Brent Donnelly is a senior risk-taker and FX market maker, and has been trading foreign exchange since 1995. His latest book, Alpha Trader, was published last summer to great acclaim (by me, among others!) and can be found at your favorite bookseller. I think it’s an outstanding read, and not just for professional traders.
You can contact Brent at his new gig at [email protected]spectramarkets.com and on Twitter at @donnelly_brent. Also, check out his substacks at https://50in50.substack.com/ and https://mtcbd.substack.com/.
As with all of our guest contributors, Brent’s post may not represent the views of Epsilon Theory or Second Foundation Partners, and should not be construed as advice to purchase or sell any security.
I did a “Fireside Chat”  for a group of young Citibank FX traders this week  and it got me thinking about my early days as a market maker and how everyone mostly learns all the same lessons, mostly the hard way. There is a lot of relearning of the same mistakes over and over because 1: much of new trader training is by osmosis (they don’t give you a “New Trader Handbook” when you start… though they probably should!) … and 2: kids gotta touch the stove to understand what “hot” means.
Here is some advice for young Roosters strapping into the trading cockpit for the first time. There is useful information in here for all traders, not just people on the sell side. This is kind of a sequel to my piece: Day One Advice for New Hedge Fund PMs.
Study as many other traders as possible, but don’t copy them.
Every individual needs to adopt a personal trading style that matches their personality, interests, strengths, and weaknesses. I have never once seen a new analyst come in and copy a senior trader and become successful. Good traders gradually create their own style by amalgamating nuggets and tidbits and setups and tactics from watching other traders, reading books, and thinking of their own ideas. Find a trader you respect and spend an hour asking them about their process. Take the good, throw out the bad. Observe, take notes, and ask questions.
Or as Bruce Lee said:
Research your own experience.
Absorb what is useful, reject what is useless…
… and add what is essentially your own.
Find traders with different styles and pay attention to what they are doing. Incorporate methods and tactics that make sense to you and discard those that do not. If you see traders making tons of money on news headlines but you always sucked at video games and you like to ruminate over a long thought process before taking action… Don’t trade headlines.
Nice interview with Brent Donnelly on Bloomberg just after 12:30 Texas time! One of his salient observations was that the “buy the dip” instinct among investors, particularly retail, has not been purged yet. That part of the cycle still to come.
‘I am not being funny or exaggerating when I say that I truly believe that a trader cheering for a position that’s moved aggressively their way is the most reliable trading indicator I have ever seen. And this has been true for almost 20 years. The hit rate is close to 100%.’
Brilliant! And in my long-only, long-term experience, the hit rate is close to 100%, too. Shopify 1700 (170) yeah! Shopify 300 (30) boo! Ouch!
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