Increasing my probability of getting to the top 5%

[WingsTrip]

So I'm a beginning trader, a complete newbie. Using an old NLP saying 'the map is not the territory' certainly is a good way to think about trading, the territory is massive with so many views, markets and information out there.

In the last few months I've been trying to create my own map of what I think trading is about and what I need to do to succeed. I'm trying to create my own path that will get me to the top 5% of traders and beyond most efficiently.

Instead of looking for 'the perfect system' I've decided to make my general interest in psychology an edge, a springboard to start my trading. Notably I have read 'Trading in the zone' and am going through Van Tharps Peak performance course which I find incredibly insightful.

I'm in my final year of university taking Economics, which means I've already done modules on Maths, Statistics, Micro and Macro, Econometrics and Principles of Finance. One course next year will be Quantitative Finance which uses John Hulls book 'Options, Futures and other Derivatives as a textbook, so i'll get to learn the basics of those markets. I'm also into self-development and continually improving myself.

So I should be in as good a position as any to go down the path of becoming a professional trader.

One book I've been reading recently, Enhancing Trader Performance by Brett Steenbarger has really jumped out at me recently. It describes the distinction between elite traders and average ones and the path elite performers go down to become elite.

I haven't finished the book, but many of the ideas discussed later in the book will be more relevant to me a little later in my development.

For all this preparation, trying to learn from others mistakes and attempting to develop through a path that has the highest probability of success I'm a little stumped at the moment. In terms of psychology and to a certain extent money management I believe I've read some of the best information out there. Throughout the trading community there are the echoes that 90% of trading is about psychology and I completely understand why, but without the other 10% your psychology means nothing.

I'm not completely in the dark about market analysis, I understand the basics of support and resistance, momentum indicators, level II, retracements, volume and chart patterns. But I don't have a real feel for whats best for me, they're all kind of scattered in my mind at the moment and I have no real expertise using any.

In Steenbargers book he highlights that everyone is different and while some people can be successful in one market they can be dismal failures in others. Hence you need to find your niche. He also stresses the importance of mastering one area at a time, for example just looking for one chart pattern until you become an expert at identifying it. He highly reccommends using simulation software such as that provided by Ninja Trader in order to gain this mastery.

So I guess I've reached a bit of a jump in my trading education.


:cheesy:

1) I need to find what type trader I want to be, swing, a day trader or a scalper (I think we can safely say I'd rather not be a position trader)

2) I need to find my niche market: stocks, ETF's, bund, forex, futures, options?

3) I then need to find out how I will trade, what indicators I will use; I will do this through simulation and hopefully develop some intituion for what works for me.

These are ultimately so I can create my trading plan. I've also made a few live trades so far and kept a journal (I didnt allow a small loss to turn into a big one or average down which I was incredibly tempted to do, that small loss gave me the energy to pursue my path with more committment)

Even though I seem to have mapped out (I hope) a pretty successful strategy to succeed I still don't really know how to accomplish those goals in the most efficient way.

If anyone has any input on how I can go about achieving the above, links to blogs or posts on this site, books that have helped you in those areas then I would greatly appreciate it.

Thank you, thank you lol

 

[barjon]

http://www.trade2win.com/knowledge/...neral_articles/developing-a-trading-strategy/
http://www.trade2win.com/knowledge/...ral_articles/developing-a-trading-strategy-2/

 

[NewThought]

Throughout the trading community there are the echoes that 90% of trading is about psychology and I completely understand why, but without the other 10% your psychology means nothing.

As the proportion of trading which is automated relentlessly increases, I would expect this to become less true. Any veterans have any opinions on whether the market has become less psychological over the last decade or so, please?

 

[WingsTrip]

Thanks barjon, I'm going through the post now.

NewThought, in my head the psychology is broken into two parts, your psychology and the psychology of the market (i.e the people or systems that trade it) that you're in.

Your psychology and the errors that traders are prone to, is independent (largely) of automated systems. You still have to deal with following your trading plan and not being emotionally tied to your positions.

As for automated systems, I think they work differently in different markets depending on who trades those markets. They have various goals, but ultimately they are profiting from other traders. If the only traders were automated systems there would be winning systems and losing systems, just like traders.

People always react emotionally to markets, if there was news out that a company had better than expected earnings, regardless of automated systems there would be new buyers to the market who want to take advantage of this. Without these people the automated systems would not work. If there was the case where there were more automated systems than traders (and given that automated systems make the market more efficient) then that particular market would slowly become less profitable to the point where the automated systems would no longer work as well.

I think theres an example of this in the book 'when genius failed' where traders became aware of the strategies that the hedge fund LTCM used and were able to take advantage of their automated system to the point where they went bankrupt.

You can't be the only person in your market and if automated systems get to the point where theyre so good that that happens then the market changes and their automatic systems are no longer valid.

This is only my opinion

 

[Traderesq]

I think the best approach would be to pick an instrument, download a simulation trading program, and right away just start trading in 1-2 time frames and see how you do. I think beginning with the stock market can be good since it's very simple and you can paper trade stocks and ETFs at the same time. Scalping is currently extremely difficult to do effectively due to the increasing dominance of high frequency trading algorithms, so I'd recommend starting out with day trading and swing trading (you can day trade and swing trade different stuff at the same time and see which trading style you do the best with). In general, day trading is easier when the market volatility is higher and swing trading is easier when the market volatility is lower.

