Essentials Of 'New to Trading'

[Shakone]

Re: Essentials Of 'First Steps'

In response to many posts Ive seen here this is the absolute truth of the matter. This information I will give you is going to accelerate you.. but be very careful indeed.

1. The most critical thing in trying to understand the markets and others plus thier commentaries is TIMEFRAME. Thjis is why there is so much confusion. Group issues into timeframes and the world becomes a litle easier e.g. IS this intraday, 2-5 days or a month or more than a couple of months. This is critical.
2. Scalp trading for beginners is the road to ruin. Death by 1000 cuts
3. The best money is made over longer timeframes.. get rid of that busy trader active trader image taking trade decisions every 5 minutes.. it will kill your account and reduce learning.
4. Stop believing you have to be right every trade. No one knows any trade will be a winner., if you approach the market believing a trade MUST win. you will feel negative about losses =more stress= tense thinking=limited thinking= fighting the market= chasing the market for more losses.
5. New traders do the opposite of what should be done.. they hold on to losses and then as soon as they feel a trade winning they profit. NO you must cut the losing trade and it is ABSOLUTELY CRITICAL that you hold on to winners ELSE the mathematics of winning DOESNT WORK.
6. How do we do this? well, your BELIEFS need to change. RISK of loss must be expected so therefore you cut your risk by never risking more than 1-5% on any single trade. this means a 5000 account you dont risk more than 50-150 max or you are simply going to go broke PERIOD.
7. The markets are a game, in this game you must ride winners, your searching for trains, your not searching for little disposable bicycles. if you do YOU WILL BLOW YOUR ACCOUNT. PERIOD.
8 . If you win 3 out of every ten trades, and each trade you lose your loss is 100 units.. the last three trades must collectively make700 just to break even. as such scalping for less than a 3 to one gain is a losers game because even then your 3 winners one will be break even and one will be only a small gain. conclusion.. begginers must be looking for trades where they believe a 7 to 10 fold win loss ratio is possible OR DONT TAKE THE TRADE. This means typically you should be looking for massive swing trades, not silly scalp trades. OR DONT TAKE THE TRADE
9. Spreadbetting is a sophisticated tool not a begginers tool.You should avoid spreadbetting if your a newbie, its not in thier interest for you to win, why? most make thier money from your losses. WAKE UP! Thats why you dont see volume data much amongst them.
10. The three most important concepts in trading are a trade plan that describes all the exit and entry signals and strategies you are looking for (so you dont have to think much during trading). A deep understanding of your personality type and your beliefs. and the most important of all a realisation that knowing more doesnt mean more money, preparedness and planning of eventualities ie always controlling risk & the application of your money for each trade and successive trade is actually what makes you money. e.g. fixed amount trading e.g a specific risk amount isnt going to help you achieve your dreams.

11. It is possible that you can do everything right and simply through bad luck you could have a string of loosers hit you 16 times in a row. Does your system allow for this high probability of a losing streak?

When you have been trading on and off for 7 years like me and you get fed up of loosing, this is where you end up, finally dotting all the is and crossing all the Ts wishing you had listened to EVERY corner of that advice given to you. Well, realise you have just been given the keys here, and I dont care how advanced you are.. if you disagree with any of this, you need to examine your belief systems and try and alter or refine those beliefs before you even begin to reply back to me.

Interesting post. Always good to be clear on a few things. Of the statements I've emboldened, define 'best money'. Easiest to trade? Easiest to understand? Can increase account more quickly? Smallest drawdown? Least stress? What is best about it?

On risk reward. It's always possible on any entry that it will go more though isn't it? You can have an idea where trouble areas are, but it's hard to say for sure it can't go past a particular area. Therefore, please be clear on which trades you would turn down because you believe they have no potential to have such a risk:reward.

Do you believe it is impossible to make money from a lower risk:reward in the long run?

Thanks.

