Senior/Sucessful traders, what do you reccomend for a Newbie?

[tycoonman]

thanks traderzones.

i recognize the risk of losing it all. i intend on being in the 5%.

unlike other professions like medicine, law etc., where there is a straightforward rubric that outlines the path to relative success, there isn't one at all for trading--in this way it is elusive as hell.

ive tried to break down how i would like to tackle trading: reading books, using sim accounts, and getting a job at a firm that will hire and train a novice at cost to the trainee. I don't even know where to begin to look for a job/internship like that.

 

[henry76]

Why would a firm mentor you in profitable trading if they were profitable? they wouldn't need you since thier method is already profitable ,but at your cost and thier profit , that isn't learning to trade thats charity, go out a prove you can beat the markets and make a billion , then someone may offer you a job , till then jog on , welcome to reality.

 

[sowterdad]

I would agree with Trader Zones comments for the most part-
Except the necessity to blow out your account.
Caveat Emptor- I'm not a day trader, but this method slowed me down and saved me from myself, - appropriate for trading stocks.


New to trading:
Read the books, study charts, take a class, follow a mentor etc -the market will expect you to pay tuition in some fashion.
I would suggest you try a method of position sizing and risk management that is designed to limit your risk (and reward), over a period of time as you slowly learn the basics. This will be the most critical aspect of your trading essential to any eventual success.

You can change/increase the % of risk as you develop a reasonable expectation that the majority of your trades will be successful . Whether you adopt the precise suggested %'s here isn't important, it's an outline that demands you learn to evaluate the Risk your position size is taking.

-Fund your account with an inexpensive broker- Keep the commissions from becoming a significant factor.

Take your initial account, and allocate each trade cannot be more than 10% of the total account value.
If your account is $100,000 then no one trade can exceed $10,000.

If your account value is $10,000, then no one trade can be more than $1,000.

Risk- The Risk is how much you may lose on any trade. The Risk is usually determined by looking at a chart, evaluating the price action, and determining where the premise of your trade has failed to perform as you expect. This is where you place your stop-loss to be automatically sold once price hits it.
That can be pennies on an hourly chart to dollars on a daily.
Risk can not exceed 1% of the account value to start- up to a max of 2% over time.

Let's make it simple:
I fund an initial account with $10,000.
I can spend 10% ($1, 000.00) on any single trade.
My maximum Risk is not to exceed 1% of the present account value. ($100.00 initially) on a $10,000.00 value. .
Stock XYZ is trading in a range from $5.30 to $5.45, and I want to buy the impending breakout- @ $5.50 with a limit of $5.55.
I will plan an order for 180 shares.
I will then look at my likely stop-loss- If I think that $5.30 is where I need to set my stop, that's a potential $.25/share Risk between my limit price and my stop price.
If I multiply Risk x Share Qty = $.25 x 180 = $45.00 and that is acceptable.


If Stock ABC is trading up to $9.90, and I want to buy a $10.00 breakout, I can set an order for 100 shares.
The logical stop appears to be $8.50 -or $1.50/share = $150.00
I am not allowed to buy that many shares with that stop.
I either have to reduce the number of shares traded, or to tighten the stop.
If I Keep the $1.50 stop , I'm only allowed to buy 66 shares based on the potential Risk maximum - since 66 shares is 30% less than the potential 100 shares, my Risk now exceeds the 10% ratio - but my potential loss is reduced.
If I have a series of trades where I get stopped out and my account value becomes less, Both my total position size is reduced on each trade and the amount I'm allowed to Risk also becomes less for each trade.

Conversely, if I am finding great success, and my account value increases, I can increase my position size and Risk appropriately.

This method works well to get one to stay in the game, analyze their trades, and not be in a hurry to get broke or rich.

As you experiment with different trades, it is not necessary that you make each trade a full 10% of the account value.
Let's say you decide to make 2 spec trades @ 5% of account value- Well , you have to adjust the Risk accordingly- You cannot keep your Risk at 1% - if will now also be reduced to .05% .

Overtime if you gain confidence and experience, you could change the ratios -if you are being successful- Say Increase your position size on a single position to 12%, then 15% .

I'm mostly a swing trader, and adopting a fellow trader's suggestion to apply this to my trading kept me in the market years ago.
If you find that the majority of your trades are going against you, trade smaller, and determine if your approach is suitable for market conditions as they change.
The experienced traders here can certainly give you better advice on what to trade, time frame etc. They will also have other methods they use - Ask them to share how they apply Position Sizing principles with Risk in their trading- Likely they will have different rules than I suggested- might be more suited to what you are going to try.

