WHAT SKILLS DOES A MILLION-DOLLAR TRADER NEED?
I recently asked this question in a popular facebook group for traders and got a bunch of great answers (as well as some funny ones).
Let's have a look at the eight most popular answers.
#1 - DISCIPLINE
The top skill that this select group of traders think is important for a million-dollar trader is discipline. I don’t think anybody disputes this.
If you don't have the discipline to follow your trading strategy, your risk management, and your process, it doesn't matter how good your other skills and trading systems are – without discipline you have nothing. Discipline is the glue that keeps everything together. 👍
#2 - RISK MANAGEMENT
Another very important skill for a trader to have is risk management. Even if you have a very good trading system and you're disciplined, without properly managing your risks you will end up parting from your (million) dollars very quickly. Making ludicrous trades that risk 10% of your capital per trade (your trading system is brilliant and flawless, right?) – is a recipe for disaster.
#3 - PATIENCE
Million-dollar traders understand that trading is a life skill. Trading is not a “get rich quick” scheme – not this month and not even this year. For anyone who is serious about generating wealth for himself and his family, trading can be a great vehicle. But trading does require patience and a long-term vision of one's future. A million dollar trader will look at his performance on a quarterly or annual basis, and have projections for five, ten, and 20 years into the future. Weekly or monthly results are irrelevant for a million dollar trader. They are noise, not signals.
#4 - KNOWLEDGE
Quite a few traders said that knowledge is an important skill for a million-dollar trader. This is interesting. I would say it is important to have knowledge, but not the type of knowledge that most traders think.
A lot of struggling traders think they need to learn more about the markets and the strategies to become profitable.
However, that is not necessarily an issue for most traders. Rather than learning about markets, traders would be better off spending time learning about themselves and about human behavior – particularly the errors they are prone to make, and the commitment devices available to avoid making them.
Emotional knowledge is a critical part of a trader’s success and an important skill to master. Why do you break trading rules? Why is it so hard to keep your discipline? Why is it so hard to cut a loss and let a winning trade run?
Human psychology! Understanding how our brains work is by far more important than learning a new trading strategy.
The second piece of crucial knowledge that successful traders need is familiarity with statistics and probabilities: Drawdowns, recovery rates, losing streaks, volatility, risk of ruin, trade distribution, deviations and so on. A million-dollar trader needs to understand these to evaluate his strategies’ performance metrics.
#5 - AUTOMATED SYSTEMS/PROCESS
Automated processes make life easier for traders. Learning how to automate your processes as much as possible is essential to avoid becoming a screen slave.
However, using ready-made automated trading robots bought online for a few hundred bucks is a common mistake beginner traders make. With siren calls of easy money, online vendors of trading robots lure in naive traders. A million-dollar trader would never purchase a black-box robot without insight into what it does and how it operates. In contrast, he will follow a strict framework and have a lot of his tasks automated.
For instance, a million-dollar trader will have:
Trade and price alerts
Risk management scripts
Execution algorithms and trade management algorithms
Analytical programs to assess and backtest his algos
A trading journal to keep track of his trades
A million-dollar trader will not randomly jump on his phone and place a trade on something he saw on social media. He won’t place a trade because some 20-something youtuber thinks it is a “high probability” trade.
To be successful, every single trade must follow a process where most things are automated. Some traders will do their trading on full auto-pilot. But autopilot does not mean unattended trading. Some traders have a dream of robots doing absolutely everything for them. That’s naive – and dangerous. Managing automated systems requires a large amount of work, but most of the repetitive tasks must be automated such that only critical trading decisions and strategic tasks are left to the human trader.
#6 - BACKTESTING
A million-dollar trader needs to be good at backtesting. This is because he needs to understand how his system would have performed in the past. He needs the ability to analyse all the stats – and learn how to potentially improve his system.
Backtests should be automated. Manual backtests are nearly always a waste of time as traders see what they want to see and make a lot of mistakes inputting data manually. The only way to truly test a system is with automated backtests.
You could do manual backtesting just to get some strategy ideas but for proper statistical analyses over many years, only automated backtesting will do.
#7 - SELF-DEVELOPMENT
Markets are ever-evolving and ever-changing. Million-dollar traders know that they cannot afford to rest on their laurels. They know that they need to learn and improve every day to stay ahead of the competition. For a million-dollar trader self-development and continuous improvement is not a chore. Because when you’re passionate about what you do – the drive to improve and grow is effortless.
#8 - STRATEGY MATCHING HIS PERSONALITY (SELF-AWARENESS)
You would expect a million-dollar trader to trade a strategy that fits his personality: Echoing #4 above, he needs to be aware of his flaws and biases and take evasive actions against them. Frankly, without self-awareness there is no other way a million-dollar trader would keep his million dollars.
TWO STANDOUT COMMENTS
Finally, there are two comments that I want to specifically highlight:
This is 100% true. The skills required to be a successful trader does not change depending on your account size. Million-dollar traders didn’t just win a lottery or inherit the money. Those who did would most certainly lose it all unless following proper trading strategies. The only way you can learn all skills necessary to trade with a million dollars is if you start with a thousand dollars (or ten thousand) and work your way up.
The second comment that stood out was the one about subjective analysis complementing objective data.
This is spot on.
Too many traders have this illusion that they just need to buy a robot that will automatically trade for them and thus bring them easy riches. In reality, successful algorithmic trading is far more than just programmable rules and will require all of the skills mentioned above.