Considerations for a Wannabe Trader...

[TheNegotiator 13]

Hi!

 

This will be a thread where people can discuss their hopes and dreams and fears about trading full-time or part-time, but either way trading for real. There are many considerations a wannabe trader must take into account before trading live and many of those will likely be missed or overlooked understandably by someone new to the business. Some will be breakers like account size, some will be obstacles like investigating which product may suit you and your trading.

 

If this thread can be a source of knowledge and be an eye opener to what may be involved in beginning to trade then it's goal will have been achieved.

 

It'd be great to get some posts from new traders here to see some of the hurdles you have had to overcome or even problems which have prevented you from trading completely.

 

Looking forward to sharing your experiences.

 

Cheers,

 

TheNegotiator.

[TheNegotiator 13]

I'll start the discussion off with a few core points which I would say any trader must consider(btw I consider anyone who is buying and selling products is a trader. So that includes longer term investors too).

 

1-Why.

Firstly I would consider why exactly it is I want to trade. Is it to make money, is it to prove I am the best, is it to learn to be the best? The markets are a great humbler and anyone who walks into them with their eyes shut is likely to get their arse handed to them on a plate.

 

2-Commitment.

How much time can I/will I commit to trading? Trading is not like riding a bike. You have to learn the basics and progress to the more advanced material and understanding. But it is ever evolving. So when you can't make heads nor tails of something, it's possibly because it has changed before you understood it in the first place. Commitment is key. If you don't provision for time, you'll likely lose money.

 

3-Timeframe and method.

Will I be a swingtrader or a scalper? A position trader or a news trader? How might that fit in with my account size and my other commitments? Will I trade fundamentals or technicals? What is a technical?(lol j/k).

 

4-Account/investment size.

How much can I realistically afford to start an account with and what are my expectations of potential return? Have I got enough savings or additional income to support me before I become profitable? There are those who say it takes at least 18 months of live trading before you become profitable.

 

5-Money management.

Have I got a firm and realistic plan of how to deal with profit and loss? Can I say that so long as I have a reasonable trading method I will make money. People often overlook this part of trading but it is critical. If I don't accept that I have to take losses as part of doing business, I won't plan properly for when things go wrong. Also, how will I know when I can or should increase my position sizing?

 

6-Product.

So which type of product would I like to get into? Stock, bonds, fx, metals, energy etc. Spot, futures, options, cfds (contract for difference), spread bets etc. etc. etc.. All of these products offer a multitude of different characteristics which must be understood. How volatile is the product, how much margin is required, how much are commissions, what affects the market, what are its trading hours.

 

7-Broker.

How do I find a good broker that is going to be genuine and well managed. This is my money after all. I know that brokers net all their clients off in some cases and I certainly don't want to have something go wrong. It shouldn't be a problem, but I must research any potential broker thoroughly. Low margin and great commissions are not the only consideration.

 

8-Platform.

Which platform is going to fit in best with my plan? Different platforms are generally employed for different product classes and so finding the one which is most appropriate is important. Also, how much is it going to cost and how stable and efficient is it?

 

9-News source.

Some people hardly even use news. Some people use it a lot. But which news source if any will I use? I know some TV channels are really not too great. There are so many websites and commentaries and even something called squawks which have people speaking relevant news. Newswires which banks and trading arcades have are probably uneconomical at least to start with. I think they run into the thousands of $$$. The absolute minimum I need to know is the times of economic and possibly earnings data.

 

10-Computer.

Is my PC up to scratch? Will it run the platform I selected? Is it clear from clutter and junk that bogs down even very decent computers?

 

11-Internet Connection.

Do I have a decent enough internet connection? If I want to trade through my pc, the data need to get through to it fast and reliably.

 

Just a few ideas to look over for you guys and comment on/question.

 

Cheers,

 

TheNegotiator.

Edited February 18, 2011 by TheNegotiator

[Tradewinds 12]

1-Why.