Good Luck, SD

 

[TrueProp]

Quote from TraderZones:

In reality, don't let anonymous paper traders like this one convince you this in any way is a strong expectation or something that will happen in 6-12 months. Trading is a profession, like the medical field.

-- You won't get there only by reading a few books or studying posts
-- 10,000 hours of screen time is what many here said it took them.
-- Monkeying around with Fibonacci, Elliott Wave, indicators/most Technical Analysis, Fundamentals will likely throw you off track until you realize many people here gave up and looked for things that actually might work.
-- Expect 1 or more blowouts of your trading capital
-- Be prepared to invest 3-5 years of time and perhaps $50,000 in losses along the way, for the POSSIBILITY of succeeding.
-- Probably good to avoid options, forex, and index futures
-- If you expect to retire on a $7,000 account, then spend a lot more time studying the realities of trading.
-- Many successful traders here seem to favor mastering a few individual stocks
-- for the most part, stay away from scalping (tiny profits in very short periods). The commissions, bid/ask spread, slippage are the same as for holding longer but with much smaller payoffs, and you will not have the cost advantages that institutional traders enjoy.
-- stay away from ANYTHING or ANY ADVICE by Jack Hershey or SpyderTrader. Their methods lured many newbie ETers onto the rocks.

Eventually, you will probably realize that it is mostly about deeply learning how market prices/charts work. Support/Resistance, trendlines, pure price action seem to be what most of the people here who talk about what eventually worked for them. These are probably good places to start.

Very important to master money management & trade management (stop losses, profit targets, leverage, diversification, etc. etc.

But it boils down to this. The prevailing view is that 95% will lose their trading capital. And that "5%" includes breakevens, people making small amounts of money, and people making money for short periods of time. Making $100,000 a year for the next 10-20 years, your chances are likely less than 0.5%.

You can try it, but have a sober assessment of what the realities are and what it will take to REALLY succeed.

Anonymous paper trader?

Great assessment --- seeing that everyone on here is essentially anonymous and that I've been a full time prop trader ever since I graduated college almost 4 years ago.

It doesn't and it shouldn't cost anyone $50,000 in losses to figure out how to trade or that trading isn't for them. I don't know of any true proprietary firms that are willing to give a new trader an initial $50,000 loss limit. If you lose that much learning how to trade you probably have no concept of risk-to-reward or you got blown out on a fluke move that could happen to anyone (major overnight gap or something like that).

-- Many successful traders here seem to favor mastering a few individual stocks
-- for the most part, stay away from scalping (tiny profits in very short periods). The commissions, bid/ask spread, slippage are the same as for holding longer but with much smaller payoffs, and you will not have the cost advantages that institutional traders enjoy.

I can't speak on successful traders on ET because I haven't made 7000 posts on here yet---lol---but of the traders that I know personally, I know a few that have made an absolute killing from trading one or two stock symbols religiously. But the fact is I know many many more that trade 20+ different symbols everyday and make a killing. My mentor traded/trades 20+ symbols a day and that's how I learned to trade.

And scalping can be awesome in the right environments btw. In this environment, not so much, but there are brief moments in time, even during these low vol days where it pays to know how to scalp.

 

[Fibbin-Archie]

I think the best advise to a newb is to not think that they can predict price action.

There are no guaranteed outcomes in this business, we just trade odds 'n' probabilities, and by that token always focus on what you could potentially loose rather than what you could win and protect your own ASSets. By that I DO NOT mean cutting winning trades short! Learning to allow winning positions to mature to their natural conclusion is yet another learned discipline.

Stay in the game long enough to gain a bit of experience, then you may just stand half a chance.

With regard to trading style, pick one which suits you, your discipline, your risk tolerance, patience threshold, personality type (we're all different), and then go about learning that particular style and strategy, get to know it inside out (including it's draw backs and limitations, also get to know your own limitations, the markets are a great place to really get to know yourself).

 

[dwpeters]

You know, I stumbled around randomly looking for ways to invest for a long time. Finally I started researching trading. At about the same time that I started actually trading with some success I stumbled onto the Bogleheads.org website - diehard buy and hold philosophy, but they understand risk control through diversification which is what I was looking for when I first went there. They understand that it is not easy to beat the market, and that it can be time consuming to try (ok, many there think it is futile - I disagree with them on this). I wish I had started at the beginning: basic investing, and then worked my way up to trading. So my recommendations may be a little different:

Fail Safe Investing - Harry Browne
Asset Allocation - Gibson
Ivy Portfolio - Mebane Faber

These books have concepts that I use in my 401K plan, my kids college fund and even to some extent in my active trading.

