Archive for the 'Mindset' Category

May 30 2008

Your success awaits you in the right trading business

Published by Dean under Discretionary System, Financial Market Fisherman, Fundamental Analysis, Mechanical System, Mindset, Money Management, Psychology, Technical Analysis, Trading Plan, Trading System

Find the right business

Hopefully at this point in time, you should now have some idea of what you want to do and a list of your resources. You should have prepared the following:

 - Your trading capital
 - Your goals (i.e. your desired monthly and yearly ROI) and when you want to reach them
 - Your available time for trading and learning
 - The market(s) you wish to look at trading
 - A list of brokers from these markets to approach
 - A list of forums
 - A list of your strengths and weaknesses, and preferences regarding trading styles
 - A list of your physical resources

One thing you can do is take your list of resources and approach some people who teach their trading system(s). I can tell you there’s plenty out there. What you want to do is visit some forums and ask some questions based on your list of resources. Find out what other people similar to you are having success with, and then approach the teachers. Contact them and ask them specifically; ‘Can I trade your system with this list of resources?”, and list them all out. If they can’t answer it fully, or if they don’t address every question or resource you have, then move on!

A lot of you, even after going through this whole process are still going to get sucked into hype and marketing dribble. It’s just the way the marketing is, and unfortunately, it’s really the only way companies can succeed against other’s in this world. To give you an idea of how marketing works, it is based on benefits. When you read a sales letter or sales page from someone selling a trading course or system, the aim of the sales letter is to point out the benefits that their trading system will bring you. On most occasions, the actual trader doesn’t even write the sales page, they hire someone to do it for them, and that someone knows what they are doing.

A list of benefits is a good thing, don’t get me wrong, but they still need to be realistically achievable using what you have at your disposal. A good demonstration of this was a sales page I saw which claimed to show you how to generate a five figure income in breakneck speed. Now this is a good benefit isn’t it, but it doesn’t tell you how much capital you need; is it aimed at those starting with $100,000 or can someone starting with $1000 achieve this and what does breakneck mean in terms of time?

There are going to be systems, courses, seminars, books, teachers, coaches, guru’s and mentors of all shapes and sizes out there. There are going to be trading systems aimed at just one particular market, or even one particular instrument. There will be courses aimed at teaching you how to trade any market at will. There will be systems aimed at trading during the day or a session only (meaning you only trade while your computer is on and do not have any trades open once you turn your computer off). There will be swing systems (trades only last a few hours to a few days), and longer term systems where you may hold trades for weeks and months. All of these variations have their pros and cons. There is no right or wrong system. What you need to do is find the right system for you.

After you have visited a few forums, and done some searching on the internet, you may have a list of people (teachers, coaches, companies selling systems etc) you want to approach. We’ve already mentioned that you should contact these people with your list of resources. But while you are doing this, you may want to also find out what their support level is like.

Support is an extremely important part of trading and without it, you may get left feeling like you’ve been ripped off, especially if you can’t understand a certain part of their system or material. However, there is also the element of cost. If someone offers to teach you to trade, and is only charging you $20-30 for this information, there is high chance they aren’t going to want to provide support, and why should they, you get what you pay for in life, whether it’s through money or time. But when you start paying big bucks whether it be a one off or a monthly fee, you deserve to get support.

One thing you’ll find is that if someone is not offering any form of support or the support is poor, there will be people complaining about it. In fact, this is one thing you’ll definitely find on a forum. Find out if people are getting their questions answered and if they are satisfied with the support they are receiving. But do read between the lines and don’t get this confused with a trader who is blaming other’s for his own failings.

Finally, there is nothing stopping you from building your own system. You have a better idea of what you have and what you can bring to the markets, all that is left is to find the tools and indicators to suit you. There are several systems available in our members area, along with some brief videos on some of the more famous indicators used by technical analysts. Take this information, digest it all and then pick and choose the parts that ring true with you.

Exercise:
If you haven’t already got your list completed from the past 4 exercises (see above) do them now.

Approach traders and teachers alike and ask if they can help you with your limited resources.

If you want to build your own system, begin looking at some key indicators and methods of analysis that are in tune with your preferred style.

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May 30 2008

Your edge is knowing what you can bring to the markets

Published by Dean under Discretionary System, Financial Market Fisherman, Fundamental Analysis, Mechanical System, Mindset, Money Management, Psychology, Technical Analysis, Trading Plan

What are your skill levels and strengths (part of your resources)?