 

[Paulds11]

Re: Essentials Of 'First Steps'

Shakone

Best money? =The most profitable trades, the smoothest returns.. the most efficient capture of profits.

increase account? = increase your alpha, your equity curve, your account profit figure

win loss ratio: every trader has a win loss ratio.. the best traders rise to around 40-60% of thier trades as winners. if you lose 7 times out of ten, add up the cost of those losses and you will see that the winning three must exceed the value of the loosing 7 . One of those winners be a break even, thus you need to be gunning for trades that typically exceed your average single loss by at least 3.5 times. Can you see this? keep it simple. On this basis of 3/10 winners you have a 30% success rate. and in order for that success rate to be profitable to you you must be looking to EXCEED your average loss by a factor of 3.5 MINIMUM. Thus you need to be looking for real super potential for each trade, else youre going to go broke. Many traders dont even do this type of homework. This is why they (and me many times in the past) were losing and blew their accounts.

By developing a trading plan, you have already done this homework. All your looking to do is recognise patterns from historical information . When you see that this pattern yeilds a POSITIVE EXPECTATION ie. yes you can see this tends to happen when x y z happens that is the beggining of a stategy with a POSITIVE EXPECTATION ie more than 50% chance it will succeed for any given market CONDITION( choppy or smooth market etc). THIS IS where you spend ALL your time as a trader. doing homework looking for patterns.. NOT in front of the DOM ready to pull the trigger when you "feel like it".

You will turn down trades that dont fit the strategy you have pre=planned. It is a thing of beauty sit and watch the market and not take any trade because all day long none met your criteria. THIS IS THE DISCIPLINE you need. ALL TRADES ARE TURNED DOWN if they do not meet your conditions as set out in your trade plan. simple.

You asked "Do you believe it is impossible to make money from a lower risk:reward in the long run"?
My answer is this.. it is possible to make 300 million from such a strategy. IT IS THE MANAGEMENT OF RISK (money) THAT KEEPS YOU IN THE GAME LONG ENOUGH TO MAKE PROFITS ON MANY TRADES. SUCH MANAGEMENT OF YOUR MONEY REQUIRES A LOW RISK TO REWARD plan. ALL MONEY MAKING PLANS have a lowered RISK to reward. You dont have to RISK everything to make a lot of money.. you just have manage the risk carefully from money management rules you set up in your trading plan and then NEVER BREAK YOUR RULES.

Why am I doint all this? because the trading world is full of crap and its about time people were not misled. by thieves and brokers who do not have your best interest at heart.

 

[mamcm]

Re: Essentials Of 'First Steps'

Thanks to all who have contributed I this tutorial. It was quite a useful read through. Though I didn't see anything about trading stocks? Wonder why?

 

[timsk]

Re: Essentials Of 'First Steps'

. . . Though I didn't see anything about trading stocks? Wonder why?

Hi mamcm,
Welcome to the site.

The Sticky is generic - so it covers trading in general - regardless of whether you're a scalper or position trader and whether you trade stocks or forex etc.
Tim.

 

[mamcm]

Re: Essentials Of 'First Steps'

Hi

Thanks for your post, which company do you use for spread betting and would you recommend them.

Thanks

 

[timsk]

Re: Essentials Of 'First Steps'

Thanks for your post, which company do you use for spread betting and would you recommend them.

Hi mamcm,
I've had an account with ETX Capital for years - but I rarely use it. If I was looking from scratch I'd consider as many of the major players as possible. This FAQ will help to point you in the right direction in terms of what to look for: Can You Recommend a Data Feed, Charting Software & Broker?
Enjoy!
Tim.

