Dutchie's Trading Tips

dutchie · 1 January 2012

This is one of my 2012 resolutions!
In the spirit of giving back I would like to start this thread to help all new traders in their journey.
Each week I will submit a tip. These will not be in any particular order.
I am not, by any stretch of the imagination, an expert in this subject but have spent some time in this business. I hope that other traders add to the weekly topic (whether agreeing or disagreeing).
I would appreciate it, though, if comments were only made on the current tip and not to go off on tangents or their own tips (start another thread if you want to). Hopefully this will enable this thread to flow better.
Cheers
Dutchie

dutchie · 2 January 2012

TIP NO. 1
I am going to call everyone a trader in the trading business whether you are trading or investing on a intraday basis, daily, weekly or yearly, whether its shares, options, CFD’s, Forex etc. i.e. any activity in the “market”.
Treat this activity as a business and/or profession.
Don’t expect to become an expert overnight or after you have read one book or attended one course. You would not expect to become a brain surgeon after one lecture or reading a book about anatomy.
Be in this business for the long haul and be prepared to put in the time and effort to become an expert (this can and usually does take years – just like it does getting a degree). Don’t be discouraged.
The importance of treating this as a business is that at some stage you will have to put up some capital (that which you have worked hard to earn and accumulate).
You need to protect your capital very carefully because if you lose it your out of business!
That's why it’s important to learn how to trade before you commit any capital (hoping for good luck is not an option).
Don’t rush in because you believe:- the market is at a bottom, you have got a hot tip from the taxi driver, you’re going to miss the next big thing, a great mining report etc.
There will always be opportunities in the market whenever you start but only if you have done the time in learning the profession and how to run the business properly.

tech/a · 2 January 2012

dutchie said:
TIP NO. 1
I am going to call everyone a trader in the trading business whether you are trading or investing on a intraday basis, daily, weekly or yearly, whether its shares, options, CFD’s, Forex etc. i.e. any activity in the “market”.
Treat this activity as a business and/or profession.
Don’t expect to become an expert overnight or after you have read one book or attended one course. You would not expect to become a brain surgeon after one lecture or reading a book about anatomy.
Be in this business for the long haul and be prepared to put in the time and effort to become an expert (this can and usually does take years – just like it does getting a degree). Don’t be discouraged.
The importance of treating this as a business is that at some stage you will have to put up some capital (that which you have worked hard to earn and accumulate).
You need to protect your capital very carefully because if you lose it your out of business!
That's why it’s important to learn how to trade before you commit any capital (hoping for good luck is not an option).
Don’t rush in because you believe:- the market is at a bottom, you have got a hot tip from the taxi driver, you’re going to miss the next big thing, a great mining report etc.
There will always be opportunities in the market whenever you start but only if you have done the time in learning the profession and how to run the business properly.

We often here this
Treat trading like a business

But what do you actually do to ensure it's run like a business?
What are the key ingredients ---- what do you have to put in place?
Many have no concept of " business ".

alocineel · 2 January 2012

tech/a said:
We often here this
Treat trading like a business

But what do you actually do to ensure it's run like a business?
What are the key ingredients ---- what do you have to put in place?
Many have no concept of " business ".

One key ingredient in any business (I would have thought)is to ensure or plan that your incomings are more than your outgoings. Other way around & it's goodnight nurse!!

tech/a · 2 January 2012

alocineel said:
One key ingredient in any business (I would have thought)is to ensure or plan that your incomings are more than your outgoings.Other way around & it's goodnight nurse!!

I would argue that less than 5% would have such a plan
Most have a plan but not that in black.

tech/a · 2 January 2012

Is that all you need?

tech/a · 5 January 2012

tech/a said:
Is that all you need?

Disappointing
Thread started and no follow up by the author.

What's the point of making statements with no content.
How's that help posters?

I didn't want to reply as I have in this post but a good idea is left wanting!
Well in my not so humble opinion.

Other things to consider when trading like a business.

(1) Identify your market no point in investing or trading in a deminishing or falling market--- poor business
(2) undercapitalization is a common business error. No different in this business.
(3) Diversification spread your net to capture a larger market share.
(4) keep emotions out of business.
(5) keep overheads down--- if your a trader minimize loss and trading costs( brokerage).
(6) Without a tested method which returns a positive expectancy your trading hope and hypothesis. There is a good chance your gambling. Understand how to skew your " gambling" toward profit.
(7) always pay yourself.
(8) always make YOUR own business decisions-- seek advice but--- be decisive and responsible for your business.
(9) review your business and it's performance blueprint regularly. You'll have a blueprint if you have a PROVEN positive expectancy trading or investing methodology.

5oclock · 5 January 2012

There is a great deal to learn and heaps of info on ASF, I am sure TECH would agree a lot of how NOT to trade is featured on the PEN thread!!!!!!!

tech/a · 5 January 2012

5oclock said:
There is a great deal to learn and heaps of info on ASF, I am sure TECH would agree a lot of how NOT to trade is featured on the PEN thread!!!!!!!

