The Education Of A Speculator

Hey Sarvise,

Thanks for chiming in! Word of wisdom as usual:)

Yeah, I was considering a blog, but I ended up writing it up here.

Scalping to me is probably in terms of minutes. I tried it out shortly when I last traded with some success, but I did of course not really have a clue what I was doing. I do however think it would suit my personality and it also seems less risky.

How much actual trading time is needed then to scalp successfully with meaningful results in your opinion? Would 2 hours cut it?

I`m aware of the work needing to be done both before and after the trading session, so it would be an advantage for long-term consistency to not let the actual trading session be longer than neccessary to begin with.

Do you have any suggestions for which markets to trade and what contract? Due to my short-term approach, I would like to focus on trading only one contract.

I was thinking maybe the S&P500 E-Mini? I have not read up on the CME academy yet, but as I understand it the S&P contract trades 23,5 hours a day, five days a week. Is there meaningful activity all the time or is it most active around the U.S stock market session? With my schedule I could probably be ready to start trading two hours after the U.S open.

As for capital, I don`t have nearly enough at the moment, but I hope to raise the funds in time. I`m not impatient to start trading anymore and I want to be properly capitalized before starting and not rushing things. I was thinking maybe $25-30,000 would do it. Should I double that amount?:)

Thanks for the good advice and sorry for loading you with questions as I always do;)

Best regards,

Johnny

Quote from Sarvise:

Hi Johnny,

I didn't know you had started a journal. That's a good idea, but if I were you, I would make it a private journal (p.e. a blog) - you see what happens when you make it public. If you need/want some specific advice, you can always post in ET asking for it (and cross your fingers).

3-4 hours a day for scalping is more than enough. Actually, at the beginning you'd be probably better off by spending LESS time in front of the screen MORE concentrated and focused, you will see it's easy to get distracted. Also, you should take into account how much time you need to prepare before the actual trading (reading news, seeing where the different markets are, reviewing your plan, etc.) and how much time you need to review your trading (plot your P&L, grade your trades on whether you followed your rules or not, see what you could have realistically done better - without the benefit of hindsight, that is - replaying the key parts of the session, etc.). IMHO, you'll learn more, faster and better if at the beginning you spend more time preparing and reviewing than trading, particularly if you replay the session, not so that you can make huge fake $$$$, but so that you can - maybe - see what you missed in real time.

Of course, the more time you can invest in front of the screen, the better - provided that a) you stay focused and b) it does not have a long-term negative impact in your life.

In this record-high volatility environment with huge overnight gaps, swing trading futures is probably not the best way to get initiated into trading, I'd stick to day trades (minutes-hours) if that's what you mean by scalping (to me scalping is 0-2 seconds, not for a trader at home, but you'll see that there are many different opinions on this).

Moving out of your parents will cost you hard cash, but it will save you so much mental cash that it's probably worth it. Just make sure you have a nice "treasure chest" as you call it. By the way, if you allow me the personal digression, when I went backpacking round the world the best piece of advice I ever got was: "Pack your bag and make a budget. Done? Good, now empty half of your bag and take twice as much money". Similarly, I would recommend you decide how much capital you need to start and what your risk per trade is going to be. Done? Good, now cut your size in half and save twice as much.

I don't know Nisson and I have nothing against him, if you learned anything useful from his book/s, great. Just keep in mind, he is a salesman, not a trader. On candle patterns, make sure you read pages 8-9 of Bulkowski's Encyclopedia of Candlesticks Charts very carefully:

http://www.amazon.com/gp/reader/0470182016/ref=sib_dp_pt#reader-link

When you start watching the market, I'd recommend you use a top-down approach: start studying historic long term charts, then middle term charts, then short, etc. As you do so, try to analyze them using whatever you have learned, technical or fundamental analysis, news-driven moves, etc. Try to pinpoint what happened when and why. I.e. if you see a spike recurring in an hourly chart, find and determine its cause: news report? open/close? failed S/R?, etc. Once you get the gist of it, start recording the session and playing it back, but at a higher speed, so that you can watch in about 45-60 minutes a whole session, and again try to determine what is happening, what is driving prices. Then move to real-time charts. This way you will have accumulated more experience, faster and in a more structured way.

Lastly, although I disagree with NeoRio1 (I think you should continue reading until you have a solid theoretical framework), he makes a really good point: "the more you read, the more beliefs you have about the market that aren't yours". You should carefully consider that as you move from theory to practice.

Best trading,

Jorge
More...
:) :)
 
Quote from Johnny:

Do you have any suggestions for which markets to trade and what contract?
More...

In July, you announced "I quit my job and skipped education to pursue Forex fulltime!". Four months later you're asking 'which markets to trade'.

