: What i learned losing a million dollars; The Market Wizard series by Jack Schwager; Beat the Forex Dealer by Agustin Sylvani; Leveraged trading by Robert Carver; the Way of the Turtle by Curtis Faith; Reminiscences of a Stock Operator and How to Trade in Stocks by Jesse Livermore; and of course, Building a Trader.
4. Open demo accounts and test your model. You need to become consistent for at least 3 months before you can deploy any real money.
5. Remember: making money is hard. If it was easy, everybody would be rich.
6. Learn how to lose well. Losses are inevitable. Don’t take them personally. You are not your losses. They are just part of the game.
7. If You need help, just reach out to me.
If you want to find a job as a trader, just take a look at the current requirements on Efinancialcareers.
And if you're set on learning how to code, depending on your age and objectives you may want to investigate the World Quant University (free) or DataCamp (which also has free courses).
Over to You
The bottom line is that unless you want to become a systematic trader (which entails learning how to program) the skills you will develop as a trader are not readily marketable. For example, an equity trader I know was let go in 2010 and despite 10 years' experience in the markets, he still had to get a CFP certification in order to transition to his next job.
So don't be in a hurry to throw away a promising career in order to trade the markets.
And don't study economics if your only interested in trading the financial markets, and have no other interest in the financial sector.
You can always learn to trade around your day job, so go and get the job you really want. Do what it takes to become an invaluable employee. And then, on the side, learn to trade. The skills you will build up on the side may not be of interest to potential employers, but they will allow you to create a side income (at least intially) and do something you enjoy, while maintaining the security of your day job in the interim.
You really can have the best of both worlds. And I'm here to help you get your trading on track if you want to get started.