Trading Insights

Trading Insights

Trading Education and Technical Analysis

Trading Insights
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I get a mixture of phone calls, emails, and skype chats each week. People from different walks of trading life that want trading education to learn how to trade, learn how to trade better. People that want to learn technical analysis for the indices, forex, stocks, or commodities - or just add more advanced techniques or indicators to their already successful trading styles.

Learning how to trade and finding a good source of trading education has to be the absolute hardest endeavor that I've watched people take on. Learning to trade is completely different from any other career, in that trading requires you accept losing days as positive occurances in your life, so long as you followed your trading plan, rule for rule, trading execution by trading execution. To be able to stand up at the end of the day, walk over to your mirror, look in it and say, "Good job", even when your minder says "NEGATIVE DOLLARS" is unlike any other profession.

Can you imagine any other job that required you pay your boss money, as you were punching out on the way to your parking lot?

It's insanity. And yet - my phone continues to ring with people from all over the world wanting to learn how to trade - looking for good trading education - and learn technical analysis, or enhance their already profitable day trading or swing trading techniques. They range from the people who confess having lost it all - having next to nothing left - who are on their last breath - to the people with millions in several accounts who have reached the pinnacle of their success. As you can imagine, there are about 10 people of column "a" to the column "b" traders.

Most people that are just starting out learning to trade - whether it be the emini S&P, the EURUSD, or Crude Futures, all make the same fundamental mistake. They believe that if they only had the right tools - the right trading system - they would be great traders. I think I've fallen into that mind trap once or twice on my trips to the home improvement big box stores around me. I think, "If I only had that saw...I could build a beautiful dining room set out of oak for my wife". I require constant reminding that the drill or the chisel does not make the master - it is the master who makes the tools sing and shine. It's no different when learning how to trade - and I enjoy my place as a trading educator.

I'm uniquely positioned as a tools vendor - selling indicators for MetaTrader, Tradestation, and NinjaTrader. I get to talk to traders from across the entire spectrum of success. I'm intimately familiar with certain patterns of failure - why most traders fail - as well as the patterns of success - why those five to ten percent of traders who make money - actually do it. After about 3 years of these conversations, the traders that are making money all share the same "bio".

1. They were trading 2-5 years before everything "clicked" and they became successful

2. They blew out 1-2 accounts before becoming successful

3. They follow a trading system that is uniquely matched to their trading personality

4. They follow a relatively simple system - typically between 1-3 indicators, no more than 2 or three charts.

5. They've adopted one technique - one little simple "thingy" that they've noticed - that they love.  Something they've noticed over the years that they love to watch - that no one else "gets".

6. They spent 10,000 dollars or more on "trading education"

It doesn't matter who I talk to - I reference that list in my mind, and ask the following questions when a new trader wants to learn how to trade,

"What market do you feel "comfortable" in? "

"What time frame do you feel "comfortable" in?"

"Are you a trend, counter-trend, support and resistance, or scalping trader?"

"How long do you feel comfortable in the market? 1 minute....60 minutes....6 days?"

 

When people ask me how to learn how to trade, I always go back to these questions - which annoys some, to be honest. They think I'm avoiding the question. Or they'll ask how profitable I am, and what system I'm using. I have to remind them of a classic trading paradigm - that however I trade, or don't trade - it bears no importance to what you'll do, or what will work for you. I could give you the rules to any system - and if it doesn't match any of the above criteria - you'll crash and burn hard.

It took me a long time to discover these patterns of success, and failure. To discover where the best sources of trading education were. It's an ongoing process, and sometimes I amend the list. But for the most part, people that want to learn how to trade, learn technical analysis, or inquire about honing what they were doing - need to be reminded that the tools, are just that - tools. However new and exciting the Flux indicator set is - the trading plan - and the absolute dedication that trading plan - is the underlying foundation of success.

There are more powerful things to learn in the "self help" section of Amazon.com, than in the "Learn to Day Trade" section, unfortunately.

One thing I advise people to do - something they can do right now - for free.....trade a system continuously for 1 week.

Trade something free - and in Sim. Trade a candle stick pattern. Trade a moving average cross. Trade a break out pattern.

Pick something simple. Apply 3 -5 rules to the setup, and trade it every time you see it for 1 week.

Until you can do that consistently - people have no right to move on to the next step, where real cash comes into play.

Until you begin to reform your mind to understand that persistence - not profits, are rewarded with serotonin ... and that your trading plan, and not your minder, is to be watched and followed, than no system however profitable, will benefit any day trader or small investor.

Are you up for the challenge? Pick a unique setup...a unique set of market conditions....and trade them in sim.

Write up a small trading plan. Identify the market, the hours, and the conditions you will trade.

If you're left with a question that sounds like this, "What should I do now/here?" than your trading plan is incomplete.

You should know exactly when and why you are going to do something in the markets. If you're confused, then you didn't define your rules enough.

Mock system:

Emini S&P

9am to 11:59am

3 minute time frame

Trade long when 50ma crosses 100 ma

Target 1, 2x ATR

Stop, 1x ATR.

Move stop to BE once target 1 is reached.

Target 2, trail 2 ticks below 100 MA

 

Keep track of that for 1 week's time in an excel sheet, or in a chart that you hand draw.

If you get through the week - following all of your rules - whether or not the model made money - reward yourself.

For ever trading plan execution that was sucessful - give yourself a reward. Begin to build "trading muscles" in the right places...

Trading is the hardest profession I've ever seen anyone attempt to undertake. It's time we were honest about what really goes into it, and stop telling everyone they're just one more chisel from becoming the next Master Carpenter...