I want to trade as a career. It did not start out that way. Originally, I just wanted to manage my own retirement account. I came out of the manufacturing and construction industries. I don't want to go back into either industry, and I don't see any way I can get work in either industry. I'm looking for a way of life and a career. I don't feel that the U.S. economy has anything to offer me. I don't feel like I have any other good options. I caution anyone wanting to go into trading as a profession. I don't have a family to support, or any real expenses, so that has been critical to my being able to put the time in to learn trading.

 

 

2-Commitment.

I have committed a little over 3 years now. Probably 2 to 2 1/2 years full time, every day.

 

3-Timeframe and method.

I guess I'd call myself a swingtrade scalper. I hate trend lines, and do not use them. I wasted a lot of time on trend lines. I only use price levels, support and resistance on my price chart. Then I use mostly the Advancers / Decliners for the general trend direction. I do not use multi-time frame charts. I only use a one minute chart. For me, something like a 133 Tick chart is just information overload, and takes my focus off the longer trend. I will be making up to hundreds of trades a day.

 

4-Account/investment size.

I expect to eventually make $800 to $1000 dollars a day. If I had a $100,000 account, I'd want to make $5,000 dollars a day. I've gone through about $25,000 dollars of expenses for bare bones living, and I have no rent, mortgage, heat or food expenses. Right now I have $10,000 in a trading account.

 

5-Money management.

I have a reasonable trading method that I have proven will make money. But it's taken over 3 years to get to this point. I've made all the typical mistakes that traders make. Let my losses run, take profit to early, etc.

 

6-Product.

All I trade is the ES e-mini futures contracts. Originally I looked at stocks. I consider stocks to be to much of a hassle, to much research, to difficult. I don't see any reason to trade anything else. My focus is to totally master what I do to an extremely profession level.

 

7-Broker.

I've only used a couple of brokers. This is an interesting topic. It takes a lot of time to get set up with a broker, and learn their platform. Just that alone could take months. It's a chore to determine what broker you want to use.

 

8-Platform.

By chance, I choose a broker that has very good charting. I believe that this is critical. After all, it's all about reading the chart. If you can't do that, then what's the point? Make sure that whatever platform you are using, you can navigate the charts without getting confused.

 

9-News source.

I looked into buying a subscription to a news service, but the expense was way more than I wanted to spend. I'm glad I didn't spend any money on it. News is very important, but trying to react instantly to the news is a game I would never try to play. I did go down that road of looking a earnings reports for about 6 months, and then decided that it's way to difficult, and I'm glad that I gave up on it. Don't get me wrong, I always check when the news releases are and make sure that I'm not trading when it comes out. Then I take a look at what the news is. I put a lot of time into figuring out how to interpret the news. That's an art form. But I don't trade the news, I trade the market internals and support/resistance.

 

 

10-Computer.

I've gone through 3 computers. One custom built myself. (Nightmare, that I don't recommend. But I'd probably do it again.) I like my laptop with an external screen attached. As with any product, the high end products are sometimes worse than the mid range quality. I bought a high end gaming laptop that I had to return twice, and then bought something else.

 

11-Internet Connection.

I live in a rural area and started with a local wireless company. It wasn't really good enough for trading. Luckily, during my learning phase, a cable company installed high speed on my road. I have a back up wireless connection through my cell phone company.

[TheNegotiator 13]

So after 3 years, do you feel you have addressed all these point poorly/well/got them nailed? It's important for new traders to realise how many things they have to look at and how many more things they will find out they have to look at when they get into trading. Being extremely organised should help!!

[Tradewinds 12]

So after 3 years, do you feel you have addressed all these point poorly/well/got them nailed?

 

I'm a perfectionist, so my standard of having something "nailed" is quite high. I'll put it this way, . . . I have the hammer, . . I have the nails, . . . I'm afraid of pounding my finger. The psychological/fear part is the final nail. The psychological part is another category to look at. I'm a perfectionist, and got caught up in trying to find the perfect trading indicator. Then it became an excuse not to trade. The good part of being afraid to trade is that I didn't blow up my account. The bad part is that I haven't made money trading, when I have the skills to do it.

