I was recently approached with a leading hedge fund regarding profiling the best traders in the world. Profiling really refers to loing those traits that will best predict success. And I feel that I am one of the world's experts in that area since we have a massive record of plogical profiles of traders. I've been analyzing traders since 1982 to help them discover their own strengths and weaknesses. The tool I've developed, The Investment Plogy Inventory, does an superb job of that.
But if you were to numerically rank the best traders in the world, they're probably people who can take $100 million dollars or more and earn 20% each year on that money consistently. There are probably only about 20-30 such traders on earth, so how can you profile these traders? And even if you were able to get a thorough profile of such traders, their amounts are so small your information may not be meaningful. These are the problems of profiling.
After spending some time considering the entire issue, I now believe that my firm has developed everything possible to perform the task. However, it entails a lot more than just a plogical profile. In reality, it entails a number of evaluations.
First, you want their plogical profile. I would expect traders who can make 20 percent per year or more on considerable amounts of money to generally drop in the top 10 percent of our database on all the abilities we quantify.
Secondly, I would look for their trader type. We now believe there are approximately 15 trader types, but that many top traders could fall into just five or six specific egories. Because of this, I'd want to look at their trader type.
Third, I'd want to look at accountability. All leading traders must consider they are personally accountable for the outcomes they get. This contributes to qualities that are definitely. Either 1) they have tremendous discipline to do what needs to be done to be a leading trader or two ) they have a strong desire to continuously work on themselves to improve. They are continuously working to keep an optimal mental state for top performance and they're continuously looking at their beliefs to determine if they're useful.
Fourthwe can now quantitatively measure systems and ascertain how great they are, regardless of the type of trading people do. I call this the System Quality Number or SQN ™ for brief. By way of example, somebody who has a system using an SQN of 5 definitely has a far superior trading platform compared to somebody who has a SQN of 3. I would expect most of the world's top traders to have systems with SQNs of 5 or better. Along with the fascinating thing about the SQN, is that we can quantify it for various market types.
Fifth, one of those big secrets (that many individuals do not know ) is that position sizing (the variable that regulates how much throughout the course of a trade) is the key to meeting your objectives. I expect that many leading traders understand this concept at some level. Nevertheless, this can be taught and can be employed to enhance performance dramatically. Along with the greater the SQN, the easier it'll be to use position sizing to meet your objectives. Therefore, in case your SQN was just 3.5, you still could be one of the best traders in the world if 1) you'd thorough control over your own personal plogy; two ) totally understood how to use position sizing to meet your objectives; and 3) have mastered the sixth quality that's the ability to minimize the effect of errors upon your trading.
Sixth, the next secret of the top traders is they know how to minimize the effect of mistakes. I've talked about this in previous tips, but let's state that the expectancy of your system is 1.2R. You make 100 trades each year, which means you should be able to earn about 120R each year. However, let's say that every month you make a single error. That error costs you 5R. So in one year, you'll make about 60R values of errors, and your entire return is currently only 60R. Your mistakes will have cost you half your potential returns. Top performing traders know how to negate the effect of mistakes.
Finally, there are certain fundamental skills that top traders will have for example 1) how to have the info that you want; 2) how to execute orders; 3) how to organize yourself; etc.. I'd expect all leading traders to get these specific qualities.
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