My advice for someone starting out

 

Here is some advice I have compiled for those who are interested in and/or are new to trading.

 

Commitment:

The first question you must ask yourself is if you really want to do this?  I’ve been at it almost 3 years and it took me 2 until I was making a little bit of money.  Even after almost 3 years I’m still not making half of what I made before as a software developer.  So depending on your job and if you like it, it may not be worth it.  The 3 years is more than full time, working evenings, weekends, etc.  I think it takes about 10,000 hours to be able to make money in trading.

If you’re doing it part time, say 2 hours/day during the week and 6 hours on the weekend, you’re looking at 12 years!!  I don’t want to discourage but rather tell you exactly what you’re in for.  It really is a full time job and you have to be very motivated, even obsessed with it to succeed.  It will be the biggest challenge of your life.

Also know that when trading professionally, it’s really boring.  You sit & wait for a trade and if you get distracted you miss it.  It’s even more boring when trading on simulator and it’s very hard to remain disciplined and do it.  I doubt many people can trade on simulator for many years, I know I couldn’t.

In theory one finds one setup that works and just increases size to 100 contracts.  It’s not that easy.  I’ve been trading 2 lots for 2 years now.  It’s hard to increase size unless risk is totally under control and that’s quite challenging.  Stops too tight = get stopped out.  Stops too loose = big losers.  it’s not easy finding the balance.  I’ve been working on it for 2 years now!

 

Trading US EST evenings:

Trading US EST evening will not be good.  The markets are really slow.  No major cash markets are open.  I don’t recommend trading this time.  A better alternative would be to get up early and trade European markets and even ES pre-market.  May not be easy for you to get up so early though, and even then, it will be during the slow period around the European lunch, and when the US has news releases (around 8:30 EST).

You could always try swing trading stocks based on the daily chart.  1 hour/day would be enough to do this.  But that’s outside my expertise but lately I’ve been considering it.
Tools for trading:

If you want to practice, ninjatrader is free for simulator use and has market replay which looks & acts exactly like real time.  I’ve used it a lot.  The “issue” is if you want to do market profile & volume profile, you will need investor RT (around $60/month I believe, I use the pro version of market delta which is more).  IRT has a replay but the problem is it doesn’t have a DOM so you can’t trade it on sim but you could paper trade it writing down entries.

You don’t need to buy ninja until you’re consistently profitable on sim so basically your costs would be IRT at $60.  If you deposit $5k in a broker account you can get a free broker datafeed so your costs would be just $60/month.  I recommend Velocity for trading but recommend Mirus for their datafeed which is better.
Markets:

I think ES is the best market to trade.  Others trade it especially those following FT71 so you can compare notes.  And it’s slower than some of the more volatile markets.  Stay away from anything volatile like crude, euro, gold, etc.  ZN is another good market but I just focus on ES.  Focusing on 1 market is best.

 

Trading Account:

Set aside around $10-$15k for your trading account and plan on loosing at least half of it and maybe all of it depending on how good your discipline is.  So plan on another $10-$15k to reload it assuming you don’t give up.

 

Charts:

I use a daily chart, 30min market profile chart, a 5min chart with composite profile & volume profiles, and to time entries a footprint chart and fast tick chart.  That’s about it.  I use VWAP & cumulative delta and that’s about it for indicators except for my own proprietary indicators.  Anything with a lookback period is not going to be very useful and this rules out MA’s, stochastics, RSI, MACD, etc.

 

Books & Webinars:

I’ve probably read 30-40 trading books and I found that most books were not very useful.  These are the best that I’ve read:

 

Trading Rooms:

I have done trials of many trading rooms and my opinion is that none of them were very useful to me.  I recommend doing a free trial any time you can in order to learn something new but I do not recommend investing money in them.

One room I was in the guy claimed to make around $4k/day.  He decided to trade live showing his DOM for a month and during that time he barely made money.  Another room I tried, I learned that he was not reporting all his trades particularly his losses.  Another room the guy would only tell you he took a trade after it was profitable (thus keeping quiet about losers).   In one popular room a member compiled performance stats and the guy, widely known as a profitable trader, lost money.  I’ve seen so many scams that it’s not even worth it to get involved in these rooms.

A consistently profitable trader will have a huge salary and the freedom to do whatever they want.  Running a trading room is a huge commitment.  It’s like having a job.  The two just seem incompatible to me.

 

Trading Courses:

The only course I can recommend is from Balance Trader.  Contact him via his website to inquire about purchasing it.  Please note that this is not a trading system.  It focuses on the “big picture” and teaches the concept of balance and how to identify balance areas and then to look for trades around these balance areas.  It does not cover timing entries, trade management, or anything like that.

 

Trading Forums:

Trading forums may seem very helpful to someone new, but I would caution against spending time participating in forums.  The reason is the forums are full of unprofitable traders.  Even worse, many of these unprofitable traders are pretending to be profitable trading gurus!  This can be very dangerous to someone new.  I can’t count how many hours I wasted investigating ideas & methods I read about on forums.  It was a wild goose chase.  Most forums are full of “the blind leading the blind”.