 

I didn't know about the failure rate of traders when I started. It was quite a while before I heard anything about that. I'm not trying to discourage anyone from trading. I believe that the market needs small retail traders. Just understand that many traders may run out of time and money before you get the skills to be successful. But that is the case with starting any business.

 

I spent a lot of time, energy and resources nailing down all of those 11 categories. The most important thing is the strategy and product. Another category I would add is psychology. That's the final nail to drive for me. I'm working on that now.

 

My personality is to attempt to create something that nobody else has. I tend to think that I can come up with a better answer than other people have. So I'm very independent, creative and believe in my abilities. I have programmed my own custom trading indicators and have written hundreds of custom indicators, so I am deep into programing. I don't know what the typical trader personality is, or if there is one, but that is my personality and my perspective.

 

As far as the computer setup, internet connection, broker, and platform. Those things can kind of work themselves out over time as you are deciding what product to trade and what time frame. When I first started, I spent massive amounts of time searching the internet for good information. Probably 98% of the trading information, websites, and products out there I wouldn't give two cents for. (And thankfully I didn't)

 

I believe in learning price behavior, but I made it to complicated. When I just started focusing on things like support, resistance, new high's, and new low's things got a lot simpler. I don't like indicators based on price. The only thing I look at based on price is price levels, support/resistance.

 

I would like to state, that a big part of my learning was helping out other people with what I am good at. I helped people answer programing questions, and that exposed me to a lot of ideas and information that I would not have known about. So becoming part of a group, and contributing was a big part of my journey. I helped people, but I also learned things that I might never have been exposed to. So it's good to get involved, and contribute. You get something back from it.

Edited February 20, 2011 by Tradewinds

[leobust 10]

Find some trading setups, usually from books, modify them to suit your markets and make it your own.

You only need about 3 or max 5 setups to make a living. Re-invent /discover setups that works on trend days, during consolidation and different timeframes. A setup IS NOT one fits all - each one must suit

a specific market condition.

Paper trade your setups everyday under varying market conditions and take notes, especially the market reaction to the news of the day. Trade your setup semi-mechanical, ie. with little discretion - that way you let your setup run its course - whether that particular trade was profitable or not. Record your P/L so you can make some adjustments as you go along.

You have to be VERY disciplined when trading your setups. Follow your setups religiously. NO SETUP - NO TRADE.

When you're ready to trade real money. Just start with very few contracts until you're profitable. Increase the no. of contracts accordingly as you gain confidence.

[dgdevans 10]

I'd also add the need for disaster planning. Do you know what you will do in all your worst case scenarios.

What if your internet goes down? Do you have a back up?

What if your pc dies? Do you have a second machine?

What if your broker platform crashes? Will you know exactly what positions and orders you are holding and where they are held(locally or at exchange level?) Do you have access to another broker where you can hedge open positions?

What if you suddenly taken ill Is there someone else who knows how to close out your positions?

[TheNegotiator 13]

Thanks for those points dgdevans and leobust. It is really amazing how much people pick up when they start trading but how little they realise it takes beforehand.

 

Keep 'em coming!!

[Tradewinds 12]

Here is a list of trading considerations in a spreadsheet. Feel free to modify it and re-post it.

Considerations.xls

[iznogoud 10]

Why

 

I want to trade because I see trading as a game that’s very hard to play which motivates me even more to beat it. I come from a poker background and trading seems very similar in terms of money management, emotional control and outplaying others i.e. the market.

 

Commitment

 

I will dedicate a lot of time to trading, hopefully 10-15 hours a week excluding my time in classes which includes a lot of relevant information towards fundamental trading. I enjoy reading about the markets from fast paced books like liars poker but also more serious books such as ‘making sense of the dollar’ and ‘economics in one lesson’. I’m not sure how helpful these books will be in the end but I like to think they will give me some kind of edge.

 

Time frame and Method

 

I will include fundamental and technical trading on daily/weekly bar charts. I like to see myself using a variety of methods to beat the markets though I’m only a beginner so I will probably find myself leaning towards a particular method of trading. I don’t want to be in front of a trade screen 24/7 especially as forex is open all the time so I definitely won’t be a day trader.