 

[Paulds11]

Re: Essentials Of 'First Steps'

For new Traders:
1. The most important aspect of Trading is understanding your own Personal Psychology. This will wash over you until the pressure of seeking to trade properly from the series of losses you will incur will force you to visit this area again in more depth. Then you will understand the battle isnt with anyone else, its with yourself and how disciplined you must be to trade properly.
2. The nest issue which sets good traders from bad traders is that good traders begin with a plan. If you are not trading from a plan which details everything about how you will trade in the market and the strategies you will use for each market condition, then youre not ready yet to trade profitably CONSISTENTLY. But its always a good thing to trade a little so you understand where the books are coming from
3. You are going to read more information than many individuals do who take degrees. Dont kid yourself here, its relentless and most great traders will blow thier accounts completely at least once in a 3-8 year journey trying to trade properly. Many wont make it because they run out of money/ think that they can shorcut the learning/ think they dont need to read that much/ or do not accept properly that the real issue is about themselves NOT the market.
4. Scalping as a method for Newbies to begin trading is often the culprit which sets in bad habits about understanding how best to trade. Avoid it as a beginner despite the calls of many to use it as a begginers strategy especially from those who make profit from your losses like Spreadbetting forms.
5. Spreadbetting is not a Newbie tool.. Its actually a sophisticated tool with less critical data (volume) for you to use AND the margins are often set poorly and if you are scalping using them you are actually at a disadvantage. Forget the issue of taxes your not coming to the market new to make millions free of txes. This is a consideration only when youre consistently profitable and the truth is that is likely to be at least 2 years away MINIMUM.

Trading is as sophisticated as surgery, flying jet planes, not neccesartily in the factual understanding required but actually in the way you as a person are able to stick to your goals and remain consistently self analytical in a quest to better yourself and control yourself. That is the key.

Lastly if your emotions are up and down.. your trading isnt right. Trading isnt an emotional game. Losses are a part of the game. You will never know what will happen next, stop trying to predict it. Youre goal is to use PROBABILITY in your thinking, to plan your trade, place the trade and accept whatever happens. If you know you will not accurately predict any market you will PROTECT yourself. When you do this whole thing right, you will realise the emphasis ISNT ON PROFIT. The emphasis is on NOT lossing too much every trade. when you do that profits suddenly happen to you.

The last and most critical piece in the jigsaw puzzle is then to LET YOUR PROFITS RUN. No trading works unless you actively allow profit to keep accruing when youre in a winning situation. If you jump out of a trade to secure the profit too early this indicates your psychology isnt right and eventually what youre doing is cutting your chance of winning in this game.

Trading is the HARDEST WAY to make an EAY LIVING. Those poor at learning, not willing to work day and night reading, those who are bad at self discipline will likely not succeed... that is why its impossible these days to get a trading post without an MBA or post graduate education. These are the people youre competing with. To compete against them you need to be willing to study hard and control your impulses. Start with Psychology and trade planning and keep focused on these two aspects as you go beyond all other aspects. Indicators are secondary. If this sounds daunting to you I advise you not to trade. If this sounds challenging to you and youre not put off. Good luck to you. Welcome to the lions den.

 

[mmis]

Re: Essentials Of 'First Steps'

hello,

Firstly , I apologize because mu English not good :innocent:

I want to know somethings


What is the minimum to open an account on American exchanges ?

If I bought a stock today , How many days I have to be patient in order to be executed sales ? I mean ( T + ... ?? )

I heard before that I can avoid that problem, through opening an account worth $ 25,000, is this true?
If it's true and opened the first order with the account and lost $ 1,000 and the account value became 24000$ . does it mean that I went back to the same problem again?

Is there brokers provide leverage on stocks? What are this brokers ?
and How this Leverages ( 1:2 or 1 : 30 or 1: 100 or ... or what )

Sorry for the inconvenience
Thanks all

 

[15 min tlb]

Re: Essentials Of 'First Steps'

Reasons Why Most Active Traders Fail - YouTube

 

[timsk]

Re: Essentials Of 'First Steps'

Hey am new here but was just wondering where I am wrong on this strategy. Find a big market/share moving event. Put £50 on short shares with a stop loss of -3% and put £50 on long shares with a stop loss of -3%. Then when the share moves 10% u make 10% on the long shares and -3% on the short shares = Profit of 7%
Thks guys!

