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Learning to trade

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DaveTrade

Joined
25 July 2021
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After seeing a couple of people mention starting out learning to trade in their posts, it got me interested in how people start to learn trading these days and what their experiences were. If anyone is willing to share their experience it could be helpful for others.
 
Understanding Stocks by Mike Sincere is a great book that I'd recommend to learn the basics first. I'd then progress to using a paper account or dummy trading account to get a hang of how things work before you use real money on the line.
 
Personally, I think basic technical anlaysis with a simple trendline trading technicque is the safest way for someone to start understanding the ins and outs of the market without too much risk to their capital. Advanced technical anlaysis on the other hand takes years to master properly but if someone finds T/A suits them then they can grow their skills over time. As for the best way to learn - find a reliable educator who runs a basic trading course. 'Reliable' is the difficult part as most want big money for modest information - ie they are in it for the money. If the educator provides mentoring all the better as someone holding your hand can be very valuable while learning. If you can't find a mentor you will find forums like this one have many members with years of experience who are happy to answer your questions (and question your logic) all day long. Certainly, read whatever you can as I always take something away from most trading books - but keep it simple at the start (and as tugga82 says, paper trade first is a good plan. My tips are 1. Don't act on tips unless your analysis supports them; 2. Stick with the ASX 100 stocks until you feel comfortable to move beyond these generally more secure stocks (and leading on from this point don't invest in low value, specualtive penny dreadfuls or IPO's or stocks listed for less than a couple of years); 3. Never buy in a downtrend; 4 (should really be point 1!) always, always set a stop loss, being a point you will sell (not think about selling) should the trade not go your way.
Good luck with it.

PS: Several years ago I realised my SMSF share trading just wasn't showing the results I wanted so I looked around at educators and found the industry chock a block with failed snake oil salesman. In the end I took what was then the only government approved T/A course (you used to be able to get Fee Help if you did it full time - which I did over about 2 years). Wealth Within was the firm. They are still around and you might want to watch some of their You Tube videos or read their principal traders books. They were a very expensive course but the content was good (although no course is perfect). Unless you are someone who can cope with the logic and maths that advanced T/A requires you might find yourself spending big dollars for no good reason. WW do run a cheaper basic course these days I believe, but I don't know what it entails.
 

My brother is a stockbroker. Comes in handy to have someone talk you through it first hand.

Friends of mine have wanted to get into it and I've invited them over to sit next to me for a few hours researching stocks, looking at charts and placing trades.

So, if you know someone in the game, ask to watch it live. Probably needs to be a good friend.
 
Unfortunately it takes many years in the Technical Analysis field of learning to understand

("You need to know what it is you dont need to know") (" Before you know what it is you need to know.")

The vast majority of course information falls into Part 1 with the lure that more $s will open the doors for you to Part 2
 
Totally agreed. Experience hones the skill over time. You can go long a stock and make money and I can short the exact same stock and make money. The goal here of TA is to not hit a home run but to be very consistent. One has to preserve the capital and that objective has to be met at all times. On another note, STRAT is a new way of trading that is emerging here in North America and a lot of technical analysts that I know are moving to use it for high probability set ups. Benzinga Pro Blog - a financial website I believe has the person who created this method of trading. Personally, I am also experimenting and learning the Strat. Happy to bounce ideas.
 
Had a quick look.
Nothing I can see that interests me.
But happy to follow your posts.
 
I originally created this thread to hear what experiences people have had on their path of learning to trade but it’s had some posts offering advice to new traders and I like the way that these two things marry together.

I came across a website with a diagram of the path that a lot of people that are learning to trade end up following. I’m posting it here so that people can recognise when they may have fallen into it and then refocus and pull themselves out of the quicksand onto a solid path forward once again.



From one who has had some experience with most of what’s on this diagram I know this is very accurate. My personal advice to new traders is to start by learning about price structure and how price moves, then when you learn about an indicator, understand fully how the indicator is formed so you can relate the function of the indicator back to the price action. Even if you intend to trade completely on fundamentals you still need to understand price structure.
 
There are a lot of separate things to make sense of when learning to trade but sometimes ‘concepts’ are overlooked. What I’m talking about are the ideas that help you understand how to put all the things you have learnt together in a way that has the best chance of a successful outcome.

