Modern financial markets are heavily influenced by algorithmic trading. Many orders are executed by robots. However, demand for professional traders still exists, as humans have several advantages over trading algorithms. Humans see a broader picture and can analyze economic and political information better, while trading algorithms are better at pattern recognition and speed. Trading firms or individuals that are looking for professional traders to invest their capital need to take into account several factors. It’s difficult to find the best traders as many prefer to trade with their own funds, while others are already hired by the competitors. In this article, we’ll give you tips and tricks on how to find a pro trader, and what to look for or what to avoid during the process.
Trading competitions
Trading competitions are a great way to find talent in financial trading. Typically brokers set up competitions to encourage more traders to join their platform. And trading competitions usually reward traders that can increase their account capital the most. However, for trading firms, the priorities are different. When searching for a professional trader, it’s important to focus on risk management, and consistency as well as on profitability. This can be achieved easily, for instance, you can put low drawdown requirements along with profitability as criterias for naming the winner.
Partnerships with universities and colleges
Many trading firms train students and teach them certain trading strategies. This approach is beneficial for several reasons. When a firm hires a trader, his mindset is already developed, but when a group of traders are trained, they can be taught similar trading strategies. When a group of traders use the same strategy for trading financial markets, they get additional benefits, such as the ability to spot more trading opportunities. There are various ways firms can approach this. Generally, firms assign a mentor to a certain group of students that teaches them how to trade, and give them demo trading accounts to find students worthy of opening a live account. It’s important to note that backtesting trading strategies and demo trading are different things. For backtesting traders are using simulation of financial trading programs. Demo trading is for testing strategies on live charts, and not on historic data. Live trading account is usually limited in capital. Traders need to prove themselves in the markets to deserve better funded accounts.
One more benefit that universities offer is the fact that students are highly motivated, and generally, they are there mostly for experience and not for the paycheque. Which can save a lot of money for trading firms.
What to look for in a trader
There are many other ways to find traders for a prop firm other than trading competitions and training students from colleges and universities. Prop firms can place a job advertisement, and be open to finding new talent. Fortunately, there are lots of people that are interested in financial trading and have a lot of experience. However, not all of the traders are profitable and understand the difference between gambling and professional trading. Successful traders have a unique set of skills that enable them to excel in the financial markets. Here are some of the most important qualities to look for in a trader:
- Discipline: Successful traders are highly disciplined. They have a trading plan that they stick to and do not deviate from it even in volatile market conditions. When a trading plan fails to deliver, a disciplined trader stops live trading altogether and moves to demo trading to find out whether his strategy is temporarily experiencing drawdown periods or the market conditions have changed and a new strategy needs to be applied. No matter what happens, successful traders plan their trades and trade their plans.
- Patience: Success in trading requires patience. Successful traders wait for the right opportunity to present themselves and do not get emotional during market fluctuations.
- Risk management: It’s important to make sure your traders understand the importance of risk management. It’s crucial for traders to be able to make a losing trade and not get emotional about it. When a trader understands that every trade will not result in profits and profitable trading is about probabilities, he will not let emotions take over and revenge trade.
- Adaptability: in order to succeed, traders need to adapt to changing market conditions and adjust their trading strategies accordingly. Flexibility and willingness to always improve are great qualities to look for in a trader.
- Emotional stability: Success in the markets requires high levels of emotional intelligence. Beginner traders fail because they do not know how to trade properly. Professional traders fail because they lack emotional intelligence. For example, we all know that the key to health and fitness is exercising, good sleep and diet, however, not all of us are following these simple routes.
- Self awareness: successful traders know their strengths and weaknesses. They focus on their strengths and work to improve their weaknesses to become better traders.
- Find traders that are passionate about trading. A trader that is only interested in making money is not going to go very far. The main goal should never be to make money in the financial markets. The main goal should be to trade the right way, and the money will follow.
- Trader needs to be a hard worker. We all start trading because we think that it’s an easy way to make a lot of money. However, soon we realize that this is not the case. All successful traders are hard workers.
Things to avoid when creating a trading team
It’s important to note that every trader is different. If you take two best traders in the world and tell them to work as a team, their results will be terrible. There are millions of ways to make money in the markets. And unfortunately all of them are very hard to find. Here are things to avoid when setting up a team of pro traders:
- Avoid lack of diversity: market conditions often change. There are periods when day trading is less profitable than swing trading or investing, and vice versa. Having a team of diverse traders is similar to putting eggs into different baskets, and this reduces risks.
- Prevent ego-driven decision making: in trading, it’s more important to be right than it is to be a genius. Some traders are trying to guess every top and bottom of a price, and have a need to always be correct. Traders that refuse to take a loss, end up moving stop loss orders hoping that the price returns to break even. What often happens is that an entire account gets wiped out.
- Do not forget to manage the risks: It is important to have a proper risk management in place when hiring traders. Many traders have psychological barriers when it comes to managing large trading positions. For example, there’s a good chance that a trader that manages a 10,000 USD account and has consistency in profits, will do poorly when given a 10 million dollar account. It’s risky to give a small trading account trader access to large amounts of money. This needs to be done gradually. Often, prop trading firms use monthly and daily stops to prevent their traders from overtrading. For instance, let’s say a day trader loses 100 USD, he will be unable to trade that day.
- Neglecting professional development: trading conditions often change, and therefore continuous learning and development are critical to keeping your trading team up to date with the latest market trends, trading strategies, and risk management techniques. Neglecting professional development can lead to traders becoming stagnant and losing their edge in the market.
Key takeaways
Finding a professional trader is not easy, despite the fact that there are so many traders in the world of finance. However, there are some great ways trading firms and investors can use to find talented individuals. For instance, placing a trading competition with an aim to find a consistently profitable trader that knows how to manage the risks and demonstrates it in his results is a great way to find a trader. In addition, universities and colleges offer inexperienced but highly motivated individuals that can be trained into professionals. There are a couple of things to look for in a trader, for instance, it’s crucial for a trader to be emotionally stable, patient, disciplined, adaptable to new challenges, understand risk management, have self awareness and be a hard worker. Try to avoid lack of diversity in traders, ego-driven decision making, and help your traders to keep developing.
