The simple trading epiphanies I've had this year

[RobinHood]

I've been trading for 3.something years now. I've had nights where I've lost a few thousand (more than I make in 6 months from my day job). I've had months where I've lost more money then I make from my day job in a year. I've given up on holidays, trips and adventures so I could keep trading. It was all worth it.

I have not made it yet (I've made more than I lost, but not what I would label professional consistency).
I'm about to begin scalping (I was a position trader) so I could lose a whole lot more soon but there is no doubt in my mind that I will eventually 'make it'. Its only a matter of time.

I'd like to share with the readers of this forum some of the concepts that have only really clicked for me in the last year of my trading journey, fresh from my trading journal. They are really simple and obvious and yet they have eluded me for so long.


Screen time
Reading about patterns and looking at static charts is one thing, but actually watching the market movements live is another. You pickup things you could not possibly pickup from a static piece of paper, the finer and more important skills required for profitability. 'Experience' is probably a better word for this. This is why you can have someone who has a read a chart pattern book and is able to see patterns on static charts, but is unable to compete with someone who is intimately familiar with a market through screen-time (and has not read any books) - he knows the tricks and the way things move, the shakeouts and fakeouts - he sees them before they happen. This is also why if you read a book on kick-boxing you still cannot possibly compete with a pro-kickboxer - you need to internalize patterns and automate reactions to them with your subconscious / 'feelings'.

(Much credit to 'Trembling Hand' who really made this come through. There is a lot of wisdom in his posts - so have a look).

Leverage
This one really depends on who you are as a person. When I started trading I was attracted to the really volatile speculative issues but they simply weren't for me. They may move quickly, but if you like trending less volatile stocks you can still make as much money by using leverage - since the risk of a 50% gap-down is just not the same. This is why you can make as much money trading futures moving .5%-1% a day as a stock moving 8% and in my opinion you can make even more as usually the solid movers allow you to trade larger volume without moving the actual market against you.

Starting capital
$1k isn't enough, neither is $20k (for most - exception here is those actively investing - e.g. CANSLIMers who only require IBD newspaper who today can get pretty cheap discount brokerage). It is possible to make it but really the odds are against you big-time when you have to buy data and charting packages and in many cases you are blocked of from trading many contracts because they are simply too big for you. I think here your learning curve will be really slow as you have to build up enough capital to the point where you can afford betters things - conducting your own serious research on historical data and getting access to better rates on brokerage and other data (market newsletters, metric software like TraderDNA etc). I've spent weeks organizing all my trades so I can go over them - something which would take TraderDNA a few seconds and probably with much more accurate and detailed metrics/stats When I have enough capital this is one of the things I will be subscribing to.


Adaptation
This really relates to screen-time, it could possibly be the same thing but I think its important to give it a mention. IMO the real "secret" to all of this trading is quickly adapting to conditions and finding a style that suits your context. Adapting to conditions is skill you can only pickup from screen-time.

It can be pretty easy to make money when conditions are conducive to your strategy (e.g. buying breakouts in a strong bull market) but the real challenge to consistent profitability is how quickly you are able to tell the environment has changed?
Will you blowup (because you didn't learn proper risk management) or will you suffer 20%,30%,50%,70% draw-down (death by paper-cuts as I've heard before) before realizing something is different (which is what happened to me)?

The pro will quickly be able to tell that conditions have changed through his screen-time /experience and then either go to cash or change his strategy in response.

The only real lesson to take from this concept in particular is: implement proper money management principles so when you do get to this point your drawdown will not be so bad and you'll survive to trade another day.


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BTW, these days, I would also say shorter-term trading is a much better place for the trading newbie to start. You see in one week what would take you a few months to see and learn swing trading on a longer term time frame, things like the above concepts. The only downside is the overhead costs.

 

[MRC & Co]

Yeh.

If you are trading intra-day or scalping, screen time is a HUGE HUGE asset! Probably THE most important thing IMO.

As you know Robin, I have been attempting to scalp a bit more lately (after now having my EOD trading downpat and intraday obviously suiting this envrionment) and so am beginning my recognition of patterns in real-time. I have been starting to pick quiet a few of them up, but many are not simply static traditional TA patterns, rather the entire flow of price action and the numerous patterns it forms.

