There are certain occupational hazards associated with trading; you need to be prepared for these setbacks.
All traders will make losses, it is inevitable. No-one can be profitable 100% of the time and you need to be psychologically prepared to deal with these setbacks. Different people have different tolerances to setbacks, with different coping mechanisms for the daily ups and downs of trading.
There are many different ways of approaching the role, and you need to determine what is right for you. Different roles, different markets and different asset classes all come with different risk profiles. Finding the right combination for you is key.
You can only start to make this judgement when you know more about the various markets and the trading roles within them. The next section focuses upon this and the question – “What type of trader do you want to be?”
THE BASICS: WHAT TYPE OF TRADER DO YOU WANT TO BE
We have already considered the key distinction between independent and professional traders. Other important distinctions relate to trading time-frames, chosen instruments, asset-classes and markets.
Independent traders tend to be shorter-term traders. This short-term “scalping” is often intra-day, hence such traders are known as “day-traders”. Open positions are often flattened at the end of each trading day, so risk is reduced, and capital not required overnight. Day-traders are some of the most active traders, diving in and out the market on multiple occasions, often for the briefest of durations. The ability to take quick, decisive action is important.
Becoming a professional trader, a proprietary trader for a bank or institution opens a wider range of possibilities. It’s often the case that independent traders progress to working for a company when the opportunity becomes available.
Professional traders may be granted access to a wide range of trading platforms, instruments, exchanges and asset classes.
EXPLORING THE ASSET CLASSES
Asset classes are broad groupings of commodities or assets that are either inter-related or share similar characteristics. Key asset classes include:
- Equities – stocks and shares in individual companies that trade on Stock Exchanges such as the LSE and NYSE. Usually grouped together with –
- Indices – stock indexes such as the FTSE 100 and S&P 500
- STIRS – Short Term Interest Rates. Some of the biggest contracts in the world such as Euribor and Eurodollar, usually grouped into –
- Fixed Income – bonds, both government (e.g. UK Gilts and US T-Bonds) and corporate
- FX – Foreign Exchange or “Forex”, currency pairs such as Sterling (GBP) vs US Dollars (USD)
- Energy – Crude Oil and distillates (“cracks”), Gas, Coal, etc. This group also incorporates the increasingly significant category of Emissions
- Commodities, usually sub-divided into –
- Agricultural commodities like grains, fibres and “softs”
- Metals – precious, semi-precious and ferrous
- Alternatives – contracts such as crypto-currencies that don’t fit the traditionally accepted classes
Some of these asset classes (e.g. Indices) trade predominantly on exchanges and exchange platforms while others (such as FX) trade predominantly Over-The-Counter (OTC) – away from recognized exchanges.
A TYPICAL DAY IN THE LIFE OF TRADER
You may have a rough idea of what it means to be a trader but it’s worth examining this in greater detail. While there’s no typical trader, there are certain activities in common to most, if not all, traders.
Traders are always on the look-out for significant data and information, regardless of source. Even during down-time, traders will identify useful information from the media. This information is thrown into the mix, supporting the trader’s decisions in the following days and weeks.
Trading days can begin at any time because global markets are open 24 hours and different geographical markets and exchanges are busiest at different times.
“A TRADER IN THE LONDON MARKETS MIGHT TYPICALLY START BETWEEN 7-8AM. SOME WILL START EARLIER OR LATER. IT’S NOT SIMPLY A QUESTION OF PUTTING IN THE HOURS BUT GIVING YOURSELF TIME TO PREPARE, BOTH PHYSICALLY AND MENTALLY.”
Traders specialising in other international markets may start earlier or later. Traders in Far Eastern markets like China, Singapore or Japan might trade through the small-hours London-time, while those focusing on US markets will typically start and finish later. At OSTC, we have traders located in offices around the globe, typically trading within the time-frame of 9am-9pm London-time.
One of the most important things is determining your most productive hours of work. Through our OSTC biometric app, you can see a daily indicator of your para-sympathetic balance, helping you decide when you’re at your most effective.
Preparation time before the markets open is important. Key tasks include checking trades and positions (reconciliation), being aware of the day’s data releases and market information, checking mails and communications from other parts of the business (risk, compliance, etc.) and deciding trading strategy for the forthcoming session.
Once the trading session opens you need to remain focused for the duration of the session. It’s impossible to concentrate intensely for hours upon end so you’ll need to build strategies that allow you to relax periodically before re-focusing. Our Biometric Analytics let you know when you’re at “full power” and when you should rest.
Critical periods during the day are the opening session, when prices generally fluctuate until they find an equilibrium level, the periods around any data or information releases (such as economic statistics, Central Bank meetings, etc.), the US open (early afternoon UK time) and the close, when market participants look to balance their overnight positions.
Finally, after the close, you need to check the day’s trades and consequent positions, calculate your daily profit or loss and, importantly, assess the risk associated with your open positions. It’s then worth considering your plan for the following day, the trading strategies you hope to employ and how you’ll react to different scenarios. Good traders are always well prepared.