For day trading, I recommend The Market Maker's Edge by Josh Lukeman. For options trading with a small account I recommend Low-stakes Power Trading by Gary Crandall.

 

[DionysusToast]

The most important thing you can learn is how to trade.

The psychology won't help you if you don't know how to trade. You can become the best in the world at trader psychology but if you don't know how to trade - you'll fail.

On the other hand, if you know how to trade & have confidence in your methods, the psychology part will take care of itself.

The fact you are interested in psychology is irrelevant. Most people (myself included) attempt to use their existing skills/interests when it comes to trading. Forget what you think you can use or what you want to use. You need to find out what is required.

My recommendation would be to get someone to show you how they trade - this person should be succesful and willing to help you. Many on here will tell you to find your own way and that will happen - but you need a baseline set of skills to trade with and you will not learn those from all the crap in trading books & websites in my opinion.

Once shown how to trade - write yourself a plan - details of how you will implement this method, when you'll take trades & when you'll stand aside. Follow that plan diligently, recording every trade, why you got in, how much profitable trades went against you before being profitable, how much failed trades were going your way before failing. Focus exclusively on implmenting this, give it a chance and see how much you learn about that method/market.

You can do this now OR you can do it after spending 12 months looking at indicators.

 

[amit1986]

Agree with DionysusToast. You should either find someone who is a successful trader (not some author of a book who doesn't trade) or spend some considerable time watching the markets and learning how prices move.

You are correct in that most successful traders are extremely narrow in their choice of trading instruments. This is something you start to experience the more you trade. In my case, I've been trading full-time for over 4 months and have slowly found my niche. Furthermore, even though I use a dozen or so setups, I am currently only focusing on 2 of them because they work best for me. I am also discovering certain momentum triggers that work very well with the two setups I am focusing on.

The only edge you can have with psychology is knowing what you are feeling and why you are feeling it. So, you may be able to recognize your own mistakes much faster than most other traders.

After all that, no matter how many books you read or how much training you receive, you've got to put in the hours in front of the screen and go through the initial learning curve (which is quite steep!). Over time, you'll start to notice some things that you've seen before and your mind will automatically react accordingly. That's when you'll also start discovering your niche market.

 

[WingsTrip]

Thanks for the additional replies guys, they've really helped me get my head on track.

When I look at psychology, like amit1986 said my edge is

"...knowing what you are feeling and why you are feeling it. So, you may be able to recognize your own mistakes much faster than most other traders."

I think you bring problems you have in wider life into your trading. We have the most applicable trader psychology such as fear and greed, not following your plan etc, but then there are deeper problems you may have in wider life. Through learning about trader psychology I have become aware of those problems.

My biggest problem is not pulling the trigger in any area of life and putting barriers up in order to make that more difficult for myself. An example would be in my studying, I like to learn all the material from the books for my course for the whole year and only then start doing past papers and questions. Knowing the material 100% would only get me a grade of about 20%, the higher grades come from me developing an intuition about the material and applying it in questions. I know this, but developing an intuition and doing the exercises is exponentially more difficult than reading the material. So I put barriers up against myself, like learning all the material first.

Another example would be reading through trading books, taking great notes, but then not looking through those notes again. Thinking that just by writing out those notes Ive completed the 'learning process' when in reality Ive only completed around 20%.

The same problem has cropped up with trading. I get a real buzz out of finding out the 'best' information out there, the best books to read, but I have real trouble applying that information. Problems pulling the trigger. Not necessarily in pulling the trigger in trading (although I wouldn't really know not having a plan to follow) but in pulling the trigger in applying the information I've learnt.

It seems with trading, as with studying I'm getting stuck in thinking that knowing the material is enough. It isn't.

The indicators and trade setups really are only 20% of 'the grade' , the other 80% isn't psychology however. It is a mix of psychology AND the intuition and experience you develop from following the markets combined with pursuing your niche. I think that the indicators you use are really just the base 'material' that you use to understand the markets, which is why people say that the indicators you use don't really matter, it's the intuition you develop by looking at price action. Again similar to studying, you get the real grade from being able to apply the 'material' and an intuition for the answers.

You also suggested that the best route to go would be to learn from a successful trader how they trade. This is similar to learning from a teacher, there is only so much you can learn from a lecture, the real learning takes place in the classes where a little of that intuition is developed. Not to mention in trading you aren't given a 'set text', there's a lot more bad information out there than good information. So not only do you not develop the intuition, you might be learning from the wrong material too.

What working with a successful trader does is hit two birds with one stone, you learn the correct information and you also get a slice of their intuition too.

The next steps for me now I think will be to start looking at the market all day with a few simple indicators under my belt. I'll start with moving averages an oscillator and TICK/TRIN... and try and develop more intuition for those indicators, seeing the sub-communication of the markets. I will make a shortlist of a few setups that I'd like to develop more of a feel for and cycle through them adding and taking ones away until I find one that sticks. During the time I'm developing my first-hand intuition, I'll look for mentors that I can learn from, using their second-hand intuition to further develop my own. This will be by far the most difficult thing to do, it will also be me pulling the trigger 'doing past papers' and developing what I need to in order to be successful.

So in terms of psychology that's what I've learnt.... now I just have to get down to learning how to trade. I'm excited.