On your way to becoming a better trader

On your way to becoming a better trader

In the last issue, we analyzed what levels a large percentage of prospective traders go through. Today we want to briefly address some of the points you need to consider on your way to becoming a better trader.

Phase 1 – The unsuspecting or soldiers of fortune

Participants of phase 1, in which one landed a few lucky hits and then thought one understood the business – here it is necessary to come quickly into phase 2. You should at least read this book to understand that trading is not a game of luck. There is nothing more to say here.

Have fun reading: LINK

„Das Grosse Buch der Markttechnik“ is also compulsory reading. Not to say that you have to become a market technician afterwards, but this book gives a very good insight into how markets develop and how you can do with it. Micha Voigt once hase to earn himself a medal for this book – let me say this much.

Stay away from complex trading tools during this phase. For this stage we have developed the Mercury version, which you can use to try out the basic things of stock exchange trading and which you can get from various Brokers for free.

Phase 2 – The semi-informed

If you are in Phase 2, where you cannot get the trades to work for you, consider several things.

Education:
If you haven’t already done so, take your time and money into your hands and find a serious mentor who will look after you in the long term. But be aware, the internet is big and wide and you will find 100s ‘coaches’ who want you to ‘train’ – and take big money for it. But a training only brings something if you are supported sustainably and if you get the opportunity after the seminar or webinar to follow the mentor in his trading afterwards.

You cannot become a master in a 2,3,5 day seminar who manages to live from trading or become successful in trading, just as you did not learn to write and calculate in 2 – 5 days.

As fast as you have learned something and you think you have understood it, you forget it again. A paid webinar/seminar can help you to get one or the other trading idea. Maybe it is also interesting to see how some traders hold themselves in the market. But the real added value of a 2-day seminar is usually only when you want to refine your already successful trading approach – in all other cases such seminars do not really make sense.

There are so many dazzlers and posers in this market who throw around in videos with banknotes, tell some bullshit and sell these videos dearly. The only credible mentors are those who dare to take care of their students.

But think about yourself, how you are polarized. Have you had sleepless nights with your previous losses? Have you spent days in front of the computer, neglected your family, didn’t play with your children because you panicked for a ‘way out’ of the misery. Have you already switched 5 times from demo to real and back again?

It should be noted that a good mentoring program usually costs far less than a flattened account and does not take into account the valuable time wasted in getting the Holy Grail right.

If you do a seminar and the seminar leader gives afterwards a care phase in a virtual Trading Room, and/or gives regular live Webinars, where the Trading beginning is discussed again and again at the current markets, then seminars and Refreshment seminars make sense. Otherwise one spends only unnecessary money for journey, hotel, seminar fees and drinking bouts and one could just as well a book read and look some free videos.

Often you also hear that only a good SeminarCoach is someone who puts live trades into the market during the seminar – what a total nonsense. The coach should concentrate on what he wants to teach you. You are preached you should concentrate on the markets and have a clear head, and then the coach puts trades into the market for which he has not prepared himself and shows exactly what you should not show his coachees. And do you want to take days off to see that there’s someone in the world who puts live trades on the market? There are these people, you can safely assume, you just have to look into the Times&Sales list. These are not random numbers, but whenever you see a new entry in the T&S list, there pressed exactly at this time at the other end of the line on the button.

!!! It is important that the mentor trades live in front of the eyes of the coachee during the aftercare !!!

For this purpose we have created TradersYard to give the coaches a platform where they can invite their students via the integrated conferencing and trade together.

From such a sustainable education, you then have to develop your own trading plan.

Time factor
How much time can you spend on trading? Here you should note that trading is not just the phase where you shoot orders into the market, but much of the time goes on finding the symbols where you hope to find potential, i.e. doing an extensive market preparation. If you do it right, you must also plan the time to analyze the trades after the trading session to find error potentials and to improve in trading.

A surgeon does not operate on a patient without having analysed him and his clinical picture in detail beforehand or does he not discharge a patient after the operation and sends him home immediately without observing him afterwards whether the operation went well. Trading without preparation and trade analysis is like operating without knowing what the patient is missing.

Once you have planned your time for market preparation, trading and trade analysis, you can move on to the next step where you think about what you want to trade at all.

Capital factor
How high is your capital and what can you move with it and how much time can you spend on it?
The capital factor usually determines the instrument type. It doesn’t make much sense to trade shares with a 5K account.

If you put a few Googles in the market, hedge them with a stop and also put a target in the market, the account is already fully utilized. The same thing happens with Futures – you can’t even buy a DAX contract with such an account, let alone hedge it with a stop.

Trading Time frame
The time factor defines the time frame in which you act. If you have a lot of time and are then in front of the computer when the markets open until it closes again, it makes sense to move in smaller time frames. If you are working and only get to deal with the markets in the evening after work, the time frames should be increased.

