8 Foundational Skills Every Trader Should Learn

When a person first decides they want to be a professional trader, rarely do they ask just how this is likely to happen.

Usually they are too busy counting their imaginary money in their imaginary mansion to be concerned by this minor detail!

Even in the face of widely available figures on failure rates, they tend to discount this information as not applicable to them. After all, they have talent and everyone else is just a little slow.

Then one day, after a lot of money has been lost, it dawns on them just how difficult trading can be and they ask themselves the question: “How do I find consistent trading success?” etc.

In truth, the fact is that a good number of people make trading much harder than it needs to be.


We Are Taught Many Things

Why do people make it harder for themselves then? A lot of people have become very good at other things in their lives without really knowing how.

  • They get taught how to play sports or how to be a doctor
  • They learn how to become good socially
  • They have advice from experienced parents on parenting

Being able to break down a skill into what makes it work and then formulate how to acquire its parts, isn’t something that everyone is automatically going to be good at.

Any skill is made up of a number of “cogs” in order to be able to function properly.


Exploring The New City

Think for a minute of a scenario where you’re in some far away exotic country (where they don’t speak the same language). You’re in a massive city and you have to get to some place – let’s call it a restaurant – by the end of the day.

You’ve not booked but you’re meeting a friend at some point that evening and you need to let them know when you get there.

So you have a long time – no rush.

You get up all excited to be in a new and exciting city and you’re looking forward to seeing this friend who you’ve not seen for a few years. You have time so you decide to walk. You know roughly where it is and decide it’ll be no hassle as you can always hop in a cab as you’ve memorized the address.

So you wander off into some interesting little shop and have lunch in some exotic smelling café.

Then you take a wander through some park which you assume must be the one you’ve seen on a map you’d looked at already (but forgotten to take with you).

You stumble upon some interesting museum or cool little gallery and decide to take a look.

Then as it’s hot you decide to get a cold one at some bar that you see. It’s still early evening and you have time. You leave and head to the restaurant.

You wander around trying to get your bearings but by now, the city is lit up and the bright lights are somewhat disorientating – everything looks similar by now.

Time for the cab (or Uber depending on where you are).

You finally hunt one down and get in.  You tell the cabby the address thinking everything is good. Nothing. “What on earth?!” you think. “How can the guy possibly not understand me or just work it out?!”

The trouble is, you’ve not quite grasped the dialect.


Journey Of A Trader – Wandering

The journey of a trader is frequently not too different from this.

  • They start out excited with all the new information and possibilities in front of them.
  • They drift for a while without a clear direction.
  • They end up getting lost and questioning their own abilities.

They do all of this without anyone to lead them by the hand.

By the time they get to the point where they know they have serious issues to overcome, they’ll be met with two problems.

  1. With so many ideas that they’ve gone through in their attempts to make money, they carry a lot of baggage. The trading strategies or systems aren’t the baggage in spite of the fact that there are good and bad ones. The baggage is all the bad habits and practices they’ve picked up
  2. Once they’ve got to this stage and they see what still needs to be done, often they are demoralized and demotivated

But as hard as trading can be, it should also be fairly simple. And this is where many fall foul.


Developing Foundational Trading Skills

There are aspects to trading that you need to cover even if they seem boring – much like the seemingly pointless drills your football coach used to make you do or your driving instructor made you do as a learner.

There are foundation skills which need to be developed in order to master trading as a whole.

Think about how many people really do have a good idea of what the markets are going to do next but still don’t make any money – they haven’t become well-rounded traders.

They’re like a guy who wants to play in the NBA so concentrates solely on becoming really great at scoring from his own half, then wonders why he can’t make the NBA.



Learn These Skills

I’ll leave you with a list of what I believe you should be concentrating on (because we all love lists).

But first I’ll point out just one more thing.

If you don’t have a good trading idea yet, there’s absolutely no reason why you shouldn’t be doing everything else on the list if you are trading at all. Making sure that you’re doing everything else well in the meantime will prepare you for when you do find something that really does work.

Here’s the list:-

  1. Idea creation:  What will be your trading approach?
  2. Trade plan formulation:  Writing out the exact way you will trade
  3. Money management rules:  What will you do to protect your trading account?
  4. Idea validity testing:  Does your trading approach even have an edge?
  5. Market context awareness:  Do you understand what the market is telling you?
  6. Preparation:  How do you prepare for your trading day?
  7. Execution of plan:  Can you pull the trade trigger?
  8. Performance monitoring:  How do you know if you are getting closer to your goal?

I didn’t mention psychology because it’s a derivative of what you need to be good at.

Not to say that psychology isn’t important – it’s critical and it affects all of the above – it’s just not a specific activity but will come from your preparation.

1 Comment

  • Steve webster

    Hello, played the markets for a while now , but just in play funds , started 50’000 , took it to 1’700,000 , lost a bit of focus due to personal issues , since got back into it say 6 months ago , made money on a few things , but 2 things are killing me at the min , gold and uk markets , as obviously with all the politics the share price against other countries has faltered to say the least for now anyway , i’m not 1 to just turn by back on a trade especially when I know that some day it will come good , you’d probably say that’s fool hardy , but it’s more a case if you have funds to spare , then no harm in leaving them run long term , even if you were only looking at short term in the beginning, thanks for reading

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