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Let's start from the beginning
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Let's start from the beginning

  #11 (permalink)
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Your start seems good, read some basic books on trading and on how markets works, and start to do your trading trials on sim.

Take your Pips, go out and Live.
Luke.
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  #12 (permalink)
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The fog is starting to clear a bit

Thanks to the many kind people who offer comments and encouragement. All I'm doing in this thread is recording my notes and thoughts to myself, so I can track progress over time. This is an exceptional forum.

Got in 5 hours today after work, mainly reading about forex training and technical analysis on the OANDA site. Concentrated well, thought the concepts through.

Moving averages and their variants, Bollinger Bands, Relative Strength Index, Stochastic Oscillator, and Fibonacci Retracements. I'm surprised how simple the math is on these indicators. I need to read more about the Fibonacci Retracements. I get the math, but the concept eludes me. Bollinger Bands are just like control charts I use at work. Interpretation of control charts can be complex, if you so desire. I assume the same is true for Bollinger Bands, so more reading is needed.

I imagine people get into trouble relying on indicators without really understanding the math, and how the number of periods used influences the indicators. Charting programs can be too easy. I remember having to construct lag tables for insurance reserves using paper, pencil and calculator. Sure was tedious, but it sure taught me how lag tables work. Sometimes people on my staff ask me why I'm entering data and constructing spreadsheets myself. I tell them I can always interpret data better if I look at the raw data and construct the analysis myself, rather than just looking at a report. I'm sure the same principle applies with trading.

I've asked my friend Paul, an outstanding programmer and a super hard worker, if he would consider being my trading partner. He doesn't know anything about investing, but he said he bet he could develop a program from scratch that would run circles around me. Good luck on that, Paul!

My sim trading took a step back tonight. The practice account was locked, and the live help was not helpful. No need to dwell on it. I will get back on track with this tomorrow.

I've been thinking a lot about how to make the best use of my time for learning. Jumping around the forum, visiting different sites, and reading books have all been helpful, but I want to get better organized. For example, several people on the forum have commented favorably about The New Market Wizards. I read two chapters and liked it, but it's probably not the best use of my time right now, as I can't appreciate the trading strategies discussed.

So, for my own edification, I'll try to approach my learning and skill development in the following order:

1. Terminology. A big barrier at the start, but now to the point where I understand much more of what I read. 20% complete.

2. Mechanics of Trading. I understand how to set up an account and funding it is sure to be easy enough when the time comes. Don't quite understand the role of the broker. A broker is calling me at work, so I'll ask him tomorrow and see if he can be of other help. Don't understand how to add charts. Don't know what to expect with the information flow from the broker, trading statements. 5% complete.

3. Trading systems. Maybe 3% complete. Not 0%, and I'm happy about that, but still a ton of work to be done here. My goal is to have a simple system with clear rules. I don't think I have the brain power to absorb a large number of indicators and react appropriately in a trading environment. Too much information leads to indecision.

4. Sim trading. 0.5% complete. Setting up an account, looking at it for an hour and then losing it hardly qualifies as progress. This can and will be addressed.

5. Psychology. 5% complete. I spent hours reading about the psychology because it was something I thought I could understand. I don't underestimate it's importance in the least, but it's not the best use of my time now. Until I experience at least sim trading, I don't think I'll appreciate this critical aspect of trading.

This silly journal has helped me more than I imagined.

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  #13 (permalink)
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Definition of Measurement


I'm reading a book called How To Measure Anything by Douglas W. Hubbard. The author asserts that we almost always can use measurement techniques--even on things generally considered "unmeasureable" such as the value of goodwill--to make better business decisions.

One of the more intriguing points for me is that we tend to think of measurement as complete precision. Hubbard suggests this is conceptually wrong. His definition is as follows:

Measurement: A quantitatively expressed reduction of uncertainty based on one or more observations.

In other words, measurement is more of a linear concept than a point. We've all made back of the envelope estimates to measure something, that is to reduce the uncertainty. Back of the envelope estimates can reduce uncertainty significantly, with relatively little effort. Additional reduction of uncertainty often requires significant effort. For example, if I want to draw a line with a pencil that is one inch long, I'll use a ruler. If I want to draw a line that is 1.000000 inches long, then I need buy an expensive piece of equipment to allow me to measure to the millionth of an inch. (I'd also need a very sharp pencil and a very steady hand.) Do I need to measure the line to the sixth decimal place, or does using a ruler meet my needs just as well? We often don't ask ourselves that question. In part it's because the additional precision seems to give us a sense of comfort that we all crave to different degrees.

