Saturday, 27 August 2016

The Education of a Trader

“The game taught me the game. And it didn’t spare the rod while teaching.” -Jesse Livermore

Trading Losses: 

There are two types of losses, one loss is caused by the market simply not being conducive to the profitability of your system. The other type of loss is caused by a lack of discipline, causing you not to follow your trading plan, system, or position sizing. Experiencing a loss while following your trading plan is to be expected. If you are trading a proven and tested method, then you have learned that taking a loss is simply part of trading. However, if your breach of discipline caused your loss, whether not taking a stop, over riding your plan, not taking an entry, or trading too big, then it is time to learn why you failed. Ego? Fear? Greed? Overconfidence? Laziness? It is crucial that you understand your shortcomings, so you do not repeat the same mistake again. If you don’t have a quantified methodology then everything you do is a mistake.


Studying the past price action of charts and backtesting is very beneficial because you can understand what did and did not work in the past. This will show you how prices have reacted at support/resistance levels in the past, along with moving averages and any other indicators that you may choose. It is important that you understand how your market has historically been traded with price and technical indicators. Whether it is currencies, commodities, stocks, or bonds, it is crucial that you learn how to identify a trend, a day trade, a swing trade, and a range bound market.

Social Networks:

There are many great traders on Facebook, Twitter, and Stocktwits. There are several that freely give away their knowledge because they enjoy sharing what they have learned. There are others that may not add much value. To separate the wheat from the chaff, focus on who gives advice that makes money over time. Only follow traders that discuss all three elements of trading. You need to learn and be reminded about risk management, trader psychology, and entries and exits. Be very wary of anyone that makes trading look like easy money; it is work like any other profession.

A Mentor: 

Getting a mentor is a great learning shortcut. Having someone available to ask questions of, and get direct feedback from, is incredibly valuable and short cut the learning process. The hard part is finding the right mentors. If you are paying for a service then you need to verify the mentors credentials and success as a trader and coach. If a successful or rich trader agrees to help you with no compensation, it is crucial to respect their time. Have questions ready and ask good questions by doing the necessary homework. It is also possible to pick legendary traders and study them in depth through the internet, interviews they have done, books they have written, and purchasing any services they offer.

Trading Books:

Books that are written by researchers and successful traders are a gold mine of information that can speed up the learning process for new traders. When looking for the best trading books, I use Amazon and focus on books that are written by traders that have successful track records or best selling trading authors that have studied trend followers and Market Wizards. I also like to see many 4 and 5 star reviews for the trading book.

These are 5 of a trader’s best teachers combined with their own actual trading experiences of both wins and losses.

Quote for the day

“The market has no respect for your station in life or for how smart an investor you have been until now. In fact, the market in this incarnation most prefers to humiliate those who remain smug or who appear to be telling it what to do and when to do it.” -  Tom Petruno