I also recommend:
Trading Risk - Ken Grant
Short Term Trading Strategies that Work - Larry Connors

 

[Fibbin-Archie]

It's been pointed out to me that in my prior post I should have said, "predict price action with 100% accuracy..." apologies if it caused any confusion. I was trying to point out the importance of controlling risk exposure with correct position sizing and money management.

 

[bone]

If I were starting out fresh, I would spend much more time on effective and practical tools for the statistical analysis of data time series, and much less time on conventional charting technical analysis (sorry, Murphy). Doesn't have to start out as anything more than you learning to download ASCII format price tics into an Excel spreadsheet and writing some basic macros from Statisitics 101. It can snowball from there - you can do a hell of a lot on an Excel spreadsheet, including downloading tic data and creating the conditions for driving orders into DLL linked execution platforms.

If you think you might want to find an entry-level analyst position at a firm for a starting point, learn how to create mathematical expressions in the form of rules. Once you can translate thresholds, limits, and conditions into rules you will be able to use Apama, Portware, and Orc. When you arrive at that point, you are on the doorstep of the algorithm.

Finally, the power of the 'black box' is highly over-rated in terms of the impact it has on an individual starting out. Yes, automation accounts for the majority of volume on the trading exchanges. But keep in mind that the highest paid portfolio managers, bank traders, and independent traders are not necessarily deriving their income from automation per se. It is entirely reasonable to assume that a 10K share day trade can capture much more of a trading range than an automated stat arb system trading orders of magnitude more in volume. The risk/reward skew favors the automated relative value strategy, but a well-placed directional bet will certainly capture more trading range.

A few of my clients are incredibly successful to the point of envy on my part, and I still have many friendships and acquaintances here in Chicago who have made stupid amounts of money trading. 98% of the people reading this post would be shocked and completely stunned by how clean and efficient and streamlined their approach to the market is. If the observer didn't know how successful they were, I promise they would dismiss their strategy and demand to complicate it using any number of techniques they would insist are important. There is a largely false perception that successful trading has to be dark, and mystical, and mathematical, and automated to the extreme.

That's my take on it - just an opinion tempered with 18 years of trading.

 

[Monster123]

Quote from bone:

If I were starting out fresh, I would spend much more time on effective and practical tools for the statistical analysis of data time series, and much less time on conventional charting technical analysis (sorry, Murphy). Doesn't have to start out as anything more than you learning to download ASCII format price tics into an Excel spreadsheet and writing some basic macros from Statisitics 101. It can snowball from there - you can do a hell of a lot on an Excel spreadsheet, including downloading tic data and creating the conditions for driving orders into DLL linked execution platforms.

If you think you might want to find an entry-level analyst position at a firm for a starting point, learn how to create mathematical expressions in the form of rules. Once you can translate thresholds, limits, and conditions into rules you will be able to use Apama, Portware, and Orc. When you arrive at that point, you are on the doorstep of the algorithm.

Finally, the power of the 'black box' is highly over-rated in terms of the impact it has on an individual starting out. Yes, automation accounts for the majority of volume on the trading exchanges. But keep in mind that the highest paid portfolio managers, bank traders, and independent traders are not necessarily deriving their income from automation per se. It is entirely reasonable to assume that a 10K share day trade can capture much more of a trading range than an automated stat arb system trading orders of magnitude more in volume. The risk/reward skew favors the automated relative value strategy, but a well-placed directional bet will certainly capture more trading range.

A few of my clients are incredibly successful to the point of envy on my part, and I still have many friendships and acquaintances here in Chicago who have made stupid amounts of money trading. 98% of the people reading this post would be shocked and completely stunned by how clean and efficient and streamlined their approach to the market is. If the observer didn't know how successful they were, I promise they would dismiss their strategy and demand to complicate it using any number of techniques they would insist are important. There is a largely false perception that successful trading has to be dark, and mystical, and mathematical, and automated to the extreme.

That's my take on it - just an opinion tempered with 18 years of trading.

-----
Totally agree. Simple rules sometimes are the best method.

 

[businessstaxes]

That finance degree didn't teach you anything.

there is nothing to learn in trading that you need to go to school.

i should have dropped out of grade 7 if i was going to trade for a living...yeah a grade 7 education is more than enough.

Quote from tycoonman:

Where should a novice trader start?

I graduated with a degree in finance recently, and want to trade. Moreover, I want to make it my profession.

How should i build a good fundamental understanding of everything i need to know? Should I take a class? Should I read a book? If so, which one?

I feel really lost. I literally just bought highpowered trading for dummies, no joke lol.