MeetPips.com

I remember the biggest problem I encountered when I decided that trading was something I wanted to explore, was simply making sense of it all. You can read books on technical analysis, on fundamentals, but its a very big challenge to actually work all of it into a productive trading strategy. It was all a question of learning how to learn. Here is how the process seems to generally go, based on my personal experience and what I know of some other experiences:1.You discover trading somehow, either someone tells you about it (my case), you read an article somewhere, or get hit with an infomercial (probably the worst way to discover it!) You fall in love with the idea of independence and/or tremendous wealth. You try to establish for yourself that trading actually works, that this isn't a sophisticated form of gambling but a legitimate way to make a living/accumulate wealth. 2.After doing some homework, you see that there have been people who have truly 'made it', either they trade independently for a living or they have achieved great wealth. You begin to wonder if you can join their ranks. 3.Your homework also leads you to understand that this is a risky business, and that many – most people – lose at it. This makes you approach the trading business with fear and trepidation. 4.You decide to do more investigative research, and begin to gather the specialized knowledge of what it takes to become a successful trader. You are overwhelmed in having to choose from a plethora of books, websites, magazines, and Youtube videos. 5.As you are exposed to this assortment of information, you encounter the classic newbie trader's dilemma: “If the author of this book or teacher of this seminar is a successful trader, shouldn't they be trading instead of telling me how to do it for money?” You begin to develop a healthy skepticism, unless you are the gullible variety. The gullible variety will sign up for the seminar/webinar, pay big money, and then return to this point 5 after having gone through that experience and having much less money. 6.Armed with skepticism, you begin learning about technical analysis, possibly fundamental analysis (unless you are freaked out by economics, which many traders are), reading about trading psychology, and reading interviews with traders who have made it to profitability. 7.Having been bombarded with tons of information, you begin to look at price charts and wonder how the heck you are going to put this information to use. Despite the fact that you've been shown what a double top or head and shoulders is supposed to look like, you struggle to find these things in the charts and when you do, you feel more like you're guessing than making a concrete decision. Despite the fact that you learned about GDP and balance of payments, you have no idea how to put that to use in your trading. You also read all about psychology and know that you must “let your profits run and cut your losses fast”, but you don't quite get how to do that either. You begin to wonder just how the heck is this all supposed to make you money. 8.You open a demo account (if you are the “in the rush to get rich” crowd, you immediately open a cash account with thousands of dollars), and start tinkering. You begin to put on trades, and most of the time you get slammed. You might catch a lucky streak of winners, but sure enough another looser is enough to put you back into your place. You start to work on finding indicators like the MACD and Stochastic oscillator, hoping that this is what you need to confirm all your trading ideas. You pick up a 'simple' strategy like buying on a 20 ma pullback or fibo retracement, but when you scan the charts you see there's as many good setups as bad ones. You get absolutely nowhere and are most likely continuing to lose. You deeply inhale and realize that its going to take you a bit longer than six months to get this right. 9.After realizing that having the right book isn't the main problem (at this point you've probably looked through at least 20 of them), you continue to stare at the charts and finally start to understand a bit more about how price moves. You start seeing support and resistance more clearly. You start to understand that indicators are about as random as the price itself, and begin removing them from your chart. You are introduced to the concept of “confluence”, where you see that a trade is all about lining up several elements together in order to increase your odds of success. 10.You still aren't making any money, but you have more confidence that you can actually understand what the chart is telling you, and what the market is doing. You begin to develop an appreciation for how the market behaves. Your setups begin to make more sense to you, your stops and take profits are more logical. You realize that “screen time” is what you need in order to increase your market literacy, not necessarily learning some more obscure form of technical analysis like “point and figure charting”. 11.You realize that there is no one 'right' or 'wrong' method to trade, that in the end it comes down to finding a technique that you can trust and that you know well. You start to develop a technique that is able to exploit the behaviors in the market that are becoming clearer to you. 12.You realize that the reason you haven't made sufficient progress is because you don't spend enough time in analyzing your trades and doing careful self analysis. You begin keeping a regular trading log. You start learning about the quirks of your personality and try to tailor your style to that. We'll stop at point 12, because that's where I'm at right now! I remember when I was learning about trading I came across the phrase "You need to hear what the market is telling you". At that time I had absolutely no idea how I could do that. I bought my first stock in the fall of 2008, getting in "cheap" on blue chips when the Dow was on its way to the 7000's. I made my first cash trade in the currency market in May of 2009. The market is still a fairly new animal to me. Looking back at it a year after I got bitten by the trading bug, its amazing how much 'screen time' has helped me gain market literacy, to the point where I can already label market behavior clearly (retrace, breakout, reversal, consolidation) and not simply feel like I'm guessing. This sense is very crucial, in my view, to begin developing a profitable strategy. Without it, you are either copying what someone else has created for themselves, with the hope that they're right, or are just throwing darts in the dark. The trick now is using the increasing understanding of market behavior to learn how to trap the running fox. A very critical process that happens is learning to TRUST what you've learned. Sure, a double top or a hanging man looks great in a textbook, but you have to learn to not only identify it, but see it in action enough times to know that its not simply a myth. Equally important is to identify it in the right CONTEXT of the market. This allows you to trust the pattern, and see where the setup will work better and where it won't likely hold. These elements are absolutely crucial to building the level of trust you need in developing a strategy, and the only way to do it is to intelligently observe the market as often as possible.The same concept of trust applies to everything else, i.e. trusting advice such as "never add to a loser", and "trade with the trend" requires good ol' battlefield experience. Hopefully you're smart enough to do these things on a demo or micro account, not with your $10,000 stake that represents a few years' savings or your uncle's good faith in you!As you go through all these stages, you continually confront yourself and say "Is this worth all the trouble?" My answer is a resounding YES, and that is why I have chosen to make this my future profession. I know of nothing else that gives you the power and independence that trading offers.