I think this has relevance for trading. I want, and we all want, the system that reduces the uncertainty of trading to zero. Complete certainty for every trade. That's impossible, so we sub-optimize. We can apply one or five or a hundred techniques to reduce the uncertainty. How much do the marginal techniques reduce uncertainty? Hence, what value do they bring?

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  #14 (permalink)
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Hello

I like your methodical approach. I think it's just as important to figure out what you don't need to study as what you need to study, as you are doing and documenting. This is good I'm learning. I'm curious if you would consider the markets linear or non linear and how you would incorperate math in the measurement of the non linear. This is something I've been questioning myself. I'm enjoying your journal, it's helping me see things I should be asking myself. Fine job. Thanks,

Under Wiki upper middle there is a glossary.

"The simplicity of the markets is it's greatest disguise"

T

Last edited by Tmanbone; January 13th, 2011 at 09:30 AM. Reason: added glossary note
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  #15 (permalink)
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Brief Hiatus

I'm keeping this journal to keep track of my thoughts and time, so I decided to record everything, even if everything includes non-activity. Thursday and Friday were lost causes due to the flu. I just couldn't concentrate.

I returned the call of the broker who set me up on a demo. Nice guy. He explained a few mechanical things about trading that I hadn't understood before, so in that regard the time was well worth it.

I stared at the demo account for a couple of hours on Friday, in bed. I guess it's better than nothing.

This morning, Saturday, I watched one of Big Mike's early videos, a clear discussion of trading indicators and how he applies them. It's the same message as always: develop a system that suits YOU, keep it simple, follow your system, and remember that factors other than your system (discipline, risk management, patience) will determine your success.

I didn't catch today's webinar, How to Develop A Methodology, live, but I did listen to it this evening. Several helpful ideas for me: print out charts and identify as many patterns as you can (seems so obvious now, but I've been so focused on studying the screen shots on the forum that it hadn't dawned on me.) Matt also said that a distinguishing factor between professionals and those still aspiring to it is that the professionals always focus on managing risk, while the aspirants focus on making profits. Finally I liked his advice about being content with the profits you earned, and not fretting about "lost" opportunities in hindsight.

So, Thursday 0 hours, Friday 1.5 hours, and Saturday 5 hours.

I'm feeling pretty good about a basic understanding of indicators. I'm going to concentrate on approaches to entry and exit, and the mechanics of limits and stop loss. Still hazy on that.

Here's an amazing statistic. Big Mike averages just under 15 posts a day, besides all the other work involved with maintaining this forum, trading, and living. That's prolific output.

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  #16 (permalink)
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Great question. I don't know the answer.


Tmanbone View Post
I like your methodical approach. I think it's just as important to figure out what you don't need to study as what you need to study, as you are doing and documenting. This is good I'm learning. I'm curious if you would consider the markets linear or non linear and how you would incorperate math in the measurement of the non linear. This is something I've been questioning myself. I'm enjoying your journal, it's helping me see things I should be asking myself. Fine job. Thanks,

Under Wiki upper middle there is a glossary.

This is a thoughtful question. I haven't responded because I don't know the answer. This is not a good reason not to respond.

I believe I could argue either way, but my math knowledge is limited, and someone may know the correct answer.

In my post I was trying to address a different concept: spending too little time in trying to measure what we generally consider unmeasurable (e.g., value of using many vs few indicators; effect of our personal biases on our trading) and spending too much time in trying to refine systems to the nth degree in the quest to find "the answer".

I appreciate your question, because I've always found in my work life that if I think in conceptual terms--broad themes--the details become clearer.

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  #17 (permalink)
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My Trading Plan Template

I downloaded this trading plan template from futures.io (formerly BMT) downloads/educational materials. The author suggests working from start to finish, without skipping steps. I decided against this, because I want to know now if I can complete the entire plan. If I find parts I cannot complete, I need to study those subject areas. I believe this will help direct my time.

Having read through the template, I know already the theme of my strategy is going to be “simplicity.” I want to trade one market, one instrument, one timeframe. I will decide on a platform, broker and setup and stick with it until it either works for me, or I can explain rationally and specifically why this is not the way I should go.

Here are the parts of the plan. I will record each part of the plan in my journal. I will complete at least the first part today.

Know Yourself, Know Your Purpose

Why do You Want to be a Trader?

What Sort of Trader are You?

What are Your Strengths and Weaknesses?

Are You in the Right Frame of Mind to Trade?

What are Your Income Targets?



