<p>From what I have heard most traders fail after a couple years. Is this true? Would it be risky for a recent grad to give up a solid offer from a good company (live comfortable, but not rich) to instead work as a trader? How does that industry work?</p>
<p>Typically about 90% of traders fail not because they are incompetent (in most cases), but because of the emotional stresses the traders have. They see that they are losing a fair share one day and automatically panic and sell to early making a loss, or they become greedy and wait to long to sell because they expect the growth to continue. One of my favorite lines about trading is from Michael Thompsett’s “Mastering Techical Analysis” which is that markets should be about bulls and bears not pigs and chickens.</p>
<p>In terms of if you should go into trading instead of the solid company, it should depend more on your emotional endurance rather than anything else. If you think you can handle periods of rough riding or high growth without your feelings getting tangled with reason then go for it. If you don’t think you will be able to, then definetly take the offer from the good company.</p>
<p>Actually they fail because they are probably incompetent which is why the have emotional stress.</p>
<p>Maybe I should have said not incompetent as a person. However, typically the best traders are able to evaluate technical and fundamental analysis and form strategies because of experience which originates from patience and self-control. Many people do not have such favorable traits and are unable to handle the pressures the markets may supress them with. That’s why you typically hear the outstanding traders as having innate feelings about certain markets, or being born to play in the markets.</p>
<p>Traders can be of all types. Successful traders have an edge. This can be due to better analysis, execution capabilities, statistical etc. However, they have techniques which separate them from other market participants (who must lose so the winners can make money). Psychology is a part of it but most traders lose because they do not have an edge. One can have everything, psychology, capital whatever, but if they don’t have an edge they WILL lose in the long run (as they are playing a negative expectation game).</p>
<p>I understand that they have an edge, but that edge originates from psychological factors which allows them to have better analysis, execution capabilities, and statistical achievements. If they are weak, insecure, or impatient then they won’t last long to be able to experience the long run and to form one of these edges.</p>
<p>Being insecure has nothing to do with it. George Soros, possibly one of the greatest speculator of all time, is famously self-doubting. His entire Popperian philosophy is based on being doubtful about the validity of anything. He also happens to be very impatient especially when he is losing. He can change his entire position moving billions at a whim or new development. Psychology is important but its more important for people to develop an edge and then conduct significance tests.</p>
<p>To be honest I do not know a lot of information about Soros, but from the information you provided it does seem like either Soros’s fame and fortune came experience and emotion. It also seemed like he was going with an innate or gut feeling when he was self-doubting himself, and that something I feel that you are either born with or learn through experience. Typically the majority of investors are going to be followers rather than leaders. If Soros was a self-doubter and ended up making billions then more than likely during the way he encountered periods were he was incuring big margins of capital losses as well. For a regular investor the loss of capital may be too much to bear with and they get out of the market because of the emtoinal strain, but in Soros’s case he might have had strong emotional intelligence to withstand the losses and learn from his mistakes to make better judgements in the long run which contributed to his Popperian philosophy. Again, truthfully I only know little on Soros but it seems like his edge came from having good emotional intelligence rather than using statistical information from technical and fundamental analysis.</p>
<p>He did have innate skill. However, it should be noted that he wasn’t actively managing Quantum after 1987-1988 or so it was Druckenmiller who used technical/fundamental information. Soros himself used fundamental info as well. Yes investors can’t handle losses but they don’t happen to have an edge in the first place. Without an edge all this psychological traits is useless. Heck if you are patient while having no edge you will blow up sooner or later as you are playing a negative expectation game. </p>
<p>I happen to know quite a few traders (family friends, friends, trading firm I intern at) as well as actively trading myself (part of a small group in a private firm dealing with statistical analysis) and the one thing they focus on is on finding an edge that makes trading a positive expectation game. After that comes everything else.</p>
<p>Yes I agree. As a trader myself and having friends/family who trade as well the more successful ones do have an edge, but IMO I still think it orginates as emotional intelligence which evolves to edges and stratagies. However both are needed to be successful when trading.</p>
<p>Emotional intelligence isn’t going to teach anyone how to statistically datamine potential inefficiencies that may be good research candidates. This I can assure you ;).</p>
<p>How does one become a trader? I know that ibanks hire undergrads from my college for fixed income, currencies, and commodities positions, and some hedge funds even hire for “trading analyst” positions. But do these lead to proprietary trading, and if so how far down the line? Thank you.</p>
<p>At ibanks people enter into the program after which they are assigned to various desks. People are indeed hired for the prop desks. Knowing someone on the inside also helps. It should be noted that various positions may entail both a flow (client execution) as well as a prop operation. For example, clients may want a custom derivative which the firm will execute and then take the other side of the trade at least temporarily.</p>
<p>At HFs/trading firms people enter directly as a trading assistant/analyst/associate. After a set period of time (can range anywhere from 6 months to two full years) people become traders. It also depends on the firm itself. Some firms trade more firm-wide strategies which require people to work in teams who collaborate/research/execute. Others are more individually focused.</p>
<p>Remember, prop trading involves risking the firm’s capital. They need to be somewhat certain that you will be able to successfully take risks before letting you loose.</p>
<p>Thanks for the info!</p>
<p>are trading jobs harder to get than banking jobs?</p>
<p>Depends on the firm. Trading at an ibank is around the same difficulty to enter as IBD (although after that you have the desk selection process which can vary). Many of the HFs/trading firms are much more difficult to get in (example: D.E. shaw which accepts 1 in 500…many IMO/Putnams/Phys olympiad folk. First screening criteria is a 1500 on the SAT).</p>
<p>Could one go with the solid company and trade at home on your own time.</p>
<p>Yeah absoultely. However if know you won’t have much time to do research I would invest in mutual funds or fixed-income securities so you do have to deal to much with the emotional ups and downs.</p>