Cant disagree ----- RED thread is also becoming interesting.
It is interesting how people handle a 50% reversal in a holding.
Quite differently to a 50% reversal in a business Im noticing.

I question how they would react if SOMEONE ELSE was in control of their holdings and did as they did!

But the point I'm making here is Dutchie and others who start threads and go silent--should become pro active in their threads.

pixel · 5 January 2012

tech/a said:
I would argue that less than 5% would have such a plan
Most have a plan but not that in black.

That's one reason why I for one would encourage dutchie to keep posting his tips.
Even if he's increasing that ratio to 5.01%, he's done a great job.

I would appreciate it, though, if comments were only made on the current tip and not to go off on tangents or their own tips (start another thread if you want to).

So let's not hijack his attempt with daily ifs and buts. The plan is one tip per week

dutchie · 5 January 2012

Thanks for your support pixel.

pixel said:
That's one reason why I for one would encourage dutchie to keep posting his tips.
Even if he's increasing that ratio to 5.01%, he's done a great job.

So let's not hijack his attempt with daily ifs and buts. The plan is one tip per week

That was my initial intention hoping that anyone starting out would do further investigations themselves and that other posters would fill in some of the gaps (as tech/a did).

Thanks for your support too tech/a.

tech/a said:
Disappointing
Thread started and no follow up by the author.

What's the point of making statements with no content.
How's that help posters?

I didn't want to reply as I have in this post but a good idea is left wanting!
Well in my not so humble opinion.

Other things to consider when trading like a business.

(1) Identify your market no point in investing or trading in a deminishing or falling market--- poor business
(2) undercapitalization is a common business error. No different in this business.
(3) Diversification spread your net to capture a larger market share.
(4) keep emotions out of business.
(5) keep overheads down--- if your a trader minimize loss and trading costs( brokerage).
(6) Without a tested method which returns a positive expectancy your trading hope and hypothesis. There is a good chance your gambling. Understand how to skew your " gambling" toward profit.
(7) always pay yourself.
(8) always make YOUR own business decisions-- seek advice but--- be decisive and responsible for your business.
(9) review your business and it's performance blueprint regularly. You'll have a blueprint if you have a PROVEN positive expectancy trading or investing methodology.

I stand chastised. I see your point. (but I would like to retain the right to be as active/inactive as I want and people can take it or leave it)

To run a business you need a plan.
Some of the questions/ items that should be in your plan are (in no order):-
1. What is my business? What am I trying to do – Invest money to make more money.
2. How much capital do I need to start the business – where can I source more and is it sensible/economical to borrow?
3. What is my market? Shares/CFD’s/options/futures/Forex. National and/or international markets?
4. Where can I obtain information about trading these.
5. Who should be my broker and what are the conditions of trading.
6. What equipment/software do I need. What data feed do I need.
7. What are the `legal and taxation aspects I should look at?
8. Test/ monitor how the business is going. When will I decide the business is not viable anymore?
9. How can I make the business more efficient/grow i.e. employ people, get more/better equipment etc.
10. Where will I run my business from ? – home, office, work
11. What hours will I be open/active?
12. What weekly income do I need to run the business properly (including some for me)
13. How do I develop an actual trading plan(s) (as distinct from this business plan).

As you can see there are many different aspects to developing a business plan. This short list is not all encompassing nor limited.
I would recommend that people wanting to set up a business do research on this aspect.
Use a plan as shown in this link and use/adapt it to your specific needs.
If in doubt ask someone!

http://www.business.gov.au/Documents/Startingyourbusinesschecklist.pdf

pixel · 5 January 2012

First Step: A Trading Plan

When it comes to Trading Plans, the ones I've read about and compiled myself can't be very easily summed up in a few words.
Sure, my intention is to trade profitably. Nobody else owes me a living or volunteers to support me. But that's hardly a "Plan".

The Trading Method that I employ and that makes up my Trading Plan, comprises several steps:

Identify stocks that have a high probability of breaking to the upside.
Calculate the start position size in such a way that a failure to perform does not hurt more than I can afford.
Estimate a target zone, but keep a close eye on the stock regardless.
Have the unemotional mind to realise signs of reversal, and the discipline to stop out in time.
Don't lose sight of the individual properties of a stock - its "DNA" - and the specific price and time range that I bought it for.

There are scores of sub-points and gotchas that I won't mention here. Just a few additional pointers:
The basic theory underlying point 1. is the "Trinity Approach". Applied with discipline, it gives me a better than 80% chance of not losing once I entered.
Side issues to consider under point 2. include the general composition of my portfolio: Do I have too many eggs in one basket? Is my portfolio spread widely enough across the Market?
Point 3. deals mainly with risk:reward ratios and ranking stocks against one another, which also influences the position size.
Point 4. is simply capital management, avoiding nonsense like "a paper loss isn't really a loss", or "I know better. The Market is wrong!" while
point 5. slaps my wrist when I'm tempted to fudge some figures - usually stop-losses - by changing the planning horizon for a trade. As in "I hope it keeps going, so let's widen the stop criteria and give it some more room to fall; it'll catch up next week - won't it?"
That does NOT mean I can't trade the same stock in several positions: Intraday scalp, quick swing, and long-term holding. But I need a really sound and positively proven reason to move a short-termer across to a longer-term position. Being aware of the implication such a transfer would have on the overall composition of the target portfolio is only one point that needs to be considered.