Trading Goals


What are Your Annual Trading Goals?

What are Your Monthly Trading Goals?

What are Your Weekly Trading Goals?

What are Your Daily Trading Goals?



Markets, Instruments & Timeframes


Which Markets will You Trade?

Which Instruments will You Trade?

Which Timeframes will You Trade?



Tools of the Trade


Which Financial Vehicle will You Use to Trade?

Which Broker and Trading Platform will You Use to Trade?

Which Software & Data Feeds will You Use to Trade?



Before the Market Opens


What is Your Daily Pre-market Routine?

Have You Analyzed Yesterday’s Trades?

Have You Any Positions Open?

What are the General Market Conditions?

What Will You Do Today – Hour by Hour?

Which Instruments are on Your Watch List?



Risk & Money Management


What is Your Attitude Towards Risk?

What is the Overall Market Risk?

What is the Sector Risk?

What is the Broker and Hardware Risk?

What is the Strategy Risk?

What is the Probability of a Successful Trade?

What is the Risk-Reward Ratio?

What is Your Risk Per Trade?

Where Will You Place Your Stop Loss Orders?

When Will You Stop Trading?

Large Drawdowns and Profits – What Will You do?

Which Money Management Approaches Will You Utilize?

Will You Lock In Profits?

How Will You Determine Your Position Size?



Exit Strategy


Losing trades - Will You Exit Before Your Stop is Hit?

Losing trades – Which Signals Will See You Exit Early?

Winning Trades – Which Signals Will See You Exit Completely?

Winning Trades – Which Signals Will See You Close Half?

Winning Trades – Which Signals Will See You Close the Remainder?



Trade Strategies, Setups & Entries


Which Strategies Will You Trade?

What are Your Setups?

How Will You Find Your Setups?

Which Signals Will Trigger Your Entry?



After the Market Closes


Have You Recorded Today’s Trades?

Did You Execute Your Trades According to Your Plan?

Have You Completed Your Trading Journal?



Discipline


Back Test or Forward Test?

What are Your Promises to Yourself?

What Questions do You Ask After a Winning Trade?

What Questions do You Ask After a Losing Trade?

What Steps do You Take to Learn More About Trading?



Golden Trading Rules (These are NOT mine, although I see now I will end up using some of them)


#1. PROTECT & PRESERVE YOUR CAPITAL!

#2. ALWAYS SET A STOP LOSS. ALWAYS!

#3. CUT THE LOSSES SHORT – LET THE PROFITS RUN!

#4. TRADE WHAT YOU SEE – NOT WHAT YOU THINK!

#5. NEVER CHASE YOUR LOSSES. EVER!

#6. NEVER AVERAGE DOWN. EVER!

#7. KEEP EXCELLENT RECORDS!

#8. MAINTAIN DISCIPLINE!

#9. KEEP IT SIMPLE!

#10. PLAN THE TRADE – TRADE THE PLAN!

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  #18 (permalink)
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It sounds like you are a lot like me. Pretty methodical in some aspects of your life.

I would suggest that trading is very much both an art and a science. Most of us study the science and mechanical part first. Its the only place we know to start.

However, I suggest you read a book by Malcom Gladwell called Outliers. It is a non trading book but it explains how people get good at what they do. The long and short of it is this: 10,000 hours practicing the same thing. This is the key. They practice the same thing. In other words, they become an expert at one thing and one thing only.

In trading it would best be expressed as becoming an expert at the use of a single set of indicators in a single market using the same chart set ups for 10,000 hours. Some where between hours 2500 and 5000, you become good at what you do. Good enough to make a lot of money. Around the 10,000 hour mark, you are a master and you can no longer explain to anyone how you make money, just that you do. Its second nature, its is now the highest form of art. Its where the art and the science merge to produce what one person called, "beautiful music".

While I have more than 3000 hours in, only about 1000 are what I would call focused practice. I spent the first year and a half chasing the holy grail which I am here to tell you does not exist in the manner most people who pursue it think it does. In fact, the holy grail is between your ears and in your heart. Almost any system will work. Its the one you put the blood sweat and tears into that will ultimately make you money.

So my suggestions is this. Spend a couple of months exploring say 5 different trading methods and instruments to trade. Don't actually trade them live, just find one or two that appeals to you at a gut level and then make a commitment to study those two methods for at least a month each while without looking at any other method. Then choose one to go with. Become a master of it. When you've been able to sim trade it profitably for a month, then carefully go live. After a couple of weeks live, go back to sim, work out any kinks you found and then back to live.

