this is a really good thread, I've made it a point to check back every week for any new nuggets of information.
I've been looking online for resources but I think everyone agrees with me that there's a huge amount of 'something-trader.com' sites that claim to teach you methods and setups for $x. The marketing is different now... they've stopped promising setups and "100% proven techniques" but more about trading principles and explanations. I can say it confuses beginners to no end if they ever wanted to take a ski class - take a trading class.
There's no instrument suitable for beginners, only successful trading. It might take one longer to learn the fundamentals of options or fixed income, .e.g., but it might not necessarily take longer to become profitable.
"Learning by doing" is not a good way to learn to trade...
Traders who are willing to be wrong at the right time have the best chance of making consistent profits from their trading.
Traders who are not wiling to be wrong usually trade accordingly. The market ultimately hands them their own heads on a pike.
When a trader is not willing to be wrong when it is required, and not willing to be wrong in as small a way as possible, and not willing to accept and embrace losses within a money management framework that rewards their losses will fail consistently. The market rewards your acceptance of loss by allowing you to be in a position to possibly recover on the very next trade.
Losses are the flip side of winners. Losing trades need to have a risk and reward ratio built into them that allows you to retain most of your gains after x amount of trades, and allows you to be able to remain mentally ready to take the next trade, no matter the outcome of the past trade.
This is very hard to do if you are taking a 1:1 RR or even a 2:1 RR ratio in your trading, and then suddenly average in at a ratio of 1:5 RR ratio. That loss would easily nullify an entire days gain..and maybe even 2 days gain if your daily target does not also reflect a healthy relationship with a 1:5 RR loss day. So, if your daily goal is $400, and your 1:5 hit means a loss of $1000 dollars, you will wipe out 2 full days, and part of another. If you take the hit on the first trade, then you cannot take another hit. You might take another trade. And if you do take a second hit..... well, there goes the week. All for the sake of not being wrong at the right time, this one time. If your statistical performance is 7 wins out of 10, then ask yourself if this one time being right and risking a loss 5x your average gain is really worth it. Wouldn't it be better for you mentally to just be wrong these 2 or 3 times, take the hits, and move on. Not to mention, wouldn't your trading account remain in better condition? Ask yourself if that 7/10 wL strategy rate is based on a 1:1 RR or a 1:5 RR ratio? Cooking your books lands most people in jail. But, you only have to worry about losing your account. Also, wouldn't it be a better approach to reward yourself for being right by adding more leverage on the positive side of the trade, say after you have hit a first target, and thereby maximize the gain side, not the loss side?
There are many ways to trade. The right way is not only the way that makes you money, but also lets you keep your money earned.
In the end, we all have to work out what works for us and then live with it. We can live with our trading if our actions result in consistent profits. Otherwise we seek help or search for an answer.
Many traders reason their way to failure because being right often is more important than trading profitably.
The following 3 users say Thank You to Jaguar52 for this post:
I repeatedly mention that in order to be able to trade well, you have to study the market and not just the indicators. The tools you use manifest their patterns as a result of the movement of price and volume, speed and the order flow, number and size of the orders or some combination of some or all these factors reflected in a visual manner on your charts. These combinations reflect patterns that are either trade-able or not according to whatever conclusions you have come to.
What does it mean to study the markets? Study is observation-description-identification-summary-conclusion-decision-action; pretty much in that order.
But as we study the movement of price on our charts, we have to also include ourselves in that activity. As we get closer to decision and action, we need to make the effort to understand ourselves as we react to what we have concluded to be real and plausible as a trading opportunity. We will react to the consequences of the decisions we make. Recording these thoughts and following the same procedure of study will enable us to understand how we are feeling, and give us the opportunity to make the best decisions for our own profitability. Understanding decisions of belief based on desire versus decisions based on results will identify for us where the true risk lies, where the opportunities for profit are, and where the opportunities for loss are in each trade we take.
Trading is a numbers game. We trade our belief based on the statistical results we gather about our strategies. We also trade our belief based on our understanding of what the priority of our trading is for ourselves. Understanding what parts of our reactions to the current trade are hope and desire, and what parts are statistical manifestations of the normal progress of our trade can help a great deal in allowing us to remain calm, patient, disciplined and confident in the trade.
The following 3 users say Thank You to Jaguar52 for this post:
But there are instruments, which are not suitable, because
-> the leverage is too high (futures)
-> they are too complex (options)
I believe something simple such as ETF or FOREX is best to start. If the leverage is not too high, even beginners can trade real money. Patience is required as the learning curve is not steep, the bets should only be increased once the lessons have been learned and successfully applied with little money.
The following user says Thank You to Fat Tails for this post:
I see this advice given quite often, but I don't agree with it.
While it may be true for chart pattern traders, the order flow of an ETF is different from the futures. If one is to trade Forex seriously, one (generally) has to trade in sizes, through the interbank market, that exceed the tick value of the currency futures.
I would never trade with most of the bucket shops that try to pass off as Forex "brokers"; it's hard to overcome the shenanigans and spreads of retail brokers, not to mention the lack of an order book.
I somewhat agree that it's better to get an understanding for the underlying instrument(s), and trading in general, before one trades options. However, there are quite a few examples of people struggling to pick direction on a single instrument, only to make a comfortable living trading options. It's not like one has to be profitable trading in order to learn to "advance" to options. Options, like spread/pair trading, opens up more possibilities to the intelligent trader, and I find it hard to directly compare that to outright directional trading. Consider this: I've seen people on this site claiming they've spent over five years trying to decipher charts without much luck. Are those better off than the traders spending a year (or three) learning options, and then being able to squeeze out a profit? People have different skills and objectives, and most fail miserably at calling direction of a single instrument.
That being said, discretionary trades make a lot of extremely stupid mistakes in the beginning, so it may be wise to trade an ETF to get that out of one's system.
The following 2 users say Thank You to Lornz for this post:
I used to be really anti-indicator, really anti-indicator. But, as the years go by, you start to mellow and see things for what they really are.
Now, you mention the real market, the futures auction. This is the place where everybody should start, i mean, let's start off on the right foot.
What do we have in a real futures auction? Buyers, sellers, T&S, CD, prices. So we have all this real information about our chosen futures market and we understand that the market is made of many players.
Here's the interesting bit though. Professional futures traders, trading the same contract, and using the same data, create a lot of different results, random results, from winning to losing and everything inbetween.
I don't use indicators myself, but i realise that indicators are just as random as any other method.
Dicipline and trade management are key to success. Managing whilst maintaining dicipine on the back end of a losing streak is not for the faint hearted.
A really great list of trade education scams at elitetrader. It's a witch hunt with a lot of input from people who were had, and a great resource for beginning traders to know where to stay away from. A lot of the listed sites pitch spam-ad email and also some even have radio commercials in your local area and teams of so-called "traders" to try to call you up and sign you up for a 3 month 10k mentoring. The latest on the thread , but also an updated list (5th post down):