Top trader who wants to help the underdog

ATRAIT common among successful traders is a thirst for knowledge. More knowledge means more trading ideas, according to Lex van Dam, who (in)famously handed eight trading novices $1m (£500,000 at the time) of his own cash to trade the markets at the end of 2009.

With training from van Dam, the group outperformed professionals during one of the most turbulent trading periods in history. “I wanted to de-mystify the City,” he says, “and show that ordinary people can trade as well as professionals.”

Van Dam is an intriguing character. Formerly of Goldman Sachs, the 44-year-old Frieslander has nearly two decades’ experience trading at the top level – including on Goldman’s proprietary desk and at major hedge funds. Yet he doesn’t fit into the clichéd mould of a fund manager and, from his demeanour, you wouldn’t think that he manages $500m (£310m) for his clients.

We meet to talk about his trading academy and his book How to Make Money Trading. Although unimaginatively named, the ideas are valuable to experienced traders and newbies. “They will not teach you how to make money quickly,” van Dam asserts, nor do they prescribe a list of rules to be followed blindly. Instead “the concepts teach you about how to think about financial markets.”

Van Dam says that there are no shortcuts to becoming a top trader, and feels that he is still learning. “It takes a lifetime to learn to trade.” The strength of his approach comes from an emphasis on generating your own trading ideas and managing your psychology. “Don’t listen to rumours or follow others; trust yourself,” he says.

Van Dam’s book is worth a read for the first chapter alone, which gives a scathing assessment of the mechanics of the financial system. But it isn’t merely a biting polemic: it will help the uninformed to understand what they are up against. He encourages us to be sceptical. I ask whether we should be sceptical of him. “Yes,” he says firmly, “be sceptical of everything, including so-called experts”. So I ask whether he is an expert: “I understand the game, the rules, and I want to share that.”

One difference between van Dam and the self-styled investment gurus is his honesty. “I struggle with trading too, and feel the same pain as retail traders. Even as you become more experienced, you still wake up in the night with worry and feel suicidal thinking about trades.” He says that his life “is probably not that different from an average trader,” although most average traders do not average over 10 per cent annual returns.

I ask van Dam about his worst trade. He vividly recalls an occasion when he was short Nasdaq futures and Alan Greenspan, the Fed chairman at the time, slashed interest rates unexpectedly, sending markets surging. He can’t remember his best trade: “It’s my job to do good trades, so I don’t think about them. I just think about the mistakes and try to learn from them.”

Van Dam tells us what it takes to be a top trader. “You need to be mentally tough,” he says sternly. “You need to keep bouncing back, disappointment after disappointment, and you have to be able to cope with pain”. To van Dam, a top trader is someone who is street smart: “I’d have someone who is street smart over someone who is book smart, any day.”

Why would someone want to help others to trade better? “I always support the underdog,” he says. “In these times, no one is going to take care of you. People need to take care of themselves.”

Van Dam’s wisdom could enable traders – whether novice or more experienced – to do exactly that.