Let’s talk about a stock picking strategy where stocks are selected to trade using random selection. Like a repeated coin toss you would expect that in the long run you would get about 50% winners and 50% losers, let’s say for the sake of this concept that I’m trying to explain that this was the case. As shown in this diagram you would end up with a mix of small winners and losers and large winners and losers.



The number of small losers will be about the same as the number of small winners and will therefore cancel each other out, now if you can do away with having any large losses in your trading then you will be left with large winners.

I hope that I’m making my point that making money in trading is statistical and your biggest enemy is large losses. If you can stop having large losses then it becomes much easier to make money.

For a new trader starting out with a small account, one large loss can wipe them out. That makes having a large loss the number one thing to protect against. Hope this helps.
 
Thanks DaveTrade, thought as a beginner trader I'd provide my journey.

Initially starting out in share market by receiving free shares when Colonial Mutal demutialised (eventually end up as part of CBA), then over next 20 odd years bought the odd company, usually because they sounded good in some news paper article (ie. OneTel).

Trading phase 1 (which I called gambling) started with lithium excitement 5 years ago, definitely had all the points in Stage 1. Gave trading advice on lithium to work colleagues (thinking I knew lithium would change the world and you couldn't lose), picked up new companies to buy from forums, quickly placed trade orders before lunch finished at work and hoped they wouldn't go down before I had a chance to check price later in the day.

Stage 2 & 3 were kind of mixed together. The breakthrough came during these stages, 3 years ago, finding and sticking to the one teacher (Nick Radge - The Chartist).

Biggest problem I found early on was using fundamental & technical from as many sources as I could find and not really understanding any of it, hoping to choose the perfect stock (really just wanted an easy answer, a winning tip from someone), I didn't even understand how to use a stop loss (note to self if I go back in time to 2016, add stop to spec lithium, don't buy falling knife thinking it will rebound soon for no reason, and don't hold for 3-4 years because work got too busy to keep following every 30 minutes. 90% drops or delisted on most of portfolio, ouch...).

By sticking to the one teacher (transparent, knowledgable, trustworthy) whilst learning, I have moved onto that solid path, I have been able to trade one of their portfolios whilst learning about systematic trading. The site has most of what I need, systematic & discretionary portfolios to follow, chart research & plenty of education. Now learning Amibroker, programmed and running live a simple BBO & working on a couple other systems. Had been working on Nick's WTT strategy thanks to Skate but recently bought WTT turnkey as really wanted to understand Nick's code.

Big thanks to the many posters on this site for imparting their valuable knowledge, everytime I read threads, I always leave knowing a little bit more than I did prior.
 
@Sid23 thanks for posting your story so far. You've made some mistakes (we all do) and learnt from them and now you are on a safer path forward that sounds like you're getting good value from.

To other beginners reading along, one key point is that sid23 made mistakes just like everyone does but he survived them to continue his journey. Don't put yourself into a position where if it all goes bad you won't have enough capital to continue. The other point I'd like to make is that sid23 found something that he can relate too and is following it and trying to really understand fully what he's doing, I think that this is very important, if you don't fully understand then it's very easy to get confused later in your journey. Finally I'll add that there are many different approaches to the market that all make money, so if a particular approach does not click with you then look for one that does.
 
@Skate said in the 'Dump it here' thread;

Trading Crypto's
Now, this is my opinion, don't do it. Those beginning their trading journey should not start off trading cryptocurrencies. I'm amazed at the amount of enthusiasm that cryptocurrencies have. If enough believe crypto has value, I guess that's all it takes. I have trouble wrapping my head around that "nothing" has a tradable value. The (CIO) of Magellan, Hamish Douglass remarked that crypto is not an asset but is an illusion, imaginary & absolutely nothing. Berkshire Hathaway Vice Chairman Charlie Munger called bitcoin a "turd" that's “disgusting & contrary to the interests of civilization.” that's been "invented out of thin air”. (Their descriptions are in line with mine)

Bitcoin is built on the enthusiasm of others
Bitcoin has no intrinsic value but the adoption & investment in bitcoin shows no signs of letting up anytime soon. Bitcoin is currently in unchartered territory taking a pause before the next big move. I have no idea if that move will be down or up.

