Are you a good trader?
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Are you a good trader? This is a question that many traders should ask themselves. Generally, it is said that a trader is good if he makes money. This is true in substance, but in form, many other criteria are taken into account to judge the quality of a trader. You can very well be a good trader and lose money. In this case, it is not the trader who is bad, it is the trading strategy. Making money is one thing, but you have to know how it was earned. For example, if you win the lottery, you have no merit, you're just lucky. In the financial markets, if you win for the wrong reasons, you will end up losing.
First, let's define what a trader is. We have to differentiate between traders working in banks and private traders (like you and me).
A trader in a bank invests the bank's clients’ money and is paid to do so. His risk is getting fired if he doesn't earn enough money for the bank. If he is successful, he gets a big bonus. It is not the trader who is to be blamed but the bank that pushes the trader to take risks. The pressure that the trader feels comes from his hierarchy and not directly from the market.
A private trader invests his own money. His risk is losing his capital, and if that happens, he has to mourn that by himself, no one will come to help him. If he is successful, he gets the right to pay himself. The pressure the trader feels is related to the fact that his money is at stake. Market risk is only an underlying factor.
In both cases, stress is high but for different reasons.
As I said in the introduction, you don't judge a trader on his performance. There are a large number of criteria to consider:
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I always laugh when I see how people react in trading contests. The first ones are always congratulated for the high profits they have made. In many cases, these traders have no risk management at all. They are bad traders. It is better to risk 5% of your capital to earn 10% than risking 15% to earn 20%. Everything is related to the risk taken. On a trading account, the overall risk is measured by the maximum drawdown (maximum fall recorded on the account over a given period). For example, if you have a chain of 5 losing trades (-3%) in total, win the next trade (+1%) and lose the next three (-1.5%), your maximum drawdown is: -3+1-1.5 = - 3.5%. You have to compare this drawdown to your account’s performance. If the performance/drawdown ratio is less than 1, you are a bad trader. The higher this ratio, the better you are at trading.
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Trading is like a business. To develop it well, you need to have a long-term vision. On the spot, you have the impression that it is useless (that you are wasting your time), but when you step back to look at what you have accomplished, you tell yourself that it was worth it in the end.
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Nor should you feel anger with your trading. Anger occurs if you have taken too much risk (and then you feel remorse), or if you have not respected your trading strategy (opening a position on impulse, signal not taken into account, etc.). I was angry with myself recently because I didn't take into account a buy signal on the GBP/JPY. I saw so much decline that I didn't believe the buy signal my strategy gave me. However, I follow my trading strategy scrupulously, but I still make stupid mistakes like this from time to time. Trading is a daily battle.
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With technical analysis, two people can have a completely different view on the same chart. It all depends on the trading style, strategy, price objectives, time unit traded, etc. I don't agree with all the analyses I see on CentralCharts. That doesn't mean it's bad analysis, far from it! It's just a different point of view that doesn't match my market vision and trading strategy.
Nothing prevents you from copying a trade idea (if it seems good to you and corresponds to the analysis you would have made of the asset), but you must not blindly follow a trader or a trading strategy (see training courses that sell you turnkey trading strategies).
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This does not mean that you should not take inspiration from other trading methods to develop your own. I’ll give you an example. For years, I have been trading without using any technical indicators. I have always had in mind that technical indicators are by nature lagging behind the price movements and are not relevant (following a lot of tests that I did a long time ago). Since the opening of CentralCharts, I have seen several traders using the RSI (aeternus for discrepancies and tradefutur yannis for levels). I am currently looking into whether the RSI would be a good addition to my strategy. This does not mean that I am questioning my strategy, in which I have complete confidence, but I simply want to improve it.
Are you a good trader? Only you can answer that question.
What is a trader?
First, let's define what a trader is. We have to differentiate between traders working in banks and private traders (like you and me).
A trader in a bank invests the bank's clients’ money and is paid to do so. His risk is getting fired if he doesn't earn enough money for the bank. If he is successful, he gets a big bonus. It is not the trader who is to be blamed but the bank that pushes the trader to take risks. The pressure that the trader feels comes from his hierarchy and not directly from the market.
A private trader invests his own money. His risk is losing his capital, and if that happens, he has to mourn that by himself, no one will come to help him. If he is successful, he gets the right to pay himself. The pressure the trader feels is related to the fact that his money is at stake. Market risk is only an underlying factor.
In both cases, stress is high but for different reasons.
