Nine Trading Lessons

Lessons for Traders

Using your network

I heard a story about a guy who was asked how much money he made.  After being pressed he finally caved and told his friend.  His friend skips off happy as a clam to have his SECOND interview with a job he really wanted.  But when the topic came around to money, he wouldn’t settle for less than what his friend was making.  After I finish the story I’ll give you 9 trading lessons learned from this very different situation.

Sure, they did the “same job”.  But that’s where the similarities ended.  Needless to say, the guy got angry with his “well paid” friend. And here’s what happened:

  • The guy was angry because he countered the firms offer inpart due to his friends salary
  • The offering firm told the guy they would not pay him that much.
  • The guy then decided he would accept the lower offer.
  • Surprise!   The lower offer had long since walked away.

You can learn a lot about people by how they logic through information.  Clearly this was an epic fail.  But every fail is an opportunity waiting to succeed.  Hopefully you can transmute your “fails” into learning opportunities which result in your success.

This short story specific left me reeling the the guy would ever be accepted on a trading desk. O’m sure there are other roles for him, but trader may not be one.

The Job Interview and Skills of a Trader

  • 1) The Guy took a single salary sample and applied it to an equation with many moving parts.
    • Job offers are rife with land mines.  While you should never accept less than what you’re worth assess the moving parts within the negotiation (the culture of the firm to how many traders make money, etc.)
    • There’s no reason to use a single sample: www.glassdoor.com has great resources for job hunter
  • 1a) Rule X of Trading: Know the variables of any market they want you to trade.  Know the players and why and where the firm you’re interviewing with sits at the table.
  • 2) The Guy wasn’t able to see his own mistakes and ended up blaming his friend.
    • This is so short-sighted I don’t know where to begin.  Suffice it to say if something goes wrong in a negotiation the error was yours unless there’s proof to the contrary.
    • Hey, everyone puts their foot in their mouth.  But this Guy couldn’t accept his error.  It was easier for hi to point the finger at his friend.  It was all his fault for him announcing his base salary.  huh?
  • 2a) Rule X of Trading: Monday morning quarterbacking and learning from your trades is the only way to become a better trader.  Monday Morning Quarterbacking to assign blame is a waste of time, serves no purposes and annoys me.
  • 3) The Guy PRESUMED his mastery was equal to his friends’.  Further he PRESUMED his mastery was worth as much as a different firm
    • On a granular level, let’s presume both people have the same skills and paid the same at the same firm.
      • But at different firms the relative supply-demand for such skill sets may vary widely.
  • 3a) Rule X of Trading: Knowing relative value is essential and requires research of more than one data point to determine.
  • 4)Know the Market: Between 2008 and 2012 was a dark time for job hunters.  Countering a job offer may not be advisable in these market conditions.
    • The Friend didn’t survey the market very well.  Underpaid is better than unpaid.
  • 4a) Rule X of Trading is not to be profitable.  It’s to keep enough money in your account so you can turn on the lights the next morning.  Risk Management is key
    • As a trader you can always come back from a bad month of trading.  But not if there’s no equity in your account.
  • 5) The Friend bluffed and lost, he should have just moved on.
    • Instead he returns to accept their lower offer.  No surprise the reply is “thanks but no thanks”.
    • This reminds me of a bawdy joke: The punchline went something like this “Now that we know what kind of woman you are, we’re just quibbling over the price”
  • 5a) Rule X of Trading:  Never chase a trade. Git’er done!  But don’t keep lifting your bid every time the market moves up (or keep lowering your offer as the market trades lower).  TMI.
  • 6) In returning to the offering firm to accept the previously unacceptable offer, The Friend shows his hand: he’s desperate and has no other opportunities to fall back on.
    • Again, he bluffed and overplayed his hand.  He should have just walked away from the table.
    • The only thing worse than leaving money on the table is leaving your “tells”.  Money you can make back, but once the market knows your “tells”, it’s hard to bluff anymore.
  • 6a) Rule X of Trading: Even though we don’t face off in a physical pit, the prices you give to the market provide a tremendous amount of information to other players.
  • 7) The guy blaming his friend for simply answering his question instead of accepting responsibility for his weak negotiation skills.  The Blame Game is a sure path to failure.
    • This is one of life’s golden opportunity to show you a better approach, instead of blame.
  • 7a) Rule X of Trading:  Know your trading strengths and weaknesses before risking money.  Then you can’t blame exogenous factors when you lose.
  • 8) You’re only worth what a prospective employer is willing to pay you at a specific point in time.  Supply-Demand changes, for markets and job functions.
    • Going for coffee or drinks with colleagues may provide information about what you’re worth in that firm at that time.
    • Find out what the people currently working at the offering firm think of the firm.
  • 8a)  Rule X of Trading: Using market indicators to evaluate the strength of a trend isn’t the only way you can evaluate the relative risk-reward of a trade.  Let the market speak to you and then decide if the risk the market presents is risk you’re willing to take.
  • 9) Don’t take this stuff personally.  Learn and move on.  You DON’T KNOW WHAT’S GOING ON INSIDE THAT FIRM.  Even going out for drink with potential colleagues doesn’t tell you anything about senior management.  At least you know something about a potential employer if not today, in the future.
  • Rule X of Trading: You can’t be right 100% of the time.  Further if losses make you feel bad, you need to re-frame your headset.  Profitable days and losing days should feel the same emotionally.

SUMMARY & END POINT

  • What makes a good human trader who works with market indicators?
    • Someone who is disciplined and realistic.
    • Someone who will spend his timebuilding his system as follows:
      • 10% of his time on entry signals
      • 15% on exits and
      • 75% on risk management. 

I could go on with more attributes, but let’s leave it here for now.   It’s a matter of finding THE MARKET & STRATEGY YOU’RE BEST SUITED TO TRADE.  

At least that’s how I see it.    Have you ever had a situation where a colleague or friend put you in an uncomfortable situation?  I’d enjoy hearing your thoughts and I’m sure my readers would too.  Let us know what happened and what you did (if anything) to make the situation right.

 

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