Stop wasting your time. You aren't going to make it.
 
Johnny,

You say you wish to undertake the journey of a Trader.

Well that is your choice.

It is a journey that will take you from a head full of thoughts concerning what you would like and wish for, through a stage where you cram your head even further with detail to support your wants and desires, and on to a point where you will eventually give up your quest.

Beyond this point lies a corporate job, or a point where you let go all the silly notions in your head and just watch the journey that price takes.

Before you go off on another tangent, I am not referring to PA, indicators or any other ill-conceived analysis, but rather I am simply referring to the behaviour of price itself.

Get to this point and you just might succeed.

Now start by asking yourself this question.

"Why do 95%+ of people fail and yet 100% of the people have read the books."

It is as good a place to start as any.

regards
f9
 
Quote from Johnny:

Scalping to me [...] seems less risky.

How much actual trading time is needed then to scalp successfully with meaningful results in your opinion? Would 2 hours cut it?

Do you have any suggestions for which markets to trade and what contract? Due to my short-term approach, I would like to focus on trading only one contract.

I was thinking maybe the S&P500 E-Mini? [...]With my schedule I could probably be ready to start trading two hours after the U.S open.

As for capital, [...] I was thinking maybe $25-30,000 would do it. Should I double that amount?:)
More...

Hi Johnny,

It's always a pleasure to help you in whichever small way I can.

"Scalping"/very short term trading may be less risky - or not. Give this some thought when you start paper trading.

Regarding time, the longer you can stay glued to the screen, the more exposure (opportunity + risk) you'll have. So if you want to make big bucks, you'll have to spend more time than if you want to make a little. This said, however, nobody, and I mean nobody, can keep his focus and attention 100% sharp for an indefinite amount of time. For some people this will be a couple of hours, for others 8 or 10, but everybody has a limit. The key is making sure you don't overextend yourself, because that will lead you to make non-forced mistakes. That is, beyond certain time, you'll increase your risk way more than your opportunity.

Also, the shorter the time frame, the sharper your attention has to be, and thus, the more exhausting trading is. If you can do 2 hours/day fully focused plus preparing and reviewing your trading on top of having a full-time job, I'd say you'd be doing really well.

With that in mind, you should look for a market/instrument that allows you to capture reasonably large moves within a two hour period. This in turn, leads you, not to one, but to three questions: which market, which instrument and what time period of the day.

As for the market, since you want to scalp you'll want some volatility. Right now you could trade anything really, since the volatility is sky high. Once you start paper trading, you may want to watch at first more than one market to see a) which markets have a volatility that you're comfortable with (neither too much nor too little) and b) how they fit with your schedule.

Regarding your choice of instrument, considering your capital and time constraints, I'd say futures, but then that's the only thing I trade, so I may be biased. You might want to also look into options and stocks on x4 margin. If you decide to trade futures, you must be aware of the different margins, leverage, volatility, etc. for different contracts. P.e. you might see huge volatility in the crude oil, but also the margin is higher (and the leverage lower) than in the ES, the EUR or the ZB.

You'll want to trade a market that fits your schedule and has both volatility and liquidity at the time you can trade it. For example, you say you could be ready to trade the ES two hours after the NY open, but you'd probably be better off if you do your staff, take a nap, etc. and instead of trading from 11:30 to 1:30 NY time (which is, roughly lunch time, i.e. decreased volatility, direction and volume) trade from 2:00 to 4:00, or, if you find the last half hour too fast for you from 1:30 to 3:30. Also, you want to look at other markets that have different closing times (2:30 for oil, 3:00 for bonds, etc.).

USD 25,000-30,000 is IMHO quite realistic if you have a job to pay for your living expenses. Obviously, the more the better, and the larger the cushion for your learning curve will be.

I keep seeing people's comments that reading books is a waste of time. Well, just "reading" them, without thinking about what you're reading and how you can implement what you're learning in your trading maybe just a pastime. However, even though just reading books will certainly not make you a trader, I simply fail to see how trading without a theoretical framework is better than having some background and understanding, particularly as you move up to longer time frames.

Best trading,

Jorge
 
Sarvise,

Thanks again. I`ll have to do some more research on my own then to find what suits me best. Good clues on what to look for.

Knowing that 2 hours of active trading is sufficient is comforting to hear. I don`t know yet how much time I will need pre- and post-trading, but I suspect I will need a lot when I first start trading.

The ones who don`t understand the reason for reading the books is either living in ignorance or they simply don`t understand the rationale behind it.

No one ever said that reading the books alone will make one earn big bucks, but......:D

Good trading to you Sarvise!

Best regards,

Johnny
 
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