The criteria to follow to be a good trader
As I said in the introduction, you don't judge a trader on his performance. There are a large number of criteria to consider:
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Risk/return ratio
: Your trading account’s profitability is linked with risk. The more risk you take, the more profit you can generate, but the greater the probability of losing part or all of your capital. The risk taken on your trades depends on your risk aversion. It is the same for all financial markets. People with the lowest risk aversion can therefore generate more profits. But does that make them better traders than others? No!I always laugh when I see how people react in trading contests. The first ones are always congratulated for the high profits they have made. In many cases, these traders have no risk management at all. They are bad traders. It is better to risk 5% of your capital to earn 10% than risking 15% to earn 20%. Everything is related to the risk taken. On a trading account, the overall risk is measured by the maximum drawdown (maximum fall recorded on the account over a given period). For example, if you have a chain of 5 losing trades (-3%) in total, win the next trade (+1%) and lose the next three (-1.5%), your maximum drawdown is: -3+1-1.5 = - 3.5%. You have to compare this drawdown to your account’s performance. If the performance/drawdown ratio is less than 1, you are a bad trader. The higher this ratio, the better you are at trading.
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Realistic earnings targets
: If you are in the financial markets to make a fortune, stop it now! You don't make a fortune on the financial markets, you develop your assets. It's like when you buy a house. Its value will not double in a year. Over 10 years, perhaps if the market is buoyant. And it's the same on the financial markets. Your objectives should be in line with the amount you invest. Over a good trading year, you can generate between 10 and 15% but not much more (unless you take too much risk, but in that case, you will lose all your capital sooner or later).-
Controlled risk
: Trading is a school of small profits! It is the combination of all your trades that makes you a good trader or not. It is wiser to stop looking for the "trade of the century". It is better to adapt your risk for each trade depending on the time unit, the product traded and how far you have placed your stop loss. In trading, it is better not to think about making money but about lasting. There are a lot of winning strategies and you will eventually find the one that suits you. If you think too short term, you can't win.Trading is like a business. To develop it well, you need to have a long-term vision. On the spot, you have the impression that it is useless (that you are wasting your time), but when you step back to look at what you have accomplished, you tell yourself that it was worth it in the end.
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Management of emotions
: A good trader is bored, he finds his job repetitive. He simply blindly applies his trading strategy and never deviates from it. Trading should not create adrenaline. Of course, you are human and you feel emotions (pleasure when a trade wins sadness if it loses). But, you shouldn't feel excitement. Excitement occurs if you risk too much of your capital on a trade (it's like in a casino).Nor should you feel anger with your trading. Anger occurs if you have taken too much risk (and then you feel remorse), or if you have not respected your trading strategy (opening a position on impulse, signal not taken into account, etc.). I was angry with myself recently because I didn't take into account a buy signal on the GBP/JPY. I saw so much decline that I didn't believe the buy signal my strategy gave me. However, I follow my trading strategy scrupulously, but I still make stupid mistakes like this from time to time. Trading is a daily battle.
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Be your own boss
: With trading, you must rely only on yourself when opening a position. It is your trading strategy that gives you a buy signal and not that of another trader. We created CentralCharts to create a trading community, not to become a signal distributor. In a community, you give your opinion, you share your analyses, and it’s a form of mutual trading support. For example, it enables you to identify a pattern that you had not seen, to identify a trading opportunity (but subsequently analysing the assets yourself), to realize an error in one of your analyses, to improve your analysis method (progress in TA), to ask for advice if you are not sure about your analysis, etc.With technical analysis, two people can have a completely different view on the same chart. It all depends on the trading style, strategy, price objectives, time unit traded, etc. I don't agree with all the analyses I see on CentralCharts. That doesn't mean it's bad analysis, far from it! It's just a different point of view that doesn't match my market vision and trading strategy.
Nothing prevents you from copying a trade idea (if it seems good to you and corresponds to the analysis you would have made of the asset), but you must not blindly follow a trader or a trading strategy (see training courses that sell you turnkey trading strategies).
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Stop searching for the grail
: All trading strategies have advantages and disadvantages. They will win in some market conditions and lose in others. You must accept losses to win in the financial markets. A good trader understands that the miracle method (or indicator) doesn’t exist. He focuses on his own strategy (to make it evolve) and does not blindly apply someone else's strategy. The best trading strategy is yours, it's the one that suits you!This does not mean that you should not take inspiration from other trading methods to develop your own. I’ll give you an example. For years, I have been trading without using any technical indicators. I have always had in mind that technical indicators are by nature lagging behind the price movements and are not relevant (following a lot of tests that I did a long time ago). Since the opening of CentralCharts, I have seen several traders using the RSI (aeternus for discrepancies and tradefutur yannis for levels). I am currently looking into whether the RSI would be a good addition to my strategy. This does not mean that I am questioning my strategy, in which I have complete confidence, but I simply want to improve it.
Are you a good trader? Only you can answer that question.