So, there you have it: The framework of Pixel's Trading Plan in a nutshell.

dutchie · 5 January 2012

I see your using the KISS system, pixel. Always a good sign.

tech/a · 5 January 2012

Pixel

Your " Plan " is EXACTLY what I'm talking about.
Just like 99 % of traders who "THINK" they have what they need as far as a plan is concerned.

ALL YOU HAVE IS A TRADING HYPOTHESIS

NOTHING MORE!!!!!

Your missing the key to a successful plan.

pixel · 5 January 2012

tech/a said:
Pixel

Your " Plan " is EXACTLY what I'm talking about.
Just like 99 % of traders who "THINK" they have what they need as far as a plan is concerned.

ALL YOU HAVE IS A TRADING HYPOTHESIS

NOTHING MORE!!!!!

Your missing the key to a successful plan.

Criticising is easy, tech/a

If you're so much wiser, why not enlighten us with some positives? As I told you when I supported your own attempts at t/a tips: I'm always interested in studying other successful people's ideas.

But please tone it down and DON'T SHOUT. People are more inclined to listen to reason. Loudmouths and badmouths are far less appreciated.

Maybe Joe can reduce some of the clutter and let us start over, leaving only Dutchie's posts? He made a genuine and well-intentioned start, for which he deserves to be commended. If my comments are deleted in the process, no problem. I know where to find them.

tech/a · 5 January 2012

pixel said:
Criticising is easy, tech/a

If you're so much wiser, why not enlighten us with some positives? As I told you when I supported your own attempts at t/a tips: I'm always interested in studying other successful people's ideas.

But please tone it down and DON'T SHOUT. People are more inclined to listen to reason. Loudmouths and badmouths are far less appreciated.

Maybe Joe can reduce some of the clutter and let us start over, leaving only Dutchie's posts? He made a genuine and well-intentioned start, for which he deserves to be commended. If my comments are deleted in the process, no problem. I know where to find them.

Pixel
Its all on topic well 95% of it is.

What 99% of people miss is the BLUEPRINT.
If you have a plan you had better know how it is supposed to perform.
Your Blueprint will arm you with a host of information which shows not only your positive expectancy.

But things like

Maximum D/D both initial and Peak to Valley.
Maximum chain of loses.
Effect of outlier wins OR losses.
Return / dollar invested.
Reward to risk.
You'll also know if a fixed fractional position sizing or a fixed % or $ amount is best for you.
These are but a few things a Blueprint will tell you.
Without having one to compare your live trading with you wont be able to recognise a change in market conditions which could be catastrophic to your plan.

Infact without it you DONT KNOW if your plan actually returns a positive expectancy over a range of conditions.
all it is is a logical arrangement of trading ideas which you THINK---you dont know-- gives you an edge.

After reading Dutchies plan I also believe he is in your boat as well.

Whats the point of a plan if you have no idea if it has a hope in haddies of returning a long term profit.

Apparently 99% of traders feel it not necessary!

dutchie · 5 January 2012

tech/a said:
After reading Dutchies plan I also believe he is in your boat as well.

I outlined a business plan - which is different to a trading plan (see item 13 of business plan).

I agree that you do need a trading plan which should contain all the (and other) items you mentioned tech/a.
No doubt it will be covered in a tip later on.

5oclock · 5 January 2012

Good on DUTCHIE for starting this thread. Of all the forums I have read this forum is a big stand-out for a number of reasons, mainly the number of members who go out of their way to help others(sometimes the readers take the advice/observations a bit personal). Anyway I for one have learnt as much from threads on ASF as I have from all the trading books, and a bit of "discusion" only helps sharpen your focus!

tech/a · 5 January 2012

dutchie said:
I outlined a business plan - which is different to a trading plan (see item 13 of business plan).

I agree that you do need a trading plan which should contain all the (and other) items you mentioned tech/a.
No doubt it will be covered in a tip later on.

You can and should have a BLUEPRINT for any business plan.
Why is it any different?

How many go into business without one?---most
How many would not go ahead with their business had they found out their blueprint?---few
How many would have increased their chances of success if they had one initially---most

Rather than a list of logically sounding Business ideas.

Just like a trading plan a business plan WITHOUT a proven and track able positive expectancy isnt worth the pixels its written with.

dutchie · 5 January 2012

tech/a said:
You can and should have a BLUEPRINT for any business plan.
Why is it any different?

How many go into business without one?---most
How many would not go ahead with their business had they found out their blueprint?---few
How many would have increased their chances of success if they had one initially---most

Rather than a list of logically sounding Business ideas.

Just like a trading plan a business plan WITHOUT a proven and track able positive expectancy isnt worth the pixels its written with.

So are you saying that you need to have a working and tested trading plan before you worry about a business plan?

Dutchie's Trading Tips

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