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Dr. Brett Steenbarger of the TRADERFEED blog is running an excellent series on “what I wish I had been taught when I first began trading” and has asked that others, such as myself, contribute. For what it is worth what follows are just a few of the things I know now that I wish I knew when I first started trading. Maybe you will find some of the same things on your “wish” list.
1. START SLOW AND KEEP IT SIMPLE
I know I know I repeat this mantra over and over again but it is true. Keep trading simple. When I first started trading I thought I had to know everything there was to know about trading, then a reality set in: I will never know everything there is to know about trading and neither will you. That is not to say that you do not go through a discovery period wherein you find what best suits your psychology (e.g. trend trading, day-trading, options, futures, equities, etc) but within this period there has to be a balance between the “need to know” and the “what to know”. The need to know fuels paralysis of analysis and the what to know can help you focus only on those things that matter to your trading style. I believe this is one of the reasons the turtle experiment worked so well at the time: the traders focused only on one technique at the expense of needing to know all there is to know about the market. For me I focus on big charts (only three time frames), moving averages (only three), support/resistance areas, futures charts, and the crosshair indicator I have developed. That is it. It makes sense to me and it works.
2. LISTEN TO WORDS OF WISDOM
I consider the two trading psychology books by Mark Douglas to be of paramount importance to the beginning trader. They are Trading in The Zone and The Disciplined Trader. In fact, in my beginning years I read these books so many times that I have had to replace the copies with new ones due to the highlighting, the margin notes to myself, the worn bindings, etc. I still have the original copies as a reminder of my diligent study but lack of application. I read the books but I did not listen to what Mr Douglas had to say. In the first few pages of Trading in the Zone, Mr Douglas makes the most profound statement I have ever read about successful traders: “the best traders think differently from the rest”(7). Amazing isn’t it? I could never figure out what he meant but the answer was in the rest of his book. I just would not listen. I thought it was some kind of secret. But the answer is embedded in our perception of the market and all the baggage we carry when we first begin trading. No need to go into all the details of the baggage but suffice it to say read his books and read all the trading psychology books/articles you can get your hands on before and while you begin to read charts. Dr. Brett’s reserve of articles are a good resource as well. Don’t just read these but listen.
3. PRACTICE YOUR TRADING STYLE
In my trading seminars and one on one training I teach that you should trade your edge, mine or anyone else’s, over and over again, in simulation and with real money (limited funds of course) until it becomes a part of your psyche. Allow your trading to become a habit just like riding a bike. That way your emotions (=EGO) will bend to your will and will work to your advantage instead of your disadvantage. When I began trading I jumped in with no idea how deep the water would be. Let’s put it this way: I needed a bathing suit and a snorkel and I had neither. Only when I gained control of my ego driven emotions did I turn things around but it took some time. It would have taken much less time if I focused on one and two above. Experience, however, can be our greatest teacher.
Dr. Brett’s series itself teaches us that everyone comes to trading with different perceptions and expectations. If they were all the same there would be no need for multiple article contributions from various traders such as myself!
I have many more of these that I could add to my “wish” list and I may do so later but this is a good start.
Related posts:
- THE THINKING TRADER 12/11/2009 Thoughts on trading. ...
- THE ORIGINAL TURTLES TRADING RULES, CROSSHAIRS TRADING, AND THE BEGINNING TRADERS JUDGMENT Unfortunately, very few beginning traders have enough “education” money to...
- CAN MISSING A STOCK TRADE BUILD CONFIDENCE? The question you must ask yourself is: 1) did you...
- CAN YOU CALCULATE YOUR WILLINGNESS TO TRADE? Are you willing to make things simple or are you...
- THE ART OF TRADING VERSUS THE ART OF DECEPTION Just when you think you have the market figured out...
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