Learning from Traders that Made It (Part 1)

03/17/2008 12:00 am EST


Timothy Morge

President, MarketGeometry.com

I recently did a set of articles for MoneyShow.com on 'rogue traders', professional traders that had failed miserably. Some were institutional traders, meaning they were professionals trading a firm's money and some were professional traders from the Chicago Futures Exchanges trading their own personal capital. But both groups shared the same fatal trait: they were unable to recognize and overcome their own personal weaknesses as traders. I received a great deal of e-mails from many of you-some of you were shocked at how often professional traders 'blew up' and some of you found the articles very inspirational. With the recent news of the french trader that lost billions of dollars and the CBOT grain trader that lost nearly US$150 million in one day trading wheat futures, some of you found the articles insightful and interesting and a good look 'inside' what happens in the professional world of trading. We're not invulnerable, we don't control the markets and in fact, we face the same problems, have the same fears and suffer the same difficulties individual traders face.

One e-mail I got in response to these articles gave me pause. One of you wrote me and after telling me how much you enjoyed the articles, you asked an interesting question: 'ok, how do I become a successful professional trader, if the professional traders in your recent articles failed so miserably?' While speaking and being a panelist at the recent New York Traders Expo, I gave the question from this e-mail a good deal of thought. I've been trying to decide the best way to answer the question. Should I write a 'recipe for success' that aspiring beginning traders can follow? Should I make a top ten 'do's and don'ts' list for those of you that want to make it as professional traders? Should I write about how I began my 35-year professional career and what I think helped shaped me and pushed me over the top as a professional trader? All of these were intriguing ideas, but none seemed to answer the question in the e-mail. So I decided to pick out three traders that I personally trained. These three traders are now successful professional traders. They are each very different and yet, they share some common traits. And despite the odds stacked against them, they became successful traders and are now professional successful traders. Stories about professional traders that failed help everyone understand the difficulties all of us face each day as traders. Maybe the stories behind these three traders will help all of you better understand what it takes to make it as a successful professional trader.

Trader 1: Talent Isn't Enough

When I first began running the cash foreign exchange desk at a large US bank, I had already been a successful professional trader for more than ten years. In my new position, I had two new responsibilities: I had to evaluate new trading talent, and I had to train younger traders and help them become successful professional traders. We did hire a few senior traders with experience, but in general, we liked to 'grow our own', because we were starting with a clean slate, free of bad habits and misconceptions. There was one limiting factor that really tied my hands: the bank I worked for [and most US trading institutions at that time] had become enamored with supporting MBA programs and so when we hired people to start as 'new' traders or interns, they either had to come from one of the MBA programs our bank worked with or they had to become accepted into one of the two local MBA programs we supported and take classes while they interned as new traders. I found this limited the talent pool-I saw little if any correlation between MBA school candidates and trading success. I felt and still feel that the character traits inside a person are what make them a success, not the letters on their diplomas. But when you work for a firm, you live by their rules. Their rules limited me to interviewing MBA candidates from a handful of schools and that's what I did.

Here's how the system worked: each Spring our bank would send a handful of recruiters out to the six MBA programs we supported. We attracted a great deal of interest from students at these schools that wanted to become professional traders and 'make seven figure bonuses!' Then all of the various trading departments inside the bank would interview each of the candidates and afterwards, we would get together on a Friday afternoon and have the equivalent of a talent draft. Each of us would have a list of candidates we liked and we'd bargain and dicker until we had secured our quota of talent to train for the next year. If we didn't fill our quota, we were always free to go back to a candidate that made our 'honorable mention' list and interview them again. If we liked them the second time around, we were free to offer them one of our intern spots. And if we fired one of our interns early in the year, we were free to revisit the same talent pool and try to replace them with a quality candidate.

More tomorrow in part 2 Part 2  |  Part 3  |  Part 4  |  Part 5  |  Part 6

Timothy Morge


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