Hi hmaster101,
If you're talking about buying and selling the same stock, you'll need two accounts and you'll be paying the spread twice. You may be using a different broker and/or trading platform, so it's unlikely that you'll be filled at the best prices on both legs of the trade. The losing leg is stopped out at -3% and, at that moment, in theory you'll be up +3% on the other leg, less the spread x2, commissions and possible slippage. Who's to say the winning leg is going to continue in the same direction to give you your +10% profit? It could happen, equally it could just as easily reverse and your net position across both legs will be in negative territory.

Having said all of the above, going long one instrument and short another highly correlated one is a well established strategy with lots to recommend it. Search for 'spread Trading' or 'Pairs Trading' in the Articles section of the site to find out more.
Tim.

 

[hmaster101]

Re: Essentials Of 'First Steps'

Thks so much for the information really appreciate your time would spread betting help reduce the commission? could it work maybe a couple times a year on the big events?

 

[timsk]

Re: Essentials Of 'First Steps'

Hi hmaster101,

. . .would spread betting help reduce the commission?

Yes and no! You won't have the formal commission charge that you'd have with a direct market access broker (DMA) - but you will have a wider spread. Whichever way you cut it - you end up paying one way or the other. And the spreads can be very wide indeed with some SB companies, such that the cost of trading with them could be higher than it would be trading via DMA.

It's hard to give a definitive answer because it depends on the broker, the instruments traded (a relatively small thinly traded company will have a much wider spread than a company like Microsoft for example), the time of day and the timeframe of the trade etc.

could it work maybe a couple times a year on the big events?

Yes, it could. However, if you trade it based solely on the information you've provided here, if it 'works', it will be the result of good fortune rather than skill and judgement. In other words, the next time you try it - it might not work. As it stands, it's not a complete strategy; it's a hypothesis around which a strategy could be built. If it's forward tested and produces a positive expectancy then, at that point, you may have a tradeable, potentially profitable strategy.
Tim.

 

[akratic]

Re: Essentials Of 'First Steps'

Hi
The "Essentials Of ..." are very helpful, after reading 2-3 books and losing some money on spread betting forex, this forum really opens my eyes. Still lots of reading left, but im keen to get started and the first problem i got is to decide what timeframe to choose as a begginer for my trades.
Because of my day job i have only 3-4 hours (realistically)a day for trading left so i guess day trading is not for me, scalping not for begginers, and with swing trading you still better to wait for right setup to come up.
Can you please advice me what timeframe would be optimal to get some experience in trading.
Thanks

 

[thblees]

Re: Essentials Of 'First Steps'

The very very very important thing you have to understand is about probabilities. Forget indicators, software, Expert Advisors (EAs) and the such. Learn first what probability means and how it affects your trading! Forget "gurus" who sell you software/indicators with a "90% success rate"! You can lose even with such a "success rate" (when you always win only 2 pips but lose 200 with the remaining 10% of trades). And you can win in the long term if you only have a success rate of 30-40%.!! This is basic knowledge nobody teaches you at the beginning. Everybody only wants to sell you his products!

Regards
Thomas

 

[Carlos Un-shackled]

Re: T2W First Steps Tips & Tools

What can I say fellas? Just very humbled by being lavished with all this information. I've been skim-reading for a good few months, and will go through all the links once over this week. Been wanting to get into Trading FAR longer than I care to mention, so I know I have the patience, I've got the money to do it comfily, without rushing, without dreaming, and I'm going to start it out right. And continue that way.

Now, a couple of newcomer questions, apologies if they've already been answered in the links:

1) Psychology - is it only during the paper trading stage that you find what kind of trader you are, or whether you're a trader?

2) Timeframe - how do you determine which is right for you? Having read a few charts I feel somewhat averse to intraday, I've always been more of a 'hunter' than a hyena. Again, is this something you determine during your paper days?

