Becoming an independent trader

[FrankSlaughtery]

+1 to everything sf631 said. also make sure you're trading in the time frame that is right for your personality. i strongly suggest figuring this out sooner rather than later. do you prefer trading intraday, swing (2-10 days) or position trading (weeks-months-possibly years)?

the good news is that if you're more suited to anything but day trading you can still keep your day job (yes i know you said you hate it but if you're earning a lot of $$$ it's better than not having a job and wanting ANY job) and manage the trades while working (e.g. you set up alerts for entry/exits and whenever one goes off you put in the order either on your smartphone or broker's web browser since most employers have firewalls that block the downloadable platforms.

another suggestion is to ALWAYS improve as a trader. review every aspect of every trade and ask yourself what you did right, what you did wrong and then write down a solution. remember, even if you lost money that doesn't mean you didn't something wrong. here are a couple examples of reviewing a trade - i'm not saying you should day trade this is just an example.

Entry ES at 1312, stop at 1310, target of 1314. you're stopped out at 1310 for a 2 point loss. you look at your trading plan and see that you followed it to the letter. what you did right? you followed your entry, exit and risk management parameters. what you did wrong? nothing. solution - always stick to your trading plan (if it has positive expectancy of course - that's why it's so important to review to see what's working and what's not b/c strategies can stop working real quick).

Entry ES at 1312, stop at 1310, target 1314. ES goes to 1310 but you ignore the stop (that's why it's important to use OCO orders like in ninjatrader or any other front end software to prevent this lack of discipline) and hope price goes up back. it does and hits your target for a 4 point profit. what you did right? nothing (well if you kept your position size right that's one thing). what you did wrong? everything b/c ignoring stops WILL lead to blowing up. solution. use OCO orders and stick to trading plan.

i know this is a long post just trying to pass along some lessons i learned personally and the hard way. OP, feel free to PM me w/ any questions re starting out.

 

[TheFinder]

Great advice to find here on two short pages.

Want to dig into the next steps that bring you closer to your goal

1) Find your trading system first - use paper trading - gains at this point are not important.
2) Test the system in the real market with high volatility as well as sideways days and in REAL-time. Backtesting is only to experiment with parameters. For this period count at least 6 to 18 months.
3) Having a system that works consistently and brings desired results, go live for the first time. Trade your system for at least a year and develop some other trading plans parallel.

Let's be real - this is hard work and a lot of trial and error. In my opinion and experience this is only possible if you do NOT work - otherwise your head is not free enough to stick to this task. If you do not plan to invest this time be aware to find no consistent trading plan and you will never reach the desired ROI.
So to sum up you might count up to two years without external income before starting your money maker machine - this can be a lonely time too with many ups and downs.
I see your goal to get your first million quite realistic after going live with a good trading system.

Even if repeated many times already here: "PLAN your trade and TRADE your plan!"

Feel free to pm me for more details. Good Trades

TheFinder

 

[rtiger29]

Zen Student and HateTherisk sound like they know what they are talking about. Copy what they said and read it again. And then read it again, and again until it sinks in.. The best advice you could get right off the top right there. Make use of it. It should save you lots of money...

 

[Zen Student]

Quote from FrankSlaughtery:
also make sure you're trading in the time frame that is right for your personality. i strongly suggest figuring this out sooner rather than later. do you prefer trading intraday, swing (2-10 days) or position trading (weeks-months-possibly years)?

Bollocks, sorry. There is no "fitting to your personality" - this is papering over cracks and making excuses for your weaknesses. Fact - you can create better risk adjusted returns day trading futures than you can trying to hold positions for 2 days to 2 months. The objective is to make a million a year.

Quote from FrankSlaughtery:
the good news is that if you're more suited to anything but day trading you can still keep your day job (yes i know you said you hate it but if you're earning a lot of $$$ it's better than not having a job and wanting ANY job) and manage the trades while working (e.g. you set up alerts for entry/exits and whenever one goes off you put in the order either on your smartphone or broker's web browser since most employers have firewalls that block the downloadable platforms.

What is this nonsense? Trading is a serious professional endeavour, not some sort of hobby, distraction, or something you can do on the side from your "real job". Not successfully in any event. Add in a few sprinklings of the usual employee fear of striking out alone and some unethical suggestions to dick around on your employers time, and we have a silly post indeed.

Quote from FrankSlaughtery:
remember, even if you lost money that doesn't mean you didn't something wrong

Sure - it will mean you have done something wrong. Losing money is not the objective.

