Have $25K.......Best way to begin learning to trade it

Wow! This is a lot of advice especially if you follow up on all the extra links, threads, etc. - not to mention reading the longer threads around here to get a feel for who everyone is. To know who and what to listen to has its difficulties.

I agree that I need to start in a specific area, I am still not sure where would be best. I have had several good statements from some "I believe to be good traders who are respected here at ET" (if I am wrong please PM me as I don't want to offend):

1. Optionscoach says open a demo account and spend the next year studying and practicing analyzing and picking stocks (you are far from ready for options or futures). Then in a year's time you would have made more money (higher rate of return in t-bills over checking account) and learned a lot of info for free. Read different books and talk to different people for guidance and direction.
2. Buy1 Sell2 says my best bet is to trade something that trends very well and that you can keep your hands off as much as possible to avoid commissions. 10 yr notes trend well although the face value of the contract is higher than ES. However, they are not really very volatile so the risk of ruin is not that great. One mini Euro Contract might be ok as well. Always keep in mind that you should look at the monthly chart first and then the weekly. Once they are sync with each other, begin looking for signals in that same direction on the daily charts. Always trade with the predominant trend.
3. AAAintheBeltway as I need to learn about the practical aspects of risk control and diversification. Leverage may be your friend in real estate, but it will kill you in this business. If you learn nothing else, you can be successful if you can develop enough discipline to avoid letting any one trade turn into a big loser. You need to develop a methodology. Swing trading stocks is a reasonable approach, but you need to have a method for selecting, entering and exiting them. If you plan on using technical analysis, it is a great idea to invest in some backtesting software and data and run through various strategies to see for your self if they work. You will also get an invaluable education in the effect of stops, profit-taking, trend following,etc.
4. A group including kiwitrader says
- it will take time
- focus on one method
- become profitable paper trading before u spend a cent of cash ... this is part of getting the patience you really need
- grow your size from very small to bigger very very slowly


I agree that I need to start slow making little bits and losing as little as possible while in the learning curve. I also know that A LOT of time and eneregy can be wasted in the wrong resources that do not provide the best knowledge and training.
My wife hates the word efficiency and thorough as I like to do things well it the shortest amount of time possible which generally happens by listening to and surrounding oneself with the right people and becoming a sponge. I am pretty sure the best way to learn trading to start would be to understand first who the real and best traders are and listening closely and do what they say.

I figure this will take much time to be skillful like golf. I did teach myself from Jack Nicklaus' "Golf My Way" video and currently have an unofficial handicap of 3. I also wanted to learn Ballroom, so I went to the Arthur Murray studio when I lived in Austin and trained to be an instructor which allowed me to become very good, very fast and was paid - instead of paying for lessons. Same with real estate, etc.

Now, I am looking to do the same in trading. Although from the start, this looks to be much more challenging. To decide what is the best vehicle/route from all the advice flying from everywhere is a bit difficult. I am carefully reading the posts and reading other posts on the forum to get a feel for who is respected and thus probably performs well in real trading.

Would any great trader really be interested in taking on a newbie apprentice to groom into and great performer like themselves. It would give them bragging rights of what they could single handedly mold, but what other benefits do I have to offer. I don't believe the best traders would want money as they already have because they are great traders, but it would be for a bigger reason.

Again, thank you everyone for your thoughts, I am reading and rereading and researching all that is posted.
 
Quote from jason586:

I don't believe the best traders would want money as they already have because they are great traders, but it would be for a bigger reason.
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Yeah people who trade full-time dont mind spending large amounts of time mentoring a newbie for free.... :D

I think your first step is truly respecting the market and not looking at it as learning golf from a video and that a professional needs to donate time away from his or her profession for free.

I think the above comment slid you back a bit on the learning curve.
 
Quote from optioncoach:

Yeah people who trade full-time dont mind spending large amounts of time mentoring a newbie for free.... :D

I think your first step is truly respecting the market and not looking at it as learning golf from a video and that a professional needs to donate time away from his or her profession for free.

I think the above comment slid you back a bit on the learning curve.
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I definitely do need to respect the market, thank you.

Sorry, I reread my post about the golf - didn't come out right. All I meant was that it would take a lot of time and practice to even have a chance at being good.

Definitely the free mentoring thing was too broad a stroke as well. I regularly teach others in topics and talents I excel at at no charge. Plus, I have just seen all the seminars and sales pitches floating around here and the web on how to make money trading and took the statement too far. For me to assume all great traders would mentor for a bigger reason than money was not correct.

My apologies.
 
No need to get all serious lol I was not trying to be harsh :D.