Understanding where you are strong means having an edge. For example, one that stands out for me is an options trader in Australia. Before becoming a trader he was in the navy, and one of the things you can associate with defense forces is the strict discipline they must learn. It’s very safe for you to assume right now that discipline is an important key in trading success; it is, and this man turned $10000 into 3 million in 3 years!

Unfortunately, many don’t find out what their strengths and weaknesses are until well after they have taken a solid beating from the markets. An example of this is getting involved in a trading system or buying a course where the meat of the trading is discretionary, meaning you analyse and make discretionary decisions based on your analysis. There is absolutely nothing wrong with this approach if it suits you, but for many it does not. Some people need a solid set of rules that require nothing more than if A = B, then do C, and this is called mechanical trading.

Both discretionary trading and mechanical trading have their place. An example of someone making a discretionary decision on their stock holdings was when a man went to visit the CEO of a company he owned stocks of. When he asked the CEO what his plans were to move the company forward, the CEO showed him by pulling out a few pieces of paper and writing it down. What the man noticed was that the paper he was writing on was extremely expensive paper, embossed with gold writing and very thick, yet after a few squiggles, he’d toss the paper in the bin and get a fresh piece. The CEO put forward a fairly impressive plan, but after speaking with the CEO, the man left and instantly called his broker to sell all of the shares he had in this company. His reason was simple; if this CEO felt that the companies money was best spent of expensive paper, then he doesn’t have the companies best interests at heart. Although you’re not going to be visiting CEO’s if you choose to become a discretionary trader, it illustrates the point that decisions are based on your observations and your analysis of those observations.

A mechanical example could be anything from a list of indicators on a chart that all line up, to a check list that once filled means you can proceed. A discretionary trader will most likely use lists as a way to build evidence to support their theory or view. This brings me to the next point which is technical analysis versus fundamental analysis. I want to say right now there is no right or wrong way. If there is a pet hate of mine it’s when an experienced trader says that fundamental analysis doesn’t work, and another investor says that technical analysis doesn’t work. It’s whatever works for you.

Technical analysis suits those that want to look at charts and use lines, indicators, volume and so on. Fundamental analysis is for those that like to understand the inner workings of a company, economics, supply and demand etc. Once again there’s no right or wrong way. It’s a matter of choice. Two famous forex traders stick out for me. One trades short term, but he uses fundamentals (i.e. he follows global monetary policies, interest rates etc) to gauge a longer term view, and he uses technical tools (his own tools I should add, not ones found in charting software) to base each individual trade on, as long as it corresponds with his longer term view. The other looks at how the market is positioned as a whole and whether this is in line with the real fundamentals. If not, it provides opportunity, from which he uses technical analysis.

At this point you are going to have to make some decisions. By now you should have a fair idea of what market(s) you’re thinking of trading. Now you have to decide whether you want to go mechanical vs. discretionary, and technical vs. fundamental, or a combination there of. There is so much information out there on these topics that I suggest just going to Google.com and typing in “mechanical vs. discretionary trading” and “technical vs. fundamental analysis” and spending a good few hours reading up on it.

What you should find while researching this information, is that there will be some things you’re attracted to and some you feel awkward with. Write these things down! This is your list of strengths and weaknesses. If you’re hopeless with numbers and hate maths, you’re certainly not going to get excited about trading systems that require you to crunch numbers (and yes they do exist!).

One thing you can do is visit some forums to find out if there are traders with similar resources to you, i.e. same available times to trade, similar trading capital, even similar temperaments (this is more important than you may realise) and find out what is working for them.

A note on forums: Be careful when visiting and participating on forums. Although extremely useful resources when used wisely, they can also become breeding grounds for those that only wish to spit venom for their shortcomings in life. Don’t get sucked into threads and posts that set out to derail or bad mouth trading or traders. Trading is a very humbling business, however many will never ever admit that their lack of success is due to their inability to be honest with themselves.

You’ll also do well to write down the physical resource you have such as your computer and it’s size (if your computer is too slow or old it will struggle with displaying charts), internet speed, whether you have an office or whether you’re trading from the kitchen table (it would be pointless deciding to trade intra-day if you will be subject to continual distractions), quick access to a telephone, software programs including accounting, charting (if you’ve already purchased something), office etc. Some of these may end up being irrelevant, but you’ll make better decisions when you know what you have and don’t have.

Exercise:
Do a google search on each of the following: mechanical trading, discretionary trading, technical analysis, and fundamental analysis.

Visit some forums and ask around for people’s preferred methods to see what gels with you.

List your resources.

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