 

Account/Investment

 

I will trade paper money for at least 6 months before putting 1-1.5k into an account. I expect to become profitable fairly quickly but maybe I’m being a bit optimistic 

 

Money Management

 

I’m understand the importance of money management through my poker playing and I will definitely limit myself to a bet size within my bankroll.

 

Product

 

Forex. Although I was interested in futures at first I’m taking a lot of international finance/economics classes and im going to progress faster because of this.

 

Broker

 

I will do some research and get some opinions on the best broker for my account size and target market.

 

Platform

 

Starting on ThinkorSwim but will look beyond if necessary.

 

News Source

 

I read a couple of blogs such as zerohedge, mises, madhedgefundtrader and I use the bbc website frequently. I will also see what everyone else considers good websites and add them to my daily reading.

 

Computer

 

I have a laptop that’s fairly new but I haven’t started trading yet so I will see how it does

 

Internet connection

 

College connection works fine for me except it’s a touch slow in the evenings.

[TheNegotiator 13]

iznogoud,

 

Is this you speaking in the past or present? I see a few things which may be problems if it's the present to which you are referring. On the other hand some of these things could for the right person, be seen as strengths.

[iznogoud 10]

iznogoud,

 

Is this you speaking in the past or present? I see a few things which may be problems if it's the present to which you are referring. On the other hand some of these things could for the right person, be seen as strengths.

 

Yeah actually my post is for the present and probably inappropriate for the thread :crap:. You can delete it if you want. But if you want to point out some problems then sure

[TheNegotiator 13]

No, absolutely it's relevant. It's important to see how those who start see things and how people who have been trading for a while might change in their perception of things.

[Arthur 10]

I am little knowledge about trading. I want to start trading soon so what are the primary steps that I must follow in order to get acquainted with this task. Can any one help me with the resource needed for beginners. Is it necessary that I have to get concept of financial accounts before starting the trading ?

Regards

arthur

[Tradewinds 12]

Is it necessary that I have to get concept of financial accounts before starting the trading ?

Regards

arthur

 

To open an account, you will need to do some paperwork, make financial transactions, send money somehow, sign agreements, and have a bank account. You will probably learn some new terminology, like what a "margin" account is.

 

You don't need to know anything about accounting or bookkeeping. You don't need to know anything about finance or valuations. In fact, finance and accounting have almost nothing to do with trading. Trading is a "game" of luck, a game of how to manage probabilities, and a game of market behavior. Trading can be slightly less like gambling because you can actually learn about things that affect price. So you can play with "loaded dice", but you are still rolling the dice.

 

News affects the price, speculation affects the price, what the majority of investors are doing affects the price and trading ranges and other technical aspects have an effect on trends. You can pay attention to the news, get to know price patterns and behavior of the market, and learn technical aspects of low or high probability "set ups".

 

I'm not sure what you mean exactly by financial accounts, but hopefully my answer addresses your question.

[one53brooklane 10]

Can anyone recommend a platform that I should look into for the Emini SP?

 

Thanks!

[TheNegotiator 13]

I thought of another one. When do you say enough is enough? You have given trading your best shot and it just didn't work?

 

People even down to the individual trade, enter into things thinking only about the positive what ifs.

[Tradewinds 12]

When do you say enough is enough? You have given trading your best shot and it just didn't work?

 

• Abilities
  

• Time
  

• Money
  

• Responsibilities
  

 

• Hobby
  

• Retirement Account
  

• Professional Trader
  

 

Responsibilities/Money - This is an issue of whether you have a family to support or not.

Time/Money - This depends on how much money you have left, and what your responsibilities are.

Abilities - Have you proven that your strategy makes money.

 

First of all, is trading a hobby or a profession, and are you improving. If you are not improving or learning, just stop! As long as I have the ability, knowledge and interest to make money trading, I will pursue it at some level. And that could range from being a very casual hobby, to having my own trading company.

If you are putting your family at risk, STOP risking money! You don't need to stop altogether. You can get a real job, and work on your strategy some more. If you are loosing money, but not a lot, and you want to trade as a hobby, or within your retirement account with measured risk, okay. If you want to be a professional trader, then you must constantly be improving as a trader, or consistently making money. Otherwise, do it as a hobby, and go back to work.