I met one guy who learned how to scalp the DOM and he wrote (I’ll paraphrase): “I wish I could delete every post I ever made because it was all wrong”.  I feel exactly the same way.  I used to write on forums about a cycle method.  I tried explaining what I was doing, how it worked etc.  The truth is I really didn’t know myself.  I thought I did at the time but now I realize I really didn’t.  It was useful for me to try and explain it and show examples, but was it useful for anyone else?  I wish I could delete all those posts as it would only lead people astray.

It’s been 9 months since I stopped participating in forums.  The time I had spent at forums was then channeled towards studying my charts & trades, or doing something completely different.  Both of which were much more beneficial to me.  Many forums sites are simply businesses that make money from advertising and/or donations.

 

I hope that helps.  I hope to expand this in the future as I receive more questions so if anything isn’t covered here please let me know.

 

  17 Responses to “My advice for someone starting out”

  1. Totally agree.

    One can save the cost of irt by using http://www.ranchodinero.com/blog/ profile indicator for ninja.
    Broker datafeed could be problematic, maybe zenfire is good for profile.

    After you learn the method and have a trading plan, don’t trade on sim too much.

    The trading account section is SO TRUE AND KEY, be ready to loose. That’s where I’m currently stuck, I CAN afford loosing the money, but deep inside in me I’m not ready for it and it set me back, so far my biggest obstacle. Trying different methods to overcome it.

    Finally, you want to be a trader because you LOVE it bit because of the money (because you probably wont see it for some time )…

  2. The issue with profile indicators for Ninja is the continuous adjusted contract of IQFeed doesn’t work with Ninjatrader. I think IRT is well worth the cost. It sucks when you’re on sim and not making any money yet have to pay monthly fees, but at the same time one needs professional tools.

    I disagree about trading on sim.. I think one shouldn’t trade real until profitable for many months on sim. That alone would have saved me thousands of dollars.

    Yes one must love trading. and I can say after 3 years of hard work I find myself loving it less than I used to. It’s now a job. But I still enjoy it and it keeps me sharp.

  3. Michael,

    why you say IQfeed continuous adjusted contract doesn’t work with NT? I remember testing it with NT and Fin-Alg and it looked exactly like IRT.

  4. I tried to get the Ninja ##-## continuous to use IQFeed’s @ES#C but didn’t succeed. I asked Ninja support for help but they didn’t know. Maybe it works now.

    I’m not familiar with finalg and the other market profile indicator addons for Ninja, if others are having success with them then that is a lower cost alternative to IRT. IRT/MD is easy to justify when one is profitable but when starting out every cost saving counts. I used to use tradestation and ran my account down big time just from the fees (I never traded with TS).

  5. “It was useful for me to try and explain it and show examples, but was it useful for anyone else?”

    Actually, yes. As you said, forums are typically full of non-profitable traders. Trading is a long, hard journey. Some of those traders are looking for someone to hand them a “Holy Grail”, and will likely continue to struggle for a long time. However, another subset of non-profitable traders are just trying to pick up “nuggets” from traders farther along the trail of success than themselves. They do not have access to true mentors, and because of all the BS out there, they don’t really know where to turn or who to believe.

    I for one found your cycles thread and it made a profound change in my thinking about how to trade successfully. Not because cycles were the answer to my problems, but because I recognized some of my issues in your discussions.

    I wholeheartedly agree that hanging out in forums is probably a bad idea for new traders, as they will likely be sucked in to a viper’s den of bad advice and spend years trying to prove out each new indicator and/or tweak. However, going back and deleting a good thread just because its content is not valid for you personally anymore cuts off a good line of historical discussion and “nuggets” for those traders who are finally starting to figure out what they need to do to improve.

  6. Great point Russell. I’m really glad you got something out of the cycle thread and what you said makes sense. I was talking about a lot of things and even if cycles weren’t the best way to trade, there was certainly other interesting concepts (trade management could be an example).

    Last year when I stopped posting I actually updated my main journal thread and I said I don’t trade like that any more, so that anyone who stumbled upon it at a later date would know that yet could still read it if they choose.

    An example of getting sucked in.. I was unlucky in that when I first started at ET I stumbled upon some posts by Jack Hershey. I lost over 6 months of my life and quite a bit of money on his stuff. However, I still mentally spot FTT’s and it sometimes helps. So I guess it wasn’t a total loss. If anyone actually understands what I just wrote I will be surprised.

  7. Hi, Michael,
    You mentioned earlier that you took some concepts from emini-watch. What you think about this set of indicators?

  8. Wicked – The concepts I still use are those from the pro am indicator which identify professional and amateur activity. I’ve added my own concepts and developed some proprietary indicators that I use to help confirm and time entries. I highly recommend pro am.

    I was not successful with the sine wave & better momentum or the multiple timeframes, but it seems from eminiwatch blog that many others are successful with them.

  9. Michael, I understand exactly what you mean about the FTT’s. lol 😉 Great post.

  10. “I think it takes about 10,000 hours to be able to make money in trading.”

    You are 100% correct!

