Last Updated on 10 February, 2024 by Rejaul Karim
Many people seem to believe that traders have advanced degrees and have a brain that an average person would envy. This belief is reinforced by Wall Street firms who often hire top performers from majors such as finance, mathematics, and economics. Because of this, a lot of people often tend to shy away from being a trader. They believe that the concepts and strategies of trading will be too difficult for them to understand.
You don’t need to be smarter than the average person to become a trader. Trading is an art that is perfected through rigorous research and practice, not raw talent. In fact, having the right mindset as well as certain temperamental qualities (e.g. patience and a long-term focus) can be much more advantageous to the trader than an ability to compute data at inhumane levels.
So, let’s have a look at why this is, and what you need to be a successful trader!
Why Traders Don’t Need to be Smarter Than Average
Contrary to popular belief, traders do not need to be overly smart because trading is not something that is complicated. Before you enter the world of trading, all the numbers, indicators, strategies, and technical lingo is bound to seem complicated. However, only when you start to understand all the basics do you realize that it all isn’t over your head, but is really understandable.
However, no one is saying that trading is easy. It will probably take you years to perfect your trading methods and make the big bucks. However, trading is not complicated either. It just takes time to research all the fundamental concepts, fully understand how the market behaves, and create a workflow that works for you.
It is possible that intelligent people are able to pick up trading more easily. However, that does not mean that an average person cannot make a lot of money. Unfortunately, the nature of trading, as well as its glamorization in the media, leads people to assume otherwise.
How Wall Street Misguides Potential Traders
The vast majority of investment banking firms look for graduates with exceptional academic records from the most prestigious institutions. People often believe this is because only they are smart enough to handle the complex operations of trading, analysis, and underwriting.
This is not completely true. One of the main reason why Wall Street firms hire the aforementioned individuals is due to their work ethic. A typical workday at an investment bank is quite demanding. As such, banks and other investment firms look for people who have already experienced that environment in their pursuit of academic accolades.
What You Actually Need to be a Successful Trader
While you do not need to be a genius in order to be a successful trader, you do need certain skills. Luckily, it is possible for you to acquire all of these skills through effort and patience. Here are some qualities that can help you in the markets if you successfully instill them into your personality.
Actual Knowledge of the Markets
The first secret to success as a trader is not a secret at all. You need to actually know how to trade. Whether you learn from the internet or from books or from a course, you need to learn. Of course, the theory will never be a substitute for actual experience, but it is important to understand it nonetheless.
Not only do you need to learn the fundamentals of how the market works, but you also need to get a hang of some of the technical stuff. On top of that, you need to understand some of the basic trading strategies, and more importantly, learn how to create your own trading strategy. Although it will take you a lot of time to actually formulate your own strategy, it can only help you to actually study the strategies of some of the more influential traders.
Luckily, whether you already have a mentor or you are teaching yourself, there are numerous resources on the internet that can supplement your knowledge. Also, remember that learning for a trader is simply eternal. There is always something you can do to better yourself. That said, the start is when you need to spend the maximum amount of time trying to better yourself.
Patience applies to a trader in two ways. First, you need to be patient while trading. Remember that no trader, no matter how good he/she is, makes their fortune in a day. Actual traders who aren’t just speculating on the markets make money by consistently making profitable trades. You need to instill a similar mindset in order to be a good trader.
Secondly, you need to be patient while you learn. It is easily possible that you make money as soon as you start trading. However, chances are that your trades will not be very profitable at the start. Trading is a skill which requires time. Not only will you need to study the behavior of the market both through bull and bear periods, but you will also need to bring your technical knowledge up to par with other traders in the market in order to beat them.
Remember that short-term profits are meaningless to a trader. The market itself could simply be in a strong bull run. This essentially means that the entire market was rising and your trades had a greater chance of turning a profit.
Truly successful traders turn out a profit no matter what the circumstance. In order to see if you can do that, you need to have a long-term focus on your trades. A common way beginner traders lose money is by simply overtrading. You need to be patient and look for opportunities to make a profit instead of trading continuously and hoping you make money.
Simply put, make sure you have a proper strategy in place and adhere to that strategy no matter what. If there is one trait that separates the amateur traders from the professional ones, it’s discipline.
As we stated at the start, trading does not need to be complex. Before you begin with all of the advanced stuff, you need to understand the basics. The good thing is that all of the basic indicators that you learn can actually be used to make profitable trades. In fact, many times the most basic methods are those that work the best in trading!
Just like you should start with simple strategies, you should also start with a small amount of money. It is generally recommended that new traders do not risk more than 1% of their total capital per trade. This should allow you to make sure that your mistakes, which are bound to occur if you are a new trader, do not impact your capital in an extremely negative way.
Of course, the other half of this is that you also need to learn from your mistakes. While your initial mistakes will not be too detrimental if you are careful and follow the aforementioned advice, you must analyze each failed trade. Carefully go through your trades and see where the trade went wrong. Also, try to think about what you could have done differently.
In other words, you should keep a trading journal!
Also, remember to try various different strategies during your early days. Once you have enough data, you can look at all of the various different strategies you used. Analyze each of them and see which one suits you better.
For many traders, it wasn’t their genius that led to their success. You do not need to be smarter than average, but you do need to be careful and patient as a trader. Experience and knowledge will almost always beat out ‘smarts’ when it comes to trading.
Anyone can trade. Trading is never easy, but it does not require exceptional intelligence either. If you are willing to put in the work to understand the markets, the securities, and the psychology of trading, then you can be a great trader just like someone with a doctorate in Mathematics.
Do I need to be exceptionally smart to become a trader?
No, trading is an art perfected through research and practice, not raw talent. While intelligence may help, it’s not a prerequisite. Having the right mindset, patience, and specific temperamental qualities can be more advantageous than exceptional intelligence.
Why do Wall Street firms hire individuals with advanced degrees?
Wall Street firms often prioritize candidates with exceptional academic records due to their work ethic, not just intelligence. The demanding nature of the financial industry requires individuals who have experienced a challenging academic environment.
How can I acquire knowledge of the markets?
Learning can be from various sources like the internet, books, or courses. It’s important to understand the fundamentals, technical aspects, and basic trading strategies. Continuous learning is essential, and resources on the internet can supplement your knowledge.