 

I would say that if trading is causing you and/or your family serious distress, then you need to stop. If things change later, fine. If you have good trading skills and knowledge, it's something that can probably stay with you for a lifetime. Although there are plenty of traders who were extremely successful, then crashed later in life. You can always take a break, re-charge your batteries, and get back into it.

 

The main issue is whether your strategy is profitable. Ability to trade a profitable strategy is the gauge of whether to continue, take a break, go pro, make it a hobby or quit.

[TheNegotiator 13]

The main issue is whether your strategy is profitable. Ability to trade a profitable strategy is the gauge of whether to continue, take a break, go pro, make it a hobby or quit.

 

The problem is Tradewinds, when people start out they really are not in the position to make a sensible judgement on whether or not their strategy is effective and viable. You'll get a younger guy maybe being a bit rash or perhaps an older person who's been successful in other pursuits come in thinking they will figure it out. Well that just isn't the way it is generally.

 

Good point about the commitments and responsibilities btw.

[TimRacette 11]

One issue I always like to bring up to wannabe traders is that...are you looking for passive income, removing yourself from the equation of a job, or are you looking for a challenging career as a trader with a learning curve as flat as a pancake, that is, you learn learn learn, but it doesn't exactly correlate with your account growing until a few key things click.

 

All in all entrepreneurship is living a few years of your life like most people won’t, so you can spend the rest of your life like most can't.

[Tradewinds 12]

All in all entrepreneurship is living a few years of your life like most people won’t, so you can spend the rest of your life like most can't.

 

I don't think I've heard that before. Thanks for that. I'm guessing that many entrepreneurs are not people with massive amounts of money that they can just burn through with no concern. And even the people with a lot of money, may risk it, for something even bigger.

[TimRacette 11]

No doubt TW, there's a cool podcast series called Entrepreneurial Thought Leaders in iTunes. It's not directly related to trading, but has some great indirect insight towards what it takes to succeed in any venture. Trading is no different.

[smlcap 10]

Find some trading setups, usually from books, modify them to suit your markets and make it your own.

You only need about 3 or max 5 setups to make a living. Re-invent /discover setups that works on trend days, during consolidation and different timeframes. A setup IS NOT one fits all - each one must suit

a specific market condition.

Paper trade your setups everyday under varying market conditions and take notes, especially the market reaction to the news of the day. Trade your setup semi-mechanical, ie. with little discretion - that way you let your setup run its course - whether that particular trade was profitable or not. Record your P/L so you can make some adjustments as you go along.

You have to be VERY disciplined when trading your setups. Follow your setups religiously. NO SETUP - NO TRADE.

When you're ready to trade real money. Just start with very few contracts until you're profitable. Increase the no. of contracts accordingly as you gain confidence.

 

Don't know what "set ups" are. Sounds interesting, though.

[TimRacette 11]

smlcap, setups are simply criteria you are looking for that triggers action to place a trade. For instance a setup might be, a pullback to halfway back in a range. So when a stock moves from $40 to $50, your setup is to enter long at $45.

[SIUYA 11]

smlcap, setups are simply criteria you are looking for that triggers action to place a trade. For instance a setup might be, a pullback to halfway back in a range. So when a stock moves from $40 to $50, your setup is to enter long at $45.

 

 

Not to get into an argument over semantics Tim, but "So when a stock moves from $40 to $50, your setup is to enter long at $45" causes the confusion for a lot of people.

 

Many dont differentiate between the setup and the trigger, and they often miss the crucial extra differentiation.

the setup is the prior action before the trigger - they may be different, and a setup may be rejected before its actually triggered.

 

eg; setup = instrument has broken up, i now think it is in an uptrend, and i wish to look to purchase a 50% retracement.

you can then either - place a limit trade at that retracement (so the trigger actually is a trade at that price) or

you can apply another trigger....eg; at the 50% retracement I will purchase on the first up day, or I will look for a move above a short term moving average near the 50% retracement area.....