Wednesday, May 07, 2008

One way to learn trading

Following the articles I posted over the last few weeks I have been in contact with a few traders, who told me about their trading problems and asked for advice, what they should change, what they could do to become profitable. One trader quoted Marc Douglas' (Trading in the zone) advice to look for a master trader to emulate, to considerably shorten the way to success and asked me to help him on the way. I'm humbled, I know I'm no master trader, I'm just on my way and all I'm doing here is sharing that way with you, sharing my experiences, sometimes my emotions, on that way. If I found some nuggets on the way and you can use them for your own trading, I'm happy. It's my way to give back what I have learned from so many of you.

I would like to take the opportunity to say Thank you to NQOOS, who recently announced his intention to close his website. A treasure trove, I only now begin to understand how it influenced my trading and got me to the point I'm now. As long at is still open, follow the link and dig through the materials offered there. (Actually it seems NQoos has been convinced to keep his website open for the time being.)

What do you need to do to become a profitable trader?

There is no holy grail, there is no secret trading wisdom. It’s all very plain and simple. But you need to find it in yourself. That might sound cryptic, but trading the way I understand it is nothing mechanical, nothing I can reproduce in an automatic trading system. And that means if you want to learn it you will have to invest the time. You can shorten your way by following a path that has lead to success for others. If it is your path only the future will tell. There are a lot of successful trading methods I can’t trade, because I don’t have the money or account size, because emotionally I can’t stand the high number of losers compared to a small but very profitable number of winners.

I followed a master trader, I learned a lot from her and I got my account to new highs only to go nearly bankrupt just 6 months later. The way that true master trader traded, even if it was extremely successful, was not my way. I could not trade that way and it nearly cost me my account to finally understand that. It took another 2 years to find my way, to find a way to trade that is in sync with my understanding of the markets. You will find successful traders on your way as well. You will follow their example and try to emulate their trading. But only if you are able to make it truly your own, will you be successful.

If you want a specific advice:

Maybe these articles I wrote over time will help you:

They will point you in a direction, they will show you what turns I took and if you compare it with what I do today you will see, that a lot of things I do today were known to me years ago, but I could not really implement them. (Sorry some older articles no longer have charts as the link to them is broken)

To learn trading takes time and even if you are a quick learner it will take you 4 years at minimum. You just can’t accumulate the necessary screen time faster. So be prepared to invest the time and have the money to do that. If you don’t have it, look for a job and build your trading account over time, while you follow the markets in the evening. The markets will be there when you are ready. But will you still have enough money when you have finally learned what you need to learn? It’s your decision.

I did not follow that advice, I always traded real and I'm lucky that I never had to rely on trading income during that time to finance my life. It would have been a lot easier and I would have considerably more money now, had I traded Sim for the last 4 years. I know account curves for trading account always look so fancy. Going up, retracement, going up, retracement, going up. Well reality looks different. At least for me. Here is my account curve looking at the trading results only:


Yes I found a way to trade which seems to fit my personality in the last few months. If it will stand the test of time I have no idea. One thing is clear: I did not give up, I continued the struggle to find a way, I continued to learn despite the setbacks.

There are some (old) ideas, which might help you on your way:

1. Familiarize yourself with what you want to trade. Get yourself a book about futures, so you have a basic understanding what what represents. I read Kleinman: Commodity futures and options and Gann How to profit in commodities, when I started trading futures

2. Get a basic course in futures trading. You can find very good information on the net for free or dig through this blog. I've linked to or commented on information I found useful at the time. And again, take a look at the tradingnaked website

3. Join a trading room, where you can see good traders trade. The Sanuk trading room on Google groups or Buffy’s chatroom on echat (see the Download section on for a standalone access using the echat software) come in mind.

4. Start a trading journal. Take a look at Brett Steenbargers article on that subject.

5. Setup your trading software and charts. KEEP IT SIMPLE
The human mind on average can process 7 items of information at the same time. If you are a women you can probably handle 10 things at the same time. I'm just a man and if you ask my wife how many things I'm able to do at the same time the answer is 1. I hope it's a bit more, but if you look at my charts I have prices and horizontal lines. So I need to recognize if prices comes near a line on 2 charts at the same time.


But I also check other charts to see where we are on the overall picture...that's DAX and ES on 5 minute charts...


Four charts to check (The 30min chart is just for trend information). Of these I watch 1 chart (10 Tick) for the actual trade entry....Hmmm, maybe my wife is actually correct!

6. Trade Demo over a longer period of time, which I suggest should be not shorter than 3 consecutive months but at least until you have proven to yourself, that your Profits pay for your Losses. You need to prove to yourself, that you have an edge in the market aka that you have a profitable system and that you can be confident that you can apply your system rules consistently without second guessing yourself, over-riding rules, and other damaging stuff like that.

7. Have another source of income to finance your learning

8. Be prepared for a 4 year learning curve.  If you don’t want to spent a lot of money, you will have to dig and read a lot of the available information on the net and you will have to demotrade, because only with trading you can develop the skills necessary and find out what works for you. But you need to have enough money to trade when you have found your edge in a few years.

Sorry Marc Douglas, but in my humble opinion: There is no shortcut to trading success

It takes as long as it takes. And if you manage to be profitable in 6 to 12 months. Congratulation
I thought so as well in June 2005 and November 2006


John Forman said...

Nice post, though, I would contest point #6 "Trade Demo until you have a consistent winning percentage rate of 60 to 80% and you are green for 3 consecutive months."

Win rates are highly contingent on the methodology employed. Some methods feature high win rates, others low ones. To put a general % on it can be a major disservice.

I would say instead that you can really go live when you have a proven profitable system which has demonstrated the expected success in demo trading and that you are confident you can apply consistently without second guessing, over-riding, and stuff like that.

Globetrader said...

Thanks for your comment John. You are absolutly right and I have changed the wording of Rule 6 accordingly.

D TradeIdeas said...

Good article but I also have to disagree with point #6 - I can only offer an alternative to the good advice from John whose trading opinions have served me well.

There isn't a system that's proven profitable over time - certainly over 3 months. Strategies come into favor and fade out of favor. The earlier you understand this in your trading, the sooner you'll become expert at the one mantra that keeps successful people in the market over time: Let your winners go large and keep your losses small.

So here's 2 practical tips from me: 1) work in demo mode on your discipline muscles - the ones that flex when your stop gets reached, when your time in position is reached, when you trade during the market hours. Adhere to these trading rules and deviate from them at your peril - it makes assess where things went wrong much easier when you stick to a plan 2) find the technology - especially a backtesting tool - that can not only model a strategy's odds in the market, but how you trade it as well - i.e., along the same parameters just mentioned.

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