3) Spread betting, which I'd hoped to begin my trading career with. TIm writes:

INTRODUCTION
.... By far the most common trading vehicle for new traders is Spread Betting, followed by Contracts for Difference (CFD's), Options and Futures. .

However Paul writes:

.... " Spreadbetting is not a Newbie tool"

I appreciate the two stances are not absolutely mutually exclusive, but what is the situation for the newcomer?

Again, I am DEEPLY grateful for this site, gents. I know a couple of traders who have been burned badly overall, and one who has done very well overall. The first two did little or no research; I don't know about the successful guy, but I know I am going to do my homework.

Cheers!

 

[BrightFX]

Re: Essentials Of 'First Steps'

Always remeber that you must be profitabel on a demo account before you even consider trading with real money!

 

[timsk]

Re: Essentials Of 'First Steps'

Hi
The "Essentials Of ..." are very helpful, after reading 2-3 books and losing some money on spread betting forex, this forum really opens my eyes. Still lots of reading left, but im keen to get started and the first problem i got is to decide what timeframe to choose as a begginer for my trades.
Because of my day job i have only 3-4 hours (realistically)a day for trading left so i guess day trading is not for me, scalping not for begginers, and with swing trading you still better to wait for right setup to come up.
Can you please advice me what timeframe would be optimal to get some experience in trading.
Thanks

Hi akratic,
Welcome to T2W and apologies for not replying sooner.

If you have 3-4 hours a day to devote to trading, that's certainly enough to day trade - if that's what you want to do. The caveat is that you'll need to choose a market that's open (obviously) and presents the opportunities that you require during the hours that you're trading. For example, I started out trading U.S. equities after I got home from work for the final 2 hours of the day - 7.00-9.00pm U.K. time. Keep in mind that different markets have different characteristics. For example, the tools and techniques applied to trade equity indices might not be suitable to trade Forex.

As a beginner, I'd advise against scalping as it's very unforgiving. To use a driving analogy, it's akin to driving fast in heavy traffic and poor weather conditions. Things can go wrong very quickly with disastrous consequences. Swing trading a longer timeframe will enable you to trade in a more relaxed way and be less liable to make impulsive decisions which you may later regret. Even so, things can (and will) go wrong but, generally, you'll have more time to evaluate the situation and respond accordingly.

Ultimately, timeframe is very much a matter of personal choice and reflects your attitude towards risk. Many trading books and websites describe day trading as being very high risk and swing or position trading over days or weeks as being (relatively) low risk. (NB: trading of all kinds involves substantial risks - especially when trading leveraged products such as derivatives.) However, some day traders will argue that the greater the time one is exposed to the market (i.e. having open trades) - the greater the level of risk. They don't sleep well for fear of a terrorist attack or the Asian markets collapsing overnight etc. For them, nipping in and out of trades intra day and being 'flat' at the end of the day (i.e. having no open positions) is the least risky option. It's horses for courses - only you can decide what's best for you.
Tim.

 

[timsk]

Re: T2W First Steps Tips & Tools

Hi Carlos,
Welcome to T2W.

1) Psychology - is it only during the paper trading stage that you find what kind of trader you are, or whether you're a trader?

Paper trading has its uses and, certainly, most members would advise paper trading before commiting real money to the markets. At the very least, it will enable you to become familiar with the trading platform you're using and the various different order types etc. Additionally, if your methodology is fundamentally flawed, it's best to discover this whilst trading paper money rather than trading real money. The danger comes when the new trader does very well paper trading and then thinks they'll replicate their success with their live account. They very rarely ever do. The reasons for this can vary but, as you imply, the most common one is the psychological pressures that traders tend to experience when real money is on the line. It's easy to remain calm and detached when trading paper money, less so when it's your hard earned savings. If you've not yet seen it, check out the Essentials Of Trading Psychology Sticky.