Quote from FrankSlaughtery:
you ignore the stop (that's why it's important to use OCO orders like in ninjatrader or any other front end software to prevent this lack of discipline) and hope price goes up back.

Just because some dickheads choose to ignore stops does not mean everyone is like this, will be like this, or needs to consider the people who do when approaching trading as a professional activity.


Might as well ask for advice on performing brain surgery from people who have watched a few hospital programmes. Few here understand what is required for successful trading and even fewer will post about it. Any genuine enquiries get lost in the noise of everyone who happens to have an opinion which does not rest on huge success.

 

[gmst]

Zen: From the advice you offer, its clear that you believe in the approach of careful research, understanding and developing edges, and then following you system to the t. No question of failure, if you have a good edge and can follow it. I liked you approach of not willing to lose anything as tuition to the market. Very interesting. Following caught my attention:

"My basic premise here is that there is value in the road less travelled. What does everyone do? Gets stuck in. Follows technical analysis, gurus, textbook stuff on the Internet, pop psychology. Starts with spare money, doesn't take it seriously enough, makes provision for "affordable losses". What do they get? The losses they so dilligently budgeted for."

Its clear that you are different than most on ET. Curious about your trading situation. Are you consistently profitable ? for how many years? How many total years trading experience. If you can write a quick summary, how did you get started ? If there are a few insights that we can gather from your story, it alone might be very interesting and useful for me, OP and others on this board. Thanks a lot.

 

[kcgoogler]

Quote from Zen Student:

Bloody hell, the first one to beat me to what I thought would be the first reply to this gentleman. And it proves my point!

No no no no NO. Emphatically no. Do not start dicking around in the market. It is not psychology. This is an excuse by people who have not done the work to understand. If your personality suffers from such issues that prevent the correct execution of a proven strategy then you are in the wrong business. You do not need to start engaging in inaccurate, unplanned, shoot from the hip gambling to assuage some fears about your psychology not being up to it.

Zenstudent; very good advise.

One thing i would add; is go get/buy yourself a good backtesting software (think amibroker, tradestation, NT whatever..) and play around. Read something; think it makes sense.. write the code and test it out; you will learn a ton doing that in 6months than even trading with a million dollars in real money for say a handful of years (infact this way you wont learn anything other than how the markets can humble ones self).


-gariki

 

[sdd80]

A massive Thank You to everyone who responded! I have a lot to digest from the many useful suggestions and thoughts in your posts! I must confess that I was slightly apprehensive about posting given I just signed-up for the site. I also didn’t know how people would react to some of the personal and financial details I included. Anyway, I am truly impressed with the supportive atmosphere and thank you again.

On to some follow-up questions intentionally at the top in case you don’t want to read the rest of the post.

Questions:

• @Zen - Why futures? Or do you generally mean any market where leverage can be used? i.e. Would FX work equally well (note I have not preference at this point, just trying to understand)
• @Zen– When to switch full-time trading? Just want to make sure I properly understand you – are you suggesting that I continue studying and develop an accurate method and after I’ve achieved that I should start trading full-time (i.e. leave my job) with 1 contract? Seems there are different opinions on this one so would be interested in some more thoughts, especially given one of the Challenges I’ve mentioned below. I am not opposed to leaving my job at the right time of course. I am fortunate that my employer has a “leave of absence” policy so I can actually take 1 yr of unpaid leave with fairly high certainty that I can return and pick up where I left off sort of thing. I would even move back in with my mom and dad to minimize expenses (and reduce distractions from girls).
• System development – Any practical suggestions on how to get started? Do people read about a system and then try it out and start tweaking it with your own observations? Or Do people stare at market for months until they start to observe patterns which then form the basis for ideas and systems? Or neither, or both…?
• @sf631 – do you mind sharing your process of system development?

Some challenges:

• Too much information – There is now so much information about trading out there that I end up “wasting” all of my time reading about some new software, service, website, whatever. There is some benefit to this (or else I would have never found this site for example) but I think I need to “reduce the fraction” to something more manageable.
• Balancing work, life, and trading – I must admit this is an on-going struggle. I don’t work crazy hours, but still after a full day’s work, exercise, and a few chores and I’m physically and mentally exhausted and I’ve always sacrificed the trading education. This is obviously something I need to improve on can change if I’m ever going to have a chance.