  11. The books mentioned are all technical. But that doesn’t gonna make one a profitable trader. The key is within yourself, the only thing you can control. Method is only 10% of the job. Management is 90% of which is 50% business-, trade-, risc- and money management and 50% is self management. So 45% of the success is accounted to self management (Joe Ross, Trading is a Business). That’s what makes the difference. Two traders with the exact same system/method will have different outcomes. Peter Brandt writes that trade entry gets the most focus but is the least important and even the opposite trades would probably made money (Peter Brandt, Diary of a Professional Commodity Trader).

    With that in mind I like to recommend:
    – Joe Ross, Trading is a Business
    – Hill, Napoleon, Think and Grow Rich.
    – Bandler, Richard (2008). Get the Life You Want. London: HarperElement.
    – Bandler, Richard (2011). The Secrets of Being Happy. Northampton: Impress.
    and other books on NLP (maybe soft but it’s good for your motivation).

    It’s all about the right mindset and not giving up.

  12. Michael,

    Is it possible? Do you know anyone who’s a profitable day trader? I’m asking myself this question, after long trials, sim-trading. I want to quit my engineering job and trade for a living. But what’s the point, if I can’t be profitable in even sim trading, right?!

    Seems to me, the only people who make a living through the market are:
    – Market Makers / Pit traders… very stressed-out people. Not a desirable job.
    – High Frequency traders sitting in fancy offices in Houston, Austin, NYC… Executing code to rape ticks.
    – Day traders online, selling stuff to wannabe day-traders… Otherwise known as “SCAMMERS” (yourself excepted — this is why I’m posing this question to YOU 🙂 )

    Three types. Who else is making money? The latter type might have a very interesting and/or unique system… But that fact is those people don’t make money trading — they can’t scale up their trading — they need income from selling proprietary indicators to survive. Period. That’s why they keep posting videos. I’m sure you can think of several examples, off hand.

    Is it possible?

  13. @Tradigeer: What about trend traders? I guess many novice traders have that question, it’s a very legitimate one. Did you read “Reminiscences of a Stock Operator” and “Market Wizards” both mentioned by Michael in the list above? It has been said that for succeeding in any field one will need at least 10 years off very hard work (Tom Butler-Bowdon: “Never Too Late To Be Great: The Power of Thinking Long”, great book).

  14. Michael wrote: “In theory one finds one setup that works and just increases size to 100 contracts. It’s not that easy. I’ve been trading 2 lots for 2 years now. It’s hard to increase size unless risk is totally under control and that’s quite challenging. Stops too tight = get stopped out. Stops too loose = big losers. it’s not easy finding the balance. I’ve been working on it for 2 years now!”

    Maybe trading just two lots seems right but in fact can be a mistake which makes it so hard to get a profit. The chance that one lot is the optimal position number is very minimal. Trading one lot is suboptimal, inefficient and inflexible. It’s a mistake to think you have to begin with one lot and when it works out increase the size.

    For instance imagine a method with next results:

    Number Signal Stop Risico_per_lot Result
    1 +4,200 4,180 20 +140
    2 +3,800 3,750 50 -50
    3 -4,500 4,530 30 -30
    4 +4,500 4,475 25 +50
    5 -4,800 4,900 100 -100
    6 +4,300 4,290 10 +80
    7 +4,600 4,560 40 -40
    8 +4,900 4,860 40 -40
    9 -5,100 5.140 40 -40
    10 +4,900 4,860 40 20
    Total result -10

    On first sight this seems a losing trading system.

    But what if the trader uses a money management rule? His rule: always risk 1% of trading capital.
    Now let’s assume one point is $10 and trading capital is $100.000. When the trader risks 20 points, like in trade 1, then he will risk losing $200 (20x$10). When the trader wants to risk $1.000 (1% of trading capital) according to his rule and he risks 20 points (depending on his stop loss) then he can buy 5 lots. Next the results when he uses this money management rule:

    Number Risk pro lot 1% of P/L Capital
    in points capital
    100,000
    1 20 1,000 5 x 1,400 = 7,000 107,000
    2 (-50) 1,070 2 x (-500) = -1,000 106,000
    3 (-30) 1,060 3 x (-300) = -900 105,100
    4 25 1,050 4 x 500 = 2,000 107,100
    5 (-100) 1,070 1 x (-1,000) = -1,000 106,100
    6 10 1,060 10 x 800 = 8,000 114,100
    7 (-40) 1,140 2 x (-400) = -800 113,300
    8 (-40) 1,132 2 x (-400) = -800 112,500
    9 (-40) 1,124 2 x (-400) = -800 111,700
    10 40 1,160 2 x 200 = 400 112,100
    Total result +12,100

    From the book “Die Kunst des erfolgreichen Tradens” by Birger Schafermeier (German language).
    In his book Birger Schafermeier declares the logic behind this setup (and much more interesting things, from a professional trader).

    Amazing, isn’t? Position size is the key to success.

  15. Stumbled onto this site from your youtube post with emini-watch’s indicators which I use. I’m looking forward to reading your analysis of these indicators and evolution from them to gleam some insight from you. Thanks for your time and efforts over the years and leaving your thoughts for others to read!

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