TraderGav.com

Gav's trading blog - Perseverance, Consistency, Confidence

Trading Lessons

So you want to learn trading, part I?

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I wrote this blog post back in September 2007. Sadly, today, most of the blogs I referred to had either removed or broken. I will try to update this post in the near future.

Meanwhile, if you are looking for resources to learn more about trading, please have a look at my Back to Basics of Trading series.

I have a couple of friends asking me how to start trading or do I have any tips for them to start trading. Well, I am not a pro, nor a trading coach. But, I can share some great resources that are available online, in the blogosphere.

First of all, my trades are based on technical analysis, which means I am reading charts and looking for trading opportunities and setups mostly from price charts. I am not a big fan of fundamental analysis, it is too tough for a slow man like me to understand.

So, here we go.

First, armed yourself with skills to involve in the market. Making phone calls to your broker, or getting ‘tips’ from your colleagues or uncles are not skill. Learn how to read a price chart, how to analyze the market technically or learn how to read financial reports and analyze the market fundamentally. Some nice blog posts are available on the web freely on this area.

  1. Toni Hansen’s Trading lessons
  2. Drawing Trend lines from Trader Mike
  3. More on Trend lines from Trader Mike

Once the price charts are no stranger to you, it is time to move on. So we read charts, but how are we going to deal with market? To start trading, we need to have a setup. A setup is a specific condition/situation that market presents to you and gives you the chance to enter the market. As you might know I am a big dummy fan, all my trades are based on dummy setups. Some people live and breath with indicators for trading setups, nothing wrong, as long as it works for him. Here are some good resources:

  1. How I trade, and analyzing charts from Trader-X . (The respected and mysterious trader’s site. He’d left blogsphere, but catch his blog before it is gone)
  2. Finding the right set-up(s) from Trader-X
  3. Chairman Maoxian’s trading for dummies (This is the best trading secret on the web, I really hate to share with anyone :-p)
  4. Trade setups ( a library of technical setups from Trading-naked.com)
  5. Strategies from Corey at Afraidtotrade.com
  6. OONR7’s trading setup

Alright, we have setups, looks like we are ready to make million now. Nah. The next big thing in trading is about risk and money management. You can’t trade without money. The bottom line is to protect yourself (your capital I mean!) when having bad days. Trading is a probability game, you only have high probability trade but not sure-fire trade. No setup will give you 100% success rate. Face the fact! So, how much can you afford to lose? how many contracts or shares should you trade? Money management is essential for trading.

  1. Accuracy Vs Risk/reward ratio from myself, Trader Gav 😉
  2. How to be consistently profitable in stock market from Movethmarkets.com
  3. Position sizing from Trader Mike
  4. Starting out with basic from Dr.Van K Tharp
  5. Expectancy is the next key from Dr. Van K Tharp
  6. Expectancy from Trader Mike

Enough? No. … Now you should have known that trading is a serious subject, serious business. Ok, I will continue in part II, this post is just too long.. 🙂

A sub system of my system – Review of a mistake

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I was house keeping my thumb drive, and found this trading journal I wrote back in 03-August-2005 when I was still trading SIMSCI futures. I found it to be interesting and useful. A review of my old mistake and a reminder for myself.

03-August-2005

Confession of system trader – Review of a mistake

It is a tough process to develop a efficient trading system. It is tedious to run through backtesting year after year of historical data. However, I think it is the toughest job to follow your system. We like and good in defining rules. We know how important it is to have rules to get our life organized and avoid unnecessary risk or even damage. The problem is, we always find it hard to follow the rules. Trading is no different from real life.

Let’s take a look at an example. My system generated a BUY signal for SIMSCI on 29/07/2005 after market closed at 276.9. The system was telling me put in a buy order at opening price + 2.2. So, the buy stop order should be 280.2. Well, now the evil is struggling. “From 276.9 to 280.2, it is 3.3 away. Normal trading range of SIMSCI is 2.5, how is it going to fill my buy order? How about I buy during market open and do a day trading ,sell at any point higher if it is still lower than 280.2. I might earn some fast cash! That sounds cool, I need to develop a sub system within my system” The result of follow the evil’s suggestion instead of following predetermined rules is destructive. Yes, 280.2 did not get filled, and the sub system bought in some contracts. At opening, follow the fluctuation of price, and guess what, I ended up with a small loss. The loss is small, it did not cause any damage, but it is totally avoidable. Building a ‘Sub system’ within a system in this way is a fool’s game.

Why did the system issue a buy order at 280.2 which is out of normal daily trading range? What is the characteristics of the system? After thinking of this , I realized the mistakes I made. I have a set of parameters and checking to confirm market moves in the strength and the odds are with us to go higher if the setup price is triggered. These rules are tested. If market failed to reach the point, it is simply telling me, ‘Hey,now it is not the time to get myself in the market’. What I should really do is ,staying aside.

Market will open tomorrow, no point betting your hard earned cash without knowing that odds are actually not with you.

Lesson 03-April-2007: Monkey around the stop

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This series of short notes is to record down thoughts, skills, and any lessons that I have learned from day to day trading. I am not talking about Technical analysis. One can really learn TA by getting a good book, and practice, so nothing much to discuss here.

So, what did I learn recently?

Stop Monkey-ing around with Trailing stops in Forex trading. I know I will attract a number of attacks or debate over this topic. But wait.

I note down this because it suits my trading style. It doesn’t mean trail your stops is wrong. There is no right or wrong in trading, but only what works for you and what’s not.

I start to realize, what I really love to do is to take care about how bad /how much I will lose in a single trade instead of how much I am going to earn in a single trade.

Put in the stop, that’s it. I will either close my position at a profit target (which is pretty far away) or at a predefined time. It hurts me more when watching a huge profit run away from me because I got stopped out prematurely by trailing stop than accepting a predefined amount of loss.

I can’t nor anyone can predict where will the price go and how much space we need to give to the trade to fluctuate before continue gaining. So, it is extremely tough to design the right trailing stop techniques. It can be done, but I am not into that.

OK, that’s the lesson 1. Lesson for myself.