Archive for September, 2008

New Trader Advice - What I wish I had done.

new as a trader ?
Many of the people who know I trade generally ask me how much money they need and how much money can they make. It appears to me that what many people ( like me at first ) never consider as a new trader is how much money they can loose [...]

new as a trader ?

Many of the people who know I trade generally ask me how much money they need and how much money can they make. It appears to me that what many people ( like me at first ) never consider as a new trader is how much money they can loose and just how fast. The advice I recieved and didnt listen to from the few professionals I encountered in my early days as a trader centered upon risk management. Some of that advise even centered on paper trading. Looking back through my journal and considering what I have learned there are a few pieces of advice i can give anybody who stumbles upon my article.

1. Dont trade real money. Open a paper trader ´s account. This essentially is a simulated account where you can trade the markets with fake money. I am amazed at the amount of argument there seems to be over this with ideas put forward the the physchology changes from paper to real money. Yes it does, so what. But what changes also is , if you run the account as if it were real money is the realisation of how many times you are wrong in the beginning and what type of mistake you are going to make. Losing real money is a pain in the butt , losing simulated money can be a learning experience If you are like me as a beginner you will see its very easy to do things like buy near the top and sell near the bottom living on ideas like ” holy cow this thing is on fire i better buy a lot quick “. Evey person is different but you will quickly see if there is room for improvment all the time keeping your ” real powder dry”. Be honest and dont reset that paper account at the first sign of trouble… thats cheating yourself. Do it for a few months the market might be going to hell but it will still be there.
2. When you realise you know little or at least have room to learn , but a few books . I can reccomdend Trading for a living and Nisons books on Japanese Candlestick charting. As a new trader the single most important piece of advice I can give is get a mentor. A good one will cost you money, so will a bad one so choose carefully , ask around in forums , watch if you become a forum regular you will identify those who are good traders with kind hearts and those that are full of hot air. PM people asking them for references etc. See if there is a local trader to you or go to trader shows and exhibitions . Some are better than others . Dont be pushed into expensive ” chat rooms ” or sign up for 20 reccomodation services etc. Sit down with somebody who has been trading for a long time and soak it up. To prepare for that day you can take some steps . The old cliche is ” pay it to the mentor or the market ” and its a cliche because it is so for most. I was advised to look at a mentor as an investment in me.Avoiding that idea You probably will not be the exception over the medium term. IF you are my hat goes off to you. To get in touch with some of the basics of technical anaylsis check out the links on the left to inclde FREE TRADING VIDEOS. This has a great mix of traders from seasoned to new and learning like me.Another well worth a look is Infomed trader . I learned a lot about candlestick charting here. Another is Afraid to trade , great daily analysis posts , watch Corey talk you through a chart.There are many but I will shamelessly plug FTV here and now , cool crew eager to share with videsos from pros and daily discussion. There is also mentoring available there but nothing is ” rammed ” at you and my mentor is actually from somewhere else. IF you post your pick and the board doesnt like it as a stock to trade dont be offended, look at what they are saying and do some research. This really is a business where you never fully learn the ropes and always will find somebody to disagree with you. As a beginner though there is probably reason for caution especially if many say the same think e.g. ” dont touch ” .. again I have learned to look at why.
   
3. Learn the basics of technical analysis. Wow so important,,, Forget trying to fundamentally analyse the market thinking ” Apple are selling loads of them ipods ” they have to go up. I drove myself batty trying that routine , everything you think you know is probably wrong or already reflected in the price. Besides which even if you are right about those ipod sales it doesnt mean the price is going up. A recent example is FSLR better the ever earnings but they got creamed. Technical analysis will give you as a new trader an edge eventually if you combine it with other things like risk managment . It is my firm belief that we can see the opinion of the majority of the fundamental analysists in the charts if we analyse them technically. The big guns pay lots of economists to think fundamentally ,, so learn TA and see what they are thinking. I have been saved from ” hot tips ” so many times looking at TA. FAmily members ploughed on and are now as they tell me ” trapped in”.
4. This leads me nicely to the next point. Always always use a hard ( fixed and non moveable )stop loss. That is not a promise to yourself to sell if it moves a little against you.. As a new trader i learned that a stop loss protected me from myself. I was new so with all that wisdom… , so when a position went against me i justified its movement calling it such lovely things like a “pullback ” or ” temporary set back ” such sweet soothing names such not so nice memories . All the time of course imscanning chat rooms etc. etc. looking for a glimmer of hope … Imagine i had bought Sally May or Freddie Mac or just about anything in this big bear market.. All the while my nice shiny account is starting to look, ummm ,, dull. When i was new I didnt even know what a stop was and then I realised i was with a broker who didnt seem quite sure either ! There are all kinds of ” systems ” out there but many have one thing in common ” lose little when you are wrong ” . I once read ” assume you are wrong with a stop loss , entered before you even buy or sell untill the market proves you right at which point you go flat”.
5. Ignore the news. By the time you hear a headline its already in the price. Watch the headlines on a choppy day where things are going red green red green. Refresh the homepage of bloomberg . One minute they tell you the market is going up because of ” X ” than the market changes direction and they say the market is going down because of that same ” X “.. try it. Cramer if you know who he is ,, hes just funny and the experienced guys i respect call him the comedian. The fact is the news is a mish mash of opinion and hey so is the chart.. You have more chance of gauging the next move charting than predicting the news. Did I get stung watching news .. of course I did . I bought into horrific decliners on ” Analyst ” upgrades ,, really i think that was the big guns trying to create some demand for a ” falling knife ” ( a share that is in a rapid decline is called that as its advised you dont try to catch it ). Anyway I will probably add to this post over time so feel free to check back. It is posted for the the few who have less experience than me , i.e complete beginners. If my experience is anything to go by and the SEC´s statistic that 80% of traders lose a lot of money in their first year ( hence the pattern day traderss rule ) if you manage to learn something from it I have achieved something positive and you will be thouasands better of.