Responses:

@ Zen
• Your point on inability to “buy access to useful knowledge in this industry”. I have found that a real challenge and to an extent was part of the reason for my original post. I wondered whether I am missing something or not looking in the right places.
• You are right, I didn’t account for the fact that hating my job will sabotage my future in consulting. In fact, I am already experiencing delayed promotions etc because of my lack of motivation and passion. I see it very much as an enabler to build more capital but as you suggest perhaps I need to rethink this for several reasons. I guess what I should have said is that IF I choose to strive in my current career then I could reach the levels I mentioned with perhaps slightly above average effort (and a whole lot of BSing) compared to other professions. I guess part of what I am trying to determine is whether I have what it takes to be an independent trader or whether I should give-up on that dream and devote myself to my current profession and change my attitude about it to a more positive one.

@sf631
• Thanks for the bullets. I was tempted to respond to you with a PowerPoint deck . So many good points in your post. For example, your last bullet about re-reading the Market Wizard books and not “limiting your views” – great stuff. I’ve read two of the Market Wizards books (really enjoyed them) but have forgotten them and was thinking I should re-read so it’s nice to know my thinking isn’t totally crazy.
• You are right – I do live below my means in order to save. In fact – I share an apartment with 3 others, I have no car (don’t need one) etc. I generally value experiences more than possessions so I prefer to spend my money on holidays, visiting my mom and dad, a quality gym, and eating good food. These are things I tend not to sacrifice on (within reason).

Things I do / have done / skills:

• Subscribe to TA of Stocks & Commodities magazine which I enjoy reading
• I studied Computer Science and am an OK programmer (not amazing)
• I wrote some scripts on NinjaTrader a couple of years ago (read some strategies in TA of Stocks and Commodities magazine and tried to replicate) but didn’t follow through with the exercise.
• Once wrote a program to collect stock market data from Yahoo finance and store into a relational database. I then attempted to “mine” the data to look for seasonal patterns – anyway this also didn’t get anywhere for many reasons.
• Statistics and complex maths I’m relatively weak on but can certainly teach myself some things if necessary.
• Tried a subscription to an FX “education” service where I followed some guys’ daily analysis. I actually didn’t think it was terrible and even thought it was educational. It cost $99/month. I am intentionally not going to mention the name of the service so people don’t think I’m trying to sell it. It’s been discussed in these forums with mixed reviews. I quit my subscription a long time ago, not because I thought it was crap but because I wasn’t disciplined in devoting the time to study the information.
• I don’t talk about my interest in trading with friends, co-workers etc. In fact, I’m almost secretive about it. I’ve found that people generally don’t understand trading and most conversations are pointless. I am very lucky though to have a father who is supportive and does a bit of trading on the side himself so at least that gives me someone to talk to about things.

 

[Zen Student]

Quote from sdd80:

• @Zen - Why futures? Or do you generally mean any market where leverage can be used? i.e. Would FX work equally well (note I have not preference at this point, just trying to understand)

FX adds complications. Timezones, macroeconomic stuff, getting pricing etc. Having said that the EUR/USD in the London/NY session is excellent - so perhaps Euro futures at the CME. Ideally you are looking for a market which has a decent range/volatility and a high number of movements up and down during the trading session. YM is ideal for this, Euro if you want a bigger range, and CL if you want something bigger range / faster. Instrument doesn't matter provided it is continually liquid during its regular session, can be traded with leverage, and moves.

Quote from sdd80:
• @Zen– When to switch full-time trading? Just want to make sure I properly understand you – are you suggesting that I continue studying and develop an accurate method and after I’ve achieved that I should start trading full-time (i.e. leave my job) with 1 contract? Seems there are different opinions on this one so would be interested in some more thoughts, especially given one of the Challenges I’ve mentioned below. I am not opposed to leaving my job at the right time of course. I am fortunate that my employer has a “leave of absence” policy so I can actually take 1 yr of unpaid leave with fairly high certainty that I can return and pick up where I left off sort of thing

The year off sounds ideal. I would make a serious plan for building a trading model over the next 3-6 months, and when you start to find it becoming absorbing work and taking a lot of time then take the year off. See how far you get at the end of the year. If you don't finish the model after making it full time 12 months, you'll know how close you are to trading success or if you want to do something else. In any case, a breather from what you are doing now will help you evaluate where you are in life.

Quote from sdd80:
• System development – Any practical suggestions on how to get started? Do people read about a system and then try it out and start tweaking it with your own observations? Or Do people stare at market for months until they start to observe patterns which then form the basis for ideas and systems? Or neither, or both…?

Start with the market. What does it do? What do you need to do to make your fortune from it. You don't "read about a system". No point going down well trodden paths which lead nowhere. Try the road less travelled. Start with how you can foretell with high accuracy whether a market is biased to go "up" or "down" on the day. Start with YM, regular session 09.30-16.00.

