THE ALPHA TRADER
There is an elusive group of traders, who time and time again have been able to make consistent profit from the markets. I call them the ‘alpha’ traders, because they represent the first group of successful traders in a market that is statistically noted for its high risk and volatility. In a room with a hundred traders, these “alpha” traders number about five. Their existence is almost a myth.
These alpha traders have no super-human strength or intellect; they are simply men and women who have found ways to successfully trade the financial markets. When anyone hears this phrase, one immediately thinks about George Soros, Warren buffet and the greats of the financial markets. However, I do not refer to these greats. I refer to the average swing trader, the Chinese wife trading from the comfort of her home, the young student trading to carter for educational fees and the husband, who spends a few hours in the market, while he handles his day job.
THE ALPHA MINDSET
The alpha trader is first and foremost a businessman or woman. Every trading decision is taken as a business decision, free of emotion and bias. The alpha trader looks at minimizing losses and maximizing profits; the same way a businessman would try to cut costs and increase profits. The alpha trader never gets excited about any market behavior or condition; he is happy with profitable transactions and studies every loss to learn a new lesson.The alpha trader is never lucky or unlucky,every trading decision is based on a methodology that has been tried and tested.
Trading can easily be compared to gambling or placing bets. A lucky trader can be successful for a few months, but never for the long term. The alpha trader does not make 200% monthly; she/he is not a gunslinger or a maverick. He does not trade for the adrenaline rush, or the excitement that accompanies every trading decision; to him trading is a business.
In reality, the alpha trader is most likely the most boring guy or lady in the room, but at the end of the year she could be sitting on an account with a net profit of over 400%.The alpha trader is cold and calculative. Risk and possible loss is the first thing she considers before every transaction. His or her primary aim is to control losses and exposure. People don’t usually hear about alpha traders until they have been around for several years, this is because they always have long term views, and their success is established over a long period of time.
THE ALPHA METHODOLOGY
The alpha trade is very prudent; she will avoid paying the spread if it can be helped. So she looks for the brokers with the lowest spreads, and trades pairs with the least spread. The alpha trader understands that the currency markets are governed by demand and supply, and that markets trend over a long period of time. The alpha trader isn't a scalper;she is ready to forego short term opportunities for long term gains.
The alpha trader uses the simplest trading strategy around, but her analysis of price movement is thorough and concise, with strict trading rules.
The alpha trader is very concerned about her Return-On-Investment (ROI); so she only takes trades whose rewards far outweigh their exposure. For example, the alpha trader is ready to risk 35 pips in an attempt to gain 80 pips.
She isn't anxious to close out her trades for minimal profits, rather she is willing to let her trades run for days if necessary, as long as she is in the direction of the trend. She is patient with winning trades, but very impatient with losing positions. The alpha trader does not add to a losing position, she is ready to accept a loss as a bad investment decision when it arises. She trades like a mercenary guerrilla, always struggling to trade on the side of the trend, and avoiding counter-trend positions.
Her analysis isn't restricted to the one hour chart, but rather she studies all the higher time frames in order to effectively gauge the trend and her position in relation to the current trend.
The alpha trader does not buy low or sell high, rather her trades are entered in the middle of a trend, after the trend has been confirmed or after a confirmed reversal. The alpha trader never tries to predict the future, rather she reads the news headlines and follows price on the charts.
The alpha trader is a momentum trader; she trades when price is trending strongly in a chosen direction, and never afraid to take break-out trades. She is a technical analyst, but her decisions have based on the fundamentals surrounding the currencies.
Her strongest trading tool is probably her common sense.It should be noted here that the alpha trader isn't defined by gender, but rather by his or her trading principles. In every trader, there's an 'alpha' waiting to be born.