So much free info to get you started on your own, might as well take the first steps for free or inexpensive books.

Quote from jason586:

I definitely do need to respect the market, thank you.

Sorry, I reread my post about the golf - didn't come out right. All I meant was that it would take a lot of time and practice to even have a chance at being good.

Definitely the free mentoring thing was too broad a stroke as well. I regularly teach others in topics and talents I excel at at no charge. Plus, I have just seen all the seminars and sales pitches floating around here and the web on how to make money trading and took the statement to far. But for me to assume all great traders would mentor for a bigger reason than money was not correct.

My apologies.
More...
 
Quote from optioncoach:

No need to get all serious lol I was not trying to be harsh :D.

So much free info to get you started on your own, might as well take the first steps for free or inexpensive books.
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Thanks, I actually am pretty serious in most things I do - chloeric temperment.
Agreed - in your opinion what would be the very best, most efficient and useful reading for a complete newbie? Then do I paper trade immediately following these readings?
 
Paper trading is nice, but you'll soon realize that your mistakes on paper wont mean NEARLY as much to you because its not real. Best way to learn is to use real money.
 
Kiwitrader (and CM) - I read the 18 page post on CM's situation in Sept. 2006. I believe most point back to this post in the thread. (I also read the postings about the six mental steps to becoming a master trader).

"A lot of good advice from experienced traders. As mentioned you're overcomplicating things and don't appear to have a clear cut system yet."

1. I obviously don't have a system yet as I am just beiginning to look into trading, and I don't even know how to begin putting one together.
2. Can someone give me a good example of one I can test or is that even the right first step?
3. How do you test one?


"However from reading your opening post it seems what's really at the root of your problem is fear of being wrong. This is the most basic and classic error that new traders and the general investing public make. Society has conditioned us that being wrong is bad. Being wrong is for losers. Well being wrong is what trading's all about, because you are wrong a lot. In trading, being wrong is just a number, a stat that goes into calculating win rate, expectancy, etc. There can be no emotion attached to being wrong. It's tough to change your thinking, but it can be done.

You also made the comment that you are trading so that you can make a living. This might be feeding your fear of being wrong. Do you have the pressure of making money from the markets to pay the rent and eat? If so, you are up against a huge headwind. Scared money is usually lost."

I am not trading to make a living, so I don't believe this will be quite as big a problem in my circumstances.


"Your goal as a trader is only to trade well. That means following your plan like a machine."

My wife says I'm a machine and I do and stick to what I say - so maybe I have a shot at having the right emotional makeup for trading?


"IF you have a valid plan, AND you can follow it, the money will come."

I do not have a valid plan and don't know the BEST way to create one to follow. I guess right now it boils down to having/creating a trading plan. Again, what is the best way to do this?


"You need to:

1. Stop trading and write down your trading plan. Entry and exit rules, position sizing, risk management, etc.

2. If you don't have a horde of cash to support your living expenses that is apart from your trading capital you need to wait until you have one or get a job that will support you while you get the trading figured out.

3. You have to trade ridiculously small size so that p/l has no affect on you. Practice holding to your rules 100%. Increase size very very gradually only after consistent success at each level.

4. Keep meticulous records and a journal of your emotions prior to entering, and while in every trade.

Most of us who've been around a while and are doing well went through all these phases and steps. Our peers who fell by the wayside were the ones who were impatient and wanted to jump ahead or were too proud/stupid to listen to the advice they were given."

Thanks again to all!
Jason
 
Quote from jason586:



1. I obviously don't have a system yet as I am just beiginning to look into trading, and I don't even know how to begin putting one together.
2. Can someone give me a good example of one I can test or is that even the right first step?
3. How do you test one?
More...

I'm still testing my system, and it can take years to perfect. Because you have 25k, you could day trade if you wanted too.. In the book "the master swing trader", the author mentions that the best style is one that fits your personaility, AND the time you can dedicate to your trading. I wish I could find the exact words.

For a day trader, just getting up to get a glass of water is a BIG risk (without stops of course), however, I could sleep all day, and not care (i dont day trade).

The best system for you may be to undestand s/r (support and resistance) the best you can, as most your trading decisions, your stops, and your profit targets will revolve around these prices. www.Investopedia.com has good articles on the subject.

S/R becomes more complex when you get into fibonacci retracements, pivots..etc. I used to use fibs, but now I hardly ever look at'em, but they are worth knowing about.

Others might agree, that Your SYSTEM for trading is going to depend on your STYLE (day trade/ swing trade/ position trade) of trading.