As you say though, you need the large account to trade some of these contracts. Unfortunately for me, I saw a MULTITDE to say the least of great oil rollovers lately, and due to my limited capital, was too afraid to try and catch many of them and the ones I did, had to simply settle for a price target.

So good post!

Cheers

 

[korrupt_1]

I've found that trading small contracts for positional trades - entering and having wide stops (risk) with 2-4 times target (reward ) is highly profitable but also does not blow up your account if you get it wrong.

For intra-day scalping, this is where REAL money can be made and commiting a few large contracts for a few points is high risk, but higly rewardable...

imoh, timing is another crucial factor with scalping. Since you're only aiming to get a few points... too early an entry would see your stop loss get hit - too late and miss out on potential points.

robinhood, you say that 20k is not enough. what would you suggest to newbies to scalping and how much would they need and for what instrutment would you be trading?

In my experience, and opinion, I scalp with IG CFD on the SPI. I find that with 10k capital, it's suffice to make a decent amount of money, ofcourse more would be better - but not essential to get started.

 

[WaySolid]

The trading for a living T4L question.

I found value in sitting in front of a blank spreadsheet and bashing the keyboard till a few numbers appeared.

Some thoughts and assumptions...

Assume you can return 50% a year. 100% a year may be used as a target and might even be consistently repeatable for the players near the top of the pyramid, such returns don't scale and allow compounding particularly well however. I have no idea where a 50% consistent return on say a 6 figure risk capital account will place you, I suspect quite far up the skill pyramid, but not impossibly high.

All education, timing, market lessons have been paid for, regard as sunk costs. These would be several years and many thousands of dollars at least in my case.

Factor in time on screen, stress and income variablity.

Assume your trading capital doesn't contain too much 'hurt money'.. (will hurt you far too much to lose it)

You need a salary of 100k a year then you need at least 200k + tools of the trade expenses set aside as risk capital that is independant of your cost of living. This is a very capital intensive business I have found.

100k a year = a healthy salary.. A healthy salary won't make you rich.. You still need to have a viable investment strategy you follow.

I look at what my circle of friends are doing in business and I constantly question what I'm doing with retail trading, at the moment I see it as a salary but not a fortune, yet I'm still chasing the reward at the end of the rainbow.

Tune figures up and down to suit and question whether attempting to climb this ladder will bring you closer to your financial goals in the most expedient manner.

My circle of friends contain...

* A few medical professionals.. Salaries 150k+ with rewarding jobs. Invest passively.
* Business owner, multi million dollar turnover and booming income. Travels the world as a constant tourist.
* Financial services professional.. Pays 5x as much in tax as my highest yearly income.
* Many people who have created 1M+ in wealth from property development/investing.
* Several traders who have healthy incomes from trading, but have generated most of their wealth from investing/business.. trading is a sideline and not nescessary to maintain their lifestlye.

So.. my epiphany was that indeed retail trading is not all cocktails on beach chairs while tapping your laptop.. Potentially a healthy salary with flexible work hours.. But worthy of a good long think compared with the alternates of chasing a good job or business.

 

[Timmy]

Re: The simple trading epiphanies I've had this year.

Thanks for the great post RobinHood.

 

[RobinHood]

Re: The simple trading epiphanies I've had this year.

robinhood, you say that 20k is not enough. what would you suggest to newbies to scalping and how much would they need and for what instrutment would you be trading?

Depends on your time-frame, if your on average 2 tick stops then I'd go for an account size of 5*$pertick/ 0.0025 (gives yourself heaps of room to **** up). So that's $50,000 with SPI.

Additionally, take into consideration you may need to buy good data and software (depending on what your doing of coarse).

I hated CFDs, and although somewhat justified I was wrong on this specifically, having a look at the standard retail commissions I think they are a good 'practice' ground. Don't see the point of trading $10k with them. Waste of money.


You'd best look @ http://tremblinghandtrader.typepad....er/2008/07/tht-day-trading-course-part-1.html