After a while, the use of the method will become second nature and you will simply flow with it.

And last but not least, don't start trading with less than 10K in the account. Its just to hard.

One more thing. If I could offer any piece of advice, it would be this. Spend three times more effort and time perfecting your exit than your entry. And spend three times more time reducing risk than perfecting your exit. There are a million entries. Its the exit that makes or breaks you along with how well you reduce risk.

Good luck on your journey.

Simplicity is the ultimate sophistication, Leonardo da Vinci


Most people chose unhappiness over uncertainty, Tim Ferris
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  #19 (permalink)
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10,000 hours is a lot of time


aztrader9 View Post
In trading it would best be expressed as becoming an expert at the use of a single set of indicators in a single market using the same chart set ups for 10,000 hours. Some where between hours 2500 and 5000, you become good at what you do. Good enough to make a lot of money. Around the 10,000 hour mark, you are a master and you can no longer explain to anyone how you make money, just that you do. Its second nature, its is now the highest form of art. Its where the art and the science merge to produce what one person called, "beautiful music".

And last but not least, don't start trading with less than 10K in the account. Its just to hard.
.

I appreciate all your suggestions. Obviously you have reflected on this a great deal.

I'm familiar with The Tipping Point by Gladwell, but not Outliers. I think we've all experienced or observed that becoming really good at something requires time and dedication. Maybe 10,000 hours does it, but I can't believe it's a hard rule. That said, I don't find that trading is intuitive any more than other endeavors. Most of us will just have to put in the time if we want success.

I still haven't finished your thread about trading with $1,000, so if you are suggesting $10,000 is the minimum, then I'm guessing the $1,000 project did not have a happy ending. I can see how working with small amounts of money constrains severely one's flexibility. So many people on this site suggest the same thing about starting capital that it must be valid.

Thanks again for your thoughts.

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  #20 (permalink)
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First Part of My Trading Plan


I have about 5 hours of reading and thinking in today.

One of the things I wanted to get done was a start on my Trading Plan (I hope it's deserving of upper case letters. I'm not sure yet.)

Writing your plan down is a great exercise, provided you are thoughtful, honest with yourself, and strive for a good product. My plan is meant to help me, and writing it down shows me where I have work to do.

So, here is the first part of my plan:

Know Yourself, Know Your Purpose

Why do You Want to be a Trader?

I want to be a trader because I want a career and profession that offers the opportunity for substantial income and does not require me to be an employee. I enjoy the intellectual stimulation. I believe I have analytical skills that I can apply to trading, and that my temperament will serve me well in not overreacting to the highs and lows.

I am fluent in Spanish, and would like to live in Central or South America. Being a successful trader will allow me to do this.

What Sort of Trader are You?

Without the experience of trading my own money, I can only speculate, but I believe I will be a disciplined, discretionary trader. I trust my ability to interpret numbers, and will not trade mechanically or blindly. I would like to be a day trader rather than a position trader. Thus I will be spending a lot of time in sim trading.


What are Your Strengths and Weaknesses?

Again, this is speculation at this point.

My biggest strengths are my analytical background and my even temperament. I seem to be able to identify patterns with numbers in non-trading situations. Turmoil in my life has taught me to not react strongly to either good or bad developments. I’m not greedy. I like the intellectual part of investing and want to learn how to be a good trader.

My biggest weakness is wanting to have a great deal of certainty before I invest. I’m not a gambler, so I will need to frame decisions in terms of allowing the expected percentages to work in my favor over time. I also let myself get distracted from time to time. While I doubt I can stop it completely, I must always be mindful of this tendency and focus on only the most important things.


Are You in the Right Frame of Mind to Trade?

Generally I have a good temperament for trading. A rule I will establish is that I will not trade on those days I am distracted, as I will not concentrate appropriately. I will give trading the same attention a physician gives to a patient. I will not take the market for granted, but I will remember that every day presents opportunity.


What are Your Income Targets?

I have pre-live targets. They are as follows:

To accumulate at least $10,000 in capital that I can invest without affecting my life should I lose this money. I want to have these funds available by December 31. (Note: I originally had $5,000 in capital rather than 10K, but aztrader persuaded me that this would not be sound.)

To practice sim trading every day until I understand my system, and until I believe my trading will generate a surplus consistently. My target is not to spend a certain number of hours sim trading, rather it is to develop a system, to understand my system, and to test and then execute my system consistently.


I'm amazed and amused that anyone reads this thread. One day I hope to be able to contribute substantively to this forum.

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