Ultimately, the only real way to find out how good your methodology is and how good a trader you are - is to trade with real money. However, make sure you start by trading the smallest amount that your broker permits and then build up incrementally, all the time adhering to your risk management strategy. For more on this, see the Essentials Of Risk & Money Management Sticky. Don't be tempted to throw large sums at the market after a short string of successful trades. That's a classic newbie error that almost always ends in tears. Needless to say, they are tears of pain, not joy!

2) Timeframe - how do you determine which is right for you? Having read a few charts I feel somewhat averse to intraday, I've always been more of a 'hunter' than a hyena. Again, is this something you determine during your paper days?

Please refer to the answer given to 'akratic', above.

3) Spread betting, which I'd hoped to begin my trading career with. TIm writes:

However Paul writes: .... " Spreadbetting is not a Newbie tool"

I appreciate the two stances are not absolutely mutually exclusive, but what is the situation for the newcomer?

This is tricky question to answer! Paulds11 doesn't provide reasons as to why - in his view - spread betting ia a "sophisticated tool not a beginners tool", other than to say that spread betting firms profit when their clients lose. There are many threads that dissect this allegation every which way, so I recommend you check them out and try to come to your own view about the merits or otherwise of spread betting companies. Here are two to get you started:
Can you really make money spread betting?
Capital Spreads
The 2nd link is useful as the CEO of CapitalSpreads is a T2W member and answers a lot of questions about how spread betting companies operate and make their money.

Leaving the argument about whether or not spread betting companies want their customers to win or lose to one side, there are other reasons why spread betting might be considered unsuitable for newbies. These include:
1. Their product is leveraged, which means that profits and losses are magnified. New traders tend to focus on the former and pay scant regard to the latter.
2. Accounts are very easy to open and, generally, their trading platforms are easy to use. Many offer a 'golden hello' in the form of free trades or to partly fund your account when you open it. This can facilitate a gambling type of mentality and give the false impression that trading is easy - especially if the new trader does well with their first few trades.
3. Put 1 and 2 together, then add in the fact that many spread betting companies offer charting facilities that enable their customers to track the market by the second (not just the minute or hour!) and the result is that new traders quickly veer towards day trading without having the requisite knowledge, skills, experience or tools to do it well. As a rule of thumb, day trading is unsuitable for most beginners (but not all) and spread betting is rarely the preferred vehicle for those that do it.

For new traders who don't want to be tempted by all the things that might result in their downfall, then a small unleveraged account that doesn't allow day trading with a broker offering ETFs is one option that involves a minimal amount of risk. Again, all trading is risky and even cautious traders who go down this route can lose a lot of their capital. However, the fact remains that for better or worse, most new traders (in the U.K. at least) start by opening a spread betting account. If they are sensible and follow the advice offered in the FAQs, Stickies and from experienced T2W members, it can be a perfectly good starting point for many of them.
Tim.

 

[timsk]

Re: Essentials Of 'First Steps'

which book is the best in essentials point of view?

Hi dante3,
Welcome to the site.

I'm not sure that I fully understand your question, but if you're wanting recommendations as to which trading books to read, take a look at this FAQ: Which Books should a Beginner Read?
Tim.

 

[knocklyonbohs]

Re: Essentials Of 'First Steps'

Hi i am only new to spread betting and also only new to this site. I must say the site is most informative and people are most helpful. I asked some questions but I was asking in experienced live traders section ,so hopefully I asking questions in right area now ie beginners .
If I wish to trade indices live on a daily basis which time frame on TA charts is it best to set at. Also is the M A breaking the trend line a good criteria to work on. I using the word trend line as in the line showing stock price movement. Am I mad considering trading indices with only demo account experience. I have been trading dax,cac,ftsi,dow and done quite well with above strategy. Seems a very basic strategy but maybe I lucky.
I hope my question makes sense as I say only new to whole game