There are many routes to becoming a professional trader, as well as many skills that a candidate needs to excel in a high-stress, highly-competitive field. When financial firms recruit for trading positions, they tend to look for people with degrees in math, engineering, and hard sciences rather than simply those with finance backgrounds.
There are also different trading jobs, some of which require customer-facing communication skills as much as chart savvy. That said, we’ll look at some of the skills that are required of all traders.
Key Takeaways
- Becoming a trader may require a background in math, engineering, or hard science, rather than just finance or business, depending on the type of trading.
- Traders need research and analytical skills to monitor broad economic factors and day-to-day chart patterns that impact financial markets.
- The ability to focus and concentrate, particularly in a chaotic, fast-moving environment, is an underappreciated but crucial skill for traders.
- Self-control is crucial, as well as the ability to regulate emotions despite developments that could be upsetting.
- Accurate record-keeping is important for trader accountability and for learning and improving.
Analytical Skill
One skill every trader needs is the ability to analyze data quickly. There is a lot of math involved in trading, but it is represented through charts with indicators and patterns fromtechnical analysis. Consequently, traders need to develop their analytical skills so they can recognize trends and trends in the charts.
Research
Traders need to have a healthy thirst for information and a desire to find all the relevant data that impacts the securities they trade. Many traders create calendars of economic releases and set announcements that have measurable effects on the financial markets. By being on top of these information sources, traders are able to react to new information as the market is still digesting it.
Focus
Focus is a skill and it increases the more traders exercise it. Because there is so much financial information out there, traders need to be able to hone in on the important, actionable data that will affect their trades.
Some traders also focus on the types of securities they trade so they can deepen their understanding of a specific sector, industry or currency to the point where it becomes a competitive advantage against less specialized traders.
Most of the required skills are learned, and with a bit of effort, traders can improve their analytical capacity, research abilities, focus, control and record keeping.
Control
Hand in hand with focus is control and, specifically, self-control. A trader needs to be able to control their emotions and stick to a trading plan and strategy. This is especially important in managing risk by using stop losses or taking profits at set points.
Many strategies are designed so the trader loses a little in bad trades and systematically gains more on good trades. When traders start to get emotional about their trades—good or bad—strategy goes out the window.
Record Keeping
One of the most important keys to trading is record keeping. If a trader records the results of his or her trades diligently, then improving is simply a matter of testing and tweaking strategies to find a successful one. It is hard to show real progress if you aren't keeping accurate records.
FAQs
Key skills for traders
- Confidence.
- The ability to analyse data and make decisions quickly.
- Numerical skills.
- IT skills.
- Communication skills.
- An interest in financial markets.
- Analytical skills.
- Interpersonal skills.
The Five-Step Process Behind Every Trade
- Step One: Discovery. Goal: Find potential stocks to trade. ...
- Step Two: Analysis. Goal: Analyze a set-up to determine if there is a trade opportunity. ...
- Step Three: Game Planning. Goal: Plan your trade. ...
- Step Four: Execution. Goal: Trade your plan. ...
- Step Five: Post-Trade Analysis.
A trader needs to be able to control their emotions and stick to a trading plan and strategy. This is especially important in managing risk by using stop losses or taking profits at set points. Many strategies are designed so the trader loses a little in bad trades and systematically gains more on good trades.
What is the key for successful trader? ›
Successful traders identify their profit and loss parameters, before they enter a trade. They set their stops and stick to their parameters. They cut their losses and let the profits run their course ruthlessly.
What is a trade skill? ›
What Are Trade Skills? There are several different fields of employment that fall under the classification of a skilled trade. This can include electricians, welders, plumbers, carpenters, and more. Trade skills commonly require specialized training from technical or trade schools.
Is trading a skill or talent? ›
While some successful traders earn high incomes, it's important to understand that trading requires significant knowledge, skill, and discipline. It's not a get-rich-quick scheme.
What is the 5 rule in trading? ›
5% Rule: This rule applies to the total risk exposure across all your open trades. It recommends limiting the total risk exposure of all your trades combined to no more than 5% of your trading capital. This means if you have multiple trades open simultaneously, their combined risk should not exceed 5%.
What are the 5 types of trading? ›
6 Common types of trading are intraday, positional, swing, long-term trading, scalping, and momentum trading. Trading in the stock market can be a lucrative venture for investors looking to maximise their returns.
What is the 6 rule in trading? ›
Rule 6: Risk Only What You Can Afford to Lose
If it's not, the trader should keep saving until it is. Money in a trading account should not be allocated for college tuition or the mortgage.
How to learn trade skills? ›
Often, trade professionals attend a vocational or trade school where they receive focused education in their chosen field to learn these skills. Apprenticeships and on-the-job training are other popular methods of learning a new trade. Trades exist across a broad range of industries.
By setting clear entry and exit points before initiating a trade, you commit to a plan that mitigates the risk of emotional trading. This strategy involves conducting thorough research to identify potential buy and sell points based on historical data, technical indicators, and market analysis.
What is the 3 5 7 rule in trading? ›
What is the 3 5 7 rule in trading? A risk management principle known as the “3-5-7” rule in trading advises diversifying one's financial holdings to reduce risk. The 3% rule states that you should never risk more than 3% of your whole trading capital on a single deal.
How to trade perfectly? ›
Set a stop loss and target, and then determine if the reward outweighs the risk. If it does, take the trade; if it doesn't, look for a better opportunity. Consider other factors that may affect your trading, and implement additional steps if required.
Which trading technique is best? ›
Best trading strategies
- Trend trading.
- Range trading.
- Breakout trading.
- Reversal trading.
- Gap trading.
- Pairs trading.
- Arbitrage.
- Momentum trading.
Like all other skills, trading prowess is something to be acquired through training, coaching, and strong dedication. There are techniques to learn, practice, and master. But simply mastering these techniques will not bring success alone.
What kind of person makes a good trader? ›
Good day traders adhere to their trading plan strategy and avoid entering or exiting positions at the wrong moment – that is patience. They are vigilant and alert to key market indicators and when the right moment arrives react quickly without second guessing themselves – decisively.
Is trading a high income skill? ›
Higher-income skills are skills that you can make a lot of money from, and one among them is Forex trading. So to answer the question, Yes, Forex trading is a digital skill, and not just that it is also a high-income skill.
What are the hard skills for trades? ›
Examples of hard skills include:
- Programming languages.
- Data analysis.
- Accounting.
- Welding.
- Graphic design.
- Project management.
- Electrical wiring.
- Plumbing.