It is often claimed that in such a case one should only act on an EOD basis. I think from the 1H time unit and higher trading can be combined with work, provided you have an approach where you look for the picks from a large number of instruments in which always current signals can be found and it revolves around 24H markets. Trading a 1H signal of 13:00 in the afternoon at 18:00 in the evening no longer makes sense.

But if you have only a few symbols to choose from, it will be difficult to find and act on high-quality signals exactly at this time and you will start to react instead of acting. You will not dominate the market, the market will dominate you.

Once you have defined your capital/time setup, only then will it be interesting to look for/find your trading setup. i.e. what market situations would you like to react to and do you have very clear exit scenarios for your entry scenarios, i.e. stops or targets. Here is very important: If you can explain to an entry scenario without having a chart in front of you where the stop is placed, then you have a trading setup, because then you have a trade management in your head and know how to stick to it. If you have to think about where to put the stop, you don’t have a rulebook and you have to work on it.

Once this point has been checked, you have to think about your risk management – how much do I risk per trade or how do I dimension the trades in order to be able to place a certain number of trades in the market – i.e. diversification.

Trading
Once you’ve got your R&M setup right, you can start trading slowly.

But stop…. How is one supposed to know all this and in addition still which entry scenarios are working. How should one know which stop to use if one have never tried one? Most of you will think, “Well then I’ll just play around in the demo account” and believe, if you’ve well performed up a few trades there, you can switch to the real account.

Demo accounts are good for trying out situations when you already have an idea and want to try out new setups in your trading. But you should know – you can only learn to trade with real accounts. Only if you feel the pain and see your equity curve going up or down, you can draw your conclusions. A demo account can be reset immediately if it is flat. With a real account you have to put money into the account again and that creates a completely different relationship to trading and creates the necessary emotion when it comes to loss trades – but …

… create an account where you can park small amounts of money and start trading small amounts. Why not buy 1 share instead of going into the full? Look for a broker, where the fees for small quantities are manageable. Accept that in the beginning the fees are in no relation to the trading successes. In this phase it is only important to learn to deal with the real money markets and to lose real money or of course to win real money. This sharpens the view on the risk but also on the own emotions how to deal with losses.

There is no profession in this world that was learned in a simulation, but always in LearingByDoing in the real application. So why should it be different in trading? An apprentice is usually not a profit factor for a company, but the apprentice does not cost much and he learns his job with simple steps and activities, in order to give later times to his company sales and thus profits … and it should be the same in trading.

After a consistent error and trade analysis, you can gradually increase your position size, but you will only do it when you are sure that you can increase it.

Most people do it the other way around in the beginning. They first throw the big money into the market and then get smaller and smaller because they either run out of money in their account or they don’t dare to trade the initial position sizes because of the losses. The PullTheTrigger syndrome has exactly the cause that one traded with position sizes, which hurt so much, that one sees with each trade only the loss, if the trade is still so technically correct.

Most people do it the other way around in the beginning. They first throw the big money into the market and then get smaller and smaller because they either run out of money in their account or they don’t dare to trade the initial position sizes because of the losses. The PullTheTrigger syndrome has exactly the cause that one traded with position sizes, which hurt so much, that one sees with each trade only the loss, even if the trade is absolutely technically correct.

Loss management

I have dedicated the following picture to you on the subject of trading models and dealing with losses:

I took it on the United Airlines flight from New York to London. This flight was very barely booked and was certainly a loss for the airline. But United Airlines has a business plan where such loss-flights are simply taken into account. It is highly probable that the Boeing will be filled to capacity again on the return flight, which will compensate for a large part of this loss flight. I.e. such loss flights ar part of the business model of the airline.

Even if this flight is loss-making two or three times in a row, United Airlines will not change its business model as many other aircraft in their fleet are making profits at the same time. However, UA will analyse the loss flights in any case to find out if there was any mistake in the advertisement of this flight or if there was no possibility to avoid this loss because they followed their business rules and on this day no more passengers wanted to go to London. But the main argument for United Airlines and for all airlines is diversification – i.e. distributed risk.

Simply exchange the flight terms with trading terms here – and you will quickly understand what trading is and why trading is nothing but structured business.

In the next issue, levels 3 and 4 will be highlighted.

Risikohinweis:
Börsengeschäfte sind mit erheblichen Risiken verbunden. Wer an den Finanz- und Rohstoffmärkten handelt, muss sich vorher selbstständig mit den Risiken vertraut machen. Eventuell dargestellte Analysen, Techniken und Methoden stellen keine Aufforderung zum Handel an den Finanz- und Rohstoffmärkten dar. Diese dienen ausschließlich der Veranschaulichung und Weiterbildung und Informationszweck und stellen keine Anlageberatung oder sonstige individuelle Empfehlung dar. Sie sollen lediglich eine selbstständige Anlageentscheidung des Kunden erleichtern und ersetzen nicht eine anleger- und anlagegerechte Beratung. Der Kunde handelt gleichwohl auf eigenes Risiko und auf eigene Gefahr. Beachten Sie bitte die aktuelle Fassung der AGB.