@ducati916 recently said
"Bitcoin is a fool's investment of those who trade hoping to offload it on someone dumber than them who will pay more for it".

Skate.

Now I don't fully agree with Mr Skate's views about Crypto but I do agree that those without a lot of experience should not trade it. It's very volatile and unpredictable and in my opinion it needs regulation, so if your a gambler looking to have a flutter, go ahead, but if you are trying to lay down a good foundation of understanding on how to trade, then stay away. Hope this helps.
 

The One Metric More Important than Performance​

By Mike ReillyDecember 16, 2021


Traditional investment advice asks that you buy and hold onto investments… often index funds.

Unfortunately, this approach is pretty inefficient in creating actual capital.

The data shows that investors spend the majority of their time simply treading water…

Or worse, riding through a market decline only waiting to get back to even.

The truth is that investors are only creating new capital less than 20% of the time!

That’s no way to grow your wealth over the long run.

The investment industry is performance-centric…

Almost every investor presentation, every piece of literature, and all investor attention is placed on performance.

But I am going to challenge you to ignore performance.

At least until you look at one other metric first…

Risk.

In my opinion, there’s nothing more important.

Understanding risk determines the quality of the journey and whether or not you’ll reach your financial destination.

We can define risk in several ways.

The first is through what is known as maximum drawdown (MDD%). MDD% defines how much an investment has declined from peak to trough during a market decline.

Let’s use the S&P 500 SPDR (SPY) as an example. Between the end of 2007 and 2009, the SPY lost a little more than 55% of its value.


For every $100,000 you had invested in “the market,” your account balance was taken down to $45,000.

Many investors would have bailed well before that.

There is something psychological that happens once losses start to exceed 20-30%. It becomes mentally challenging to stay the course.

While it’s easy to look at the past performance of the market and convince yourself that you would have stayed the course, remember this: You have the benefit of hindsight. You know how it turned out.

The next time it happens, you won’t have this benefit. And who is to say that the MDD% won’t be larger the next time?

The fact is, we don’t know. The future is unknown.

This point becomes even more important the older you get and the closer you are to big financial objectives such as retirement.

It’s critical to understand that losses are asymmetrical. What I mean by that is that it requires a greater return to recover from a loss than the amount of loss itself.

Let me demonstrate:

  • A 20% loss requires a 25% return to get back to even.
  • A 30% loss requires a 42.85% return to get back to even.
  • A 50% loss requires a 100% return to back to even.
Recovery times from deep market corrections have varied historically… the 35% decline that investors saw during the Covid crash in 2020 was recovered in only six months – a record short time compared to past market corrections.

Past market declines have been less kind to investors.

  • During the 1929-1932 market crash, the market lost 84% of its value and took 30 years to recover.
  • Between 1966-1982 the stock market lost 72% of its value and took 29 years to recover.
  • The 2000-2002 dot.com market crash caused a market loss of 37% that took 13 years to recover.
  • Between the end of 2007 and 2009, the market lost 55% and it took nearly 6 years to recover.


Again, the point is we don’t know how things will play out in the future and it’s better to not get behind the eight ball in the first place.

So while return metrics are important, risk metrics provide detail to the other side of the same coin and can provide valuable information that can help determine your likelihood of long-term investment success.
 
There's an ancient story of a group of blind men who were summoned to a palace where the prince had brought an elephant.

The prince asked each of the blind men to feel the elephant and to describe what an elephant was.

In the case of the first man, whose hand landed on the trunk, he said "This being is like a thick snake."

For the second man, whose hand reached its ear, it seemed like a kind of fan.

Another man, whose hand was on its leg, said, "The elephant is a pillar – like a tree trunk."

The blind man who placed his hand on its side described the elephant as a wall.

Another who felt its tail described it as a rope.

The last, who felt its tusk, stated the elephant is hard, smooth, and like a spear.

While each of them was right based upon what they had experienced, none of them actually described an elephant.

In some versions of the story, they come to suspect that the other person is dishonest in their description and they come to blows.

The moral of the parable is that humans have a tendency to project their partial experiences as the whole truth, ignoring other people's partial experiences.

One should consider that one may be partially right and may have only partial information.

The elephant was the reality but each of the blind men used their own limited reality to define what an elephant was.