Quote from sdd80:
Some challenges:
• Too much information – There is now so much information about trading out there that I end up “wasting” all of my time reading about some new software, service, website, whatever. There is some benefit to this (or else I would have never found this site for example) but I think I need to “reduce the fraction” to something more manageable.

This site isn't going to help you beyond giving you a focus for your initial enquiries. Better to clinically discard what you have learned which does not prove immediately helpful and relevant. Start with looking at the market, come up with some logical lines of enquiry. Nothing "out there" about trading will do you much good in devising your method. The cheese posts are a good place for a very general overview about a trading model. There are other approaches.

Quote from sdd80:
• Balancing work, life, and trading – I must admit this is an on-going struggle. I don’t work crazy hours, but still after a full day’s work, exercise, and a few chores and I’m physically and mentally exhausted and I’ve always sacrificed the trading education. This is obviously something I need to improve on can change if I’m ever going to have a chance.

Spend the next few months making a plan, and if you are serious about following through then take the year off and dedicate yourself to full time research.
Responses:

Quote from sdd80:

• You are right, I didn’t account for the fact that hating my job will sabotage my future in consulting. In fact, I am already experiencing delayed promotions etc because of my lack of motivation and passion. I see it very much as an enabler to build more capital but as you suggest perhaps I need to rethink this for several reasons. I guess what I should have said is that IF I choose to strive in my current career then I could reach the levels I mentioned with perhaps slightly above average effort (and a whole lot of BSing) compared to other professions. I guess part of what I am trying to determine is whether I have what it takes to be an independent trader or whether I should give-up on that dream and devote myself to my current profession and change my attitude about it to a more positive one.

You need living expenses for the next three years and $10-15k. Forget doing what you don't like and don't necessarily excel at in order to put a few more pennies in the bank.

Quote from sdd80:
Things I do / have done / skills:

<strike>• Subscribe to TA of Stocks & Commodities magazine which I enjoy reading</strike>
• I studied Computer Science and am an OK programmer (not amazing)
<strike>• I wrote some scripts on NinjaTrader a couple of years ago (read some strategies in TA of Stocks and Commodities magazine and tried to replicate) but didn’t follow through with the exercise.</strike>
• Once wrote a program to collect stock market data from Yahoo finance and store into a relational database. I then attempted to “mine” the data to look for seasonal patterns
• Statistics and complex maths I’m relatively weak on but can certainly teach myself some things if necessary.
<strike>• Tried a subscription to an FX “education” service </strike>
• I don’t talk about my interest in trading with friends, co-workers etc. In fact, I’m almost secretive about it.

Time to make a plan and crack on. Look forward to hearing your updates in due course.

 

[sf631]

@sf631 – do you mind sharing your process of system development?

At a high level, sure.

I look for structural flaws and irrationality in the market (or with other market participants) and take the other side of their trade. I find it easier to identify others' mistakes than to come up with brilliance in a vacuum. The ideas come from lots of reading of sites like ET or Seeking Alpha, or others. You probably already know that there are many, many bad ideas out there, some of which can be traded against.

I then build a system that models that behavior, keeping it very simple and always building a system around a hypothesis, not randomly changing parameters until some combination works well. Curve fitting is a huge, huge danger that must be avoided.

If you can't explain a plausible case of (1) why it works (2) who is taking the other side of your trade, and (3) what they don't understand you're just heading for trouble IMHO. Try explaining these things to your dad (or anyone else who will hear you out). If you can do this (and really believe it) there's a better chance that you'll stick with it.

Taking your Yahoo seasonality example, start with a theory about others' behavior, like a tax effect, or portfolio manager window dressing at the end of quarters, or whatever, *then* build a model to test that belief and trade the other side of it. If you "data mine", you're more likely to find a spurious pattern.

Keep in mind that I differ from most others on this thread in that I'm not day trading, not trading futures, etc...

Feel free to PM if you want to discuss further

 

[ksthomsen]

sdd80,

Before you start trading with real money, make sure that you have a methodology that has a positive expectancy. Do enough paper trading or sim trading to confirm that your method makes money over time. Then you can start with a degree of confidence that you can succeed.

Be sure to have a disciplined businessman's approach- track your trades with position sheets, perform a review of each trading day (study what went right and went wrong), enter each trade into a trading log for review at the end each month, quarter, etc, and commit yourself to continually getting better at the art.

Good luck...Kevin