What Sets the Best Traders Apart?

With the countless books written about trading over the years, you’d think that someone should have cracked the code by now. That, along with all the historical data available and the ability to test any number of trading systems, should mean that someone would have developed one best approach.

Yet if you go online and do a search for books on trading, you’ll be swamped by thousands of titles. Some will be on value investing or fundamentals; others will be on charting. All claiming to have their own unique approach.

Some you might find useful, others might just be a rehash of something you’ve already read. But to me, much more interesting is the human approach. That is, what sets one trader apart from another — much harder to write something definitive on that.

Some traders use the most complex of tools — algorithms and quantitative strategies beyond the comprehension of most of us. You might need an advanced degree in physics just to get started. Yet some traders I’ve worked with were the complete opposite. Their system was so simple that it left you scratching your head. Surely there must be more to it than that?

One of the most successful traders I worked with decided to take me under his wing. Each day, he was going to run through the trades he did, and why he did them. Then, compare his trades to mine.

Yet when it came to explaining each trade, his answers would inevitably fall into two camps. He bought it whenever the market looked ‘oversold’. And he sold it whenever the market looked ‘overbought’. I kept waiting for the pearl of wisdom that came with it — the bit that tells you how to pick these two extremes — yet that was it.

Needless to say I never mastered the black art of picking sentiment. Back I went to trying to figure it out all by myself. What the exercise did teach me, though, was just how different everybody sees the market. What worked perfectly (and very successfully) for him was incomprehensible to me.

A couple of years ago, I was fortunate to go to a talk by Jack Schwager. If the name sounds familiar, he wrote the highly successful ‘Market Wizards’ series of books. Not one who readily takes notes, I found myself writing down one pearl after another. By the end of his presentation, I’d filled pages full of notes.

If you haven’t yet read one of his books, I recommend that you do. In these books he profiles successful traders and how they approach the market. It might be a bond trader. It could be a stock picker or a derivatives trader. All trade different markets and all use their own, unique approach.

You might pick up some of the technical details along the way, but the focus is on what makes these great traders tick. One thing you’ll quickly realise is just how different they all are. Perhaps that’s why there are so many books out there.

However, irrespective of their different trading strategies, there were common traits shared by all these traders that set them apart.

The first is that they all have trading plans that reflect their personalities — not the other way round. That is, none of them are trying to circumvent their own personality to fit in with a particular trading style.

If you are analytical and cautious, do you think you are going to flourish as a short term derivatives trader? Maybe you will, but you might also turn yourself inside out trying to make a go of it. Or, if you need to be in the action every day, how will you go at long term value investing?

The second characteristic that they all share is persistence — a belief that they would make it in the end. Yep, the same thing that applies to any endeavour you put yourself to. While the cliché quickly rolls off the tongue without much of an impact, it’s worth noting that many of these traders took years to get their edge. And, most lost money along the way.

But perhaps the thing that struck me the most was their complete independence. None of them took their cues from anyone but themselves. Sure, they all had access to all of the latest news and data feeds. Yet when it came to making a decision, it was always their call.

They all backed their judgment, right or wrong, and only changed their strategy based on evidence — not on a whim. That means exiting a trade because it hits their stop loss. Not because of a calamitous headline or the preachings of the latest guru.

To be truly independent is one of the hardest things to do, but it’s what sets these market wizards apart from all the rest that make up the numbers. It means taking yourself out of the noise, and focusing on what you need to do — implementing your trading plan.


Matt Hibbard,

Editor, Total Income

From the Port Phillip Publishing Library

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