Example: If you choose to be a scalper and make 20+ trades a day, you probably arnt going to wait for a top/bottom to form simply because of the nature of that style of trading.

cm
 
Also, if you havn't already, make sure you understand what your broker charges.

At Ameritrade, you pay extra for streaming data, which is crazy. Also check for a maintence fees, platform fees, ECN fees, etc...
 
Well, I definitely do not want to day trade. I am open to swing trading or postion (trend) trading. I naturally feel inclined to postion trading but this may not be wise with only 25K? I am willing to sit forever on something if need be, but I do not know if this is to my advantage with a smaller account. It seems to me that swing trading is the best option to begin forming a system around being new with my account size:

Will others confirm whether what I stated above is true and please confirm that this is a good definiton of swing trading: (From Wikipedia)

Swing trading sits in the middle of the continuum between day trading and trend following. Swing traders hold a particular stock for a period of time, generally between a few days and two or three weeks, and trade the stock on the basis of its intra-week or intra-month oscillations between optimism and pessimism.

The first key to successful swing trading is picking the right stocks. The best candidates are large-cap stocks that are among the most actively traded stocks on the major exchanges: for example, Intel, Microsoft, and Cisco Systems. In active markets, these stocks will swing between broadly-defined high and low extremes, and the swing trader will ride the wave in one direction for a couple of days or weeks, only to switch to the opposite side of the trade when the stock reverses direction.

It should be noted that in either of the two market extremes, the bear-market environment or bull market, swing trading proves to be a rather different challenge than in a market that is between these two extremes. In these extremes, even the most active stocks will not exhibit the same up-and-down oscillations that they would when indices are relatively stable for a few weeks or months. In a bear market or a bull market, momentum will generally carry stocks for a long period of time in one direction only, thereby ensuring that the best strategy will be to trade on the basis of the longer-term directional trend.

The swing trader, therefore, is best positioned when markets are going nowhere -- when indices rise for a couple of days and then decline for the next few days, only to repeat the same general pattern again and again. A couple of months might pass with major stocks and indices roughly the same as their original levels, but the swing trader has had many opportunities to catch the short terms movements up and down (sometimes within a channel).

Of course, the problem with both swing trading and long-term trend following is that success is based on correctly identifying what type of market is currently being experienced. Looking back over the past few years, trend following would have been the ideal strategy for the raging bull market of the last half of the 1990s, while swing trading probably would have been best for 2000 and 2001. With the 2002 bear market, the best strategy would have been to follow the trend and short everything in sight. As economists and traders would agree, the most accurate insight into trends is viewed in retrospect.

Much research on historical data has proven that in a market conducive to swing trading liquid stocks tend to trade above and below a baseline value, which is portrayed on a chart with an exponential moving average (EMA). In his book Come Into My Trading Room: A Complete Guide to Trading, Alexander Elder uses his understanding of a stock's behavior above and below the baseline to describe the swing trader's strategy of “buying normalcy and selling mania” or “shorting normalcy and covering depression.” Once the swing trader has used the EMA to identify the typical baseline on the stock chart, he or she goes long at the baseline when the stock is heading up and short at the baseline when the stock is on its way down.

So swing traders are not looking to hit the home-run with a single trade -- they are not concerned about perfect timing to buy a stock exactly at its bottom and sell exactly at its top (or vice versa). In a perfect trading environment, they wait for the stock to hit its baseline and confirm its direction before they make their moves. The story gets more complicated when a stronger up-trend or down-trend is at play: the trader may paradoxically go long when the stock jumps below its EMA and wait for the stock to go back up in an uptrend, or he or she may short a stock that has stabbed above the EMA and wait for it to drop if the longer trend is down.

When it comes time to take profits, the swing trader will want to exit the trade as close as possible to the upper or lower channel line without being overly precise, which may cause the risk of missing the best opportunity. In a strong market when a stock is exhibiting a strong directional trend, traders can wait for the channel line to be reached before taking their profit, but in a weaker market they may take their profits before the line is hit (in the event that the direction changes and the line does not get hit on that particular swing).

Swing trading is actually one of the best trading styles for the beginning trader to get his or her feet wet, but it still offers significant profit potential for intermediate and advanced traders. Swing traders receive sufficient feedback on their trades after a couple of days to keep them motivated, but their long and short positions of several days are of ideal duration not to lead to distraction. By contrast, trend following offers greater profit potential if a trader is able to catch a major market trend of weeks or months, but few are the traders with sufficient discipline to hold a position for that period of time without getting distracted. On the other hand, trading dozens of stocks per day (day trading) may just prove too great a white-knuckle ride for some, making swing trading the perfect medium between the extremes.
 
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