Friday, February 12, 2010

Learn to trade

Every year many beginners come to market dreaming about being millionaires by the end of first quarter. Many of them, by the end of the same quarter, will stop trading with account being completely wiped, while some will add money to account and continue doing that, just to keep their urges to trade (gamble) intact. Simply, just a few will manage to stay afloat.
What is the best advice that one can give to newcomers to markets and trading?

I would say: LEARN TO TRADE (One setup and try to trade it every time. Of course, this setup must be with positive expectancy or to put it simple – it must make money. )

First and foremost important task for any trader is to learn to trade. If you look at small baby you can learn a lot about trading and for that matter any other sphere of life. Babies first start to crawl and only when they are very confident in crawling they try to get up and, of course, they fall few times and suddenly, they start to manage to stand on their feet and after trying to make step or two they fall again. After few months, which is in baby’s life probably as much as many years are to us, our baby feels confident to walk and only year or two after it started to crawl it starts to run, climb and jump.

So, for all beginners in this game I have something that might sound harsh: You are babies and don’t try to run before you crawl!

How one can learn to trade and what that exactly means?

I find that answer to be a very simple one: Find setup with positive expectancy and trade it every time. This way you will have privilege of having something that makes money and your account will not be jeopardized. Second, you will become very disciplined and discipline for trader who has setup with positive expectancy is everything. If you follow this you will be able to survive much longer than your friend from the beginning of the story and you will probably make some money over longer period of time. Of course, your results will be very different from the results achieved by other trader who trades very same set up and who is doing that for period of more than few years, simply because of trade execution and experience (less points lost due to slippage), but making money is not prime task now.

After you mastered one setup and discipline (So, now you “know” to trade, mini learning process is finished.) than it is time to try to find set up that completely suits your personality. During first two to three years you are going to try to get your way around trading without losing your shirt. After three years of looking you might end up with better systems - systems producing more points from fewer trades, with better T and F formula stats.

What I see very often is that beginner will start trading one system; then he will find on internet system that makes more points and will jump to that one; then his friend is going to tell him about the new guru on the block, so he will go and pay few thousands for this new system with 99% win rate. At the end of three years period our trader will have absolutely nothing behind him. He would trade twenty or thirty systems with not having clue what is going on with each of them. That is recipe for disaster.

Simply, start trading one system, work on your discipline and don’t worry what will happen tomorrow. As I said many times, this is not sprint - it is marathon.

Always have bigger picture in mind.

Trade with trend!

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