What does this have to do with investing? Plenty.

In my three decades of professional investing, I have learned that the financial industry is very good at "partial truths."

There are many things that are used to describe attributes to successful investing, but each of those things may be only partially true, and thus, as in the example of the blind men, provide only a limited view.

Unfortunately for investors, this can be very costly.
 
I’m going to talk about some basic things for people starting to learn about trading, it will be my way of thinking and therefore may resonate with some but not others. I’m just dipping a toe into the water here because more often than not people want you to tell them ‘what they want to know’ and not listen to ‘what you want to tell them’. That’s OK, everyone’s different and people learn in different ways.

You can make money in the market by selling something and then buying it back later but here I’ll be talking about buying and then selling later for a profit. In order to make money this way the market has to move, it can move up or it can move down but it must move away from your purchase price so you can sell it for a higher price. There may be fundamental reasons why you think a move might take place but I’m going to talk about reading what the market is doing using technical analysis. Even fundamental traders use some technical analysis so it’s a good place to start learning.

I will assume that the reader is familiar with bar charts and candlestick charts, a least what they look like. One of the most important and useful chart indicators is the moving average. A moving average shows the movement of the market over a period of time and for this reason it is referred to as a trend indicator, but the moving average also acts as support and resistance for a market. I will explain more about this in a later post. Different period moving averages can be plotted on a chart at the same time showing the trend of the market over different time periods. In order for you to make a profit on your trade you must have the market move in your direction for the time period of your trade, in other words, the market needs to trend in the direction of your trade at least for the time period of your trade. When you enter a trade it is always good to know what the trend is for the time period of your trade and the trend for the next higher time period. If you are starting to think that this is because the higher time period trend would be supportive of the lower time period then, it depends. One of the most important things to know about trading is that there no black or white, everything is a shade of grey. That is the main reason why experienced traders on this forum have many disagreements, most of the time they are both right and both wrong.

Back to ‘trend’, the higher time frame trend can change the direction of the lower time frame trend or the lower time frame trend can be the one to change the direction of the higher time frame trend. Yes it’s very grey, but our job is look for more evidence so we can view each trend as being more light grey or more dark grey.

That’s it for now, I’m trying here to get you to think about the relevance of everything that you learn and not just say to yourself ‘ok I know what that is, what next’. There are many different ways to trade and I believe to be successful a trader needs to reach a point where he or she knows what they want to do and chooses the indicators and/or methods to use to make that happen.

If I get any positive feedback on my long winded descriptions I’ll keep going but I know that some won’t find this helpful.
 
For what it is worth I don't think indicators are generally of much value and I don't use them (at all) - but then I've got a pretty good understanding of what constitutes a technical trend and anyone without a reasonable level of charting will probably find using some indicators will compensate. That said, indicators come with their own issues because users need to choose the indicator parameters to apply.

As an aside, one of the biggest mistakes many (including myself) often make is reading too much into short term (daily) charts. What might look like a great pattern on a daily chart can rapidly turn to custard when you pull back to daily and monthly (for the Big Picture).
 
I support all who put up a view it takes a lot to get up and put it out there.
But when arrogance shows its face the ignore button is a great tool.

Dave

You've offered up
Basic T/A but as you know Basic will generally return basic results.

Grey Nomad

Agree re indicators. Short-term trading technically has a life span as does longer-term analysis.
Recognizing those timelines and trading with them in mind will help you see the picture within your analysis.
It's a long road and we all find our niche. I've written enough up here for a life time so keep it up, Dave.
 
Reading back my last post even I think that it’s a bit unclear what I’m trying to say. No wonder I’ve had no responses from people learning to trade. Being a good teacher is a skill that unfortunately we don’t all have, I’m good at teaching myself but teaching others is a whole different ballgame.

I’ll try to define my main message in a succinct manner. My message is to tattoo into your brain that you are learning HOW and WHY the markets move. So everything you learn about, each pattern, each indicator, each element of market structure, each government policy, each intention from big market players, each world event, absolutely everything you learn about that relates to the markets, that you dig deeply to understand why this may affect a market, in what circumstances, and how this possible effect can be seen on a chart. It’s your understanding that makes the money not the things you learn about.
 
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