Saturday, April 9, 2011

So, you want to be a Trader?

The definition of a trader is someone who buy a certain product and sell it later at a higher price to make a profit.

I have received an email from a reader asking me to share on my blog how someone can begin his career as a trader. After giving it some thought, I shall begin lessons on trading and readers decide whether they should take up trading as a career.

I would also appreciate readers to share their views and comments on the various subjects that I will touch on. I'm very thankful to Coconut for being my constant companion for the past one year and have contributed tremendously in sharing his experience. I look forward to sharing that little knowledge that I know.

Can traders be train? Is there such thing as Natural Born Traders?

The answer is Yes to both of the above.

Smart people learn fast and slow learner don't be despair, as long as one is passionate, hardworking and determine, it just take a little longer to accomplish your dream. It took me quite some time to realise my dream too.

Below are some common instruments for trading;

1. Properties
2. Stocks
3. Forex
4. Futures/Commodities
5. CFDs
6. Warrants
7. Options

Trading, speculation, investing and gambling, they are brothers and sisters in the same family trying to make money from each other.

Statistics have shown that up to 90% of the traders lose money, it is a cold hard fact. I have asked many what are the reasons for such a high percentage of losers versus only 10% who make money. Not many can give me a good answer, it's the usual, no discipline, no money management, cannot control their emotions, etc..

Similarly, the percentage of Equity Funds, Unit Trust, Hedge Funds, etc.. losing money or under performing their benchmark is around the same at 90% even though they are managed by professionals. Choosing one that give consistent return year after year is just as tough, might as well learn and do it yourself, losing money yourself is much better than paying someone else to lose money for you. (refer more to investors, because most are told to hold for the long long term)

Think about it and I shall discuss this topic in my next post. I will be away next week for a holiday to the Chinese Capital with my wife.


averagejoe said...

thanks for following up on my email!I shall 'stalk' this site for free lessons on trading!

Well when it comes to trading, i guess we all have to learn to kill our own snakes. Some traders are full of confidence, and tend to cling on to their positions refusing to recognize a loss. Some can't differentiate between gambling and trading, constantly seeking the thrills from trading and these traders have a long way to go. For myself i tend to be very risk averse and exit my positions way too soon. But i strongly believe keeping good records and building up a chest of experience can make up for this lack of aptitude.

Most importantly, in this performance field one must learn to embrace uncertainty and learn to be comfortable with it.

Fat88Trader said...

Hi Averagejoe,

These lessons are meant for the average traders like you. You will be a role model for me to focus as an example.

Let me know your profile, such as age, education, occupation, how long have you been trading, your capital outlay, your expected returns for your effort and anything else you would like to share.

I welcome more participants to engage me from a different perspective so that we can discuss and learn together. That will make learning more interesting.

coconut said...

if i ever want to advise a trader to improve on his trading, this is what i will say.

if you are a contrarian, learn to be a trend follower. if you are gutsy, learn to be scare. if you are super pride, learn to be humble bla bla bla.

thats all you need to learn! to do that first ofcos you must know what kind of trader are you.

trading is such tough nut to crack is becos unlike all other things where we all learn what we are good at and practice on it. but not for trading, we have to learn the opposite of what we are no good at, where what we are good at just comes naturally when we trade.

coconut said...

another very important aspect that will afact your trading is your personal finance, how you manage it. becos is personal, thats why we seldom hear about it.

if you are one who living a life style where you borrow money for your need like a car or a house, with kids are still schooling, you have lost as a trader even before you begin to trade.

just to share, i have not have any debt for the past 15 years. not a single cent i owe to anyone. i will not hold a position or any things that i can't afford to hold including my personal belongings.

i'm not trying to show off, this is really important if you want to trade comfortably without fear. and if you want to cut your expenses, start with the most expensive one like a house or a car.

coconut said...

having said that, and i know this will sound rediculars, apart from all the cost of trading like comms, spread, skid, GST.... if you are a full time trader, you have to add all your personal expenses into the cost of trading.

and that will make trading a triple negative sum game.

coconut said...

saw a follow blogger today, who says

"I cut loss on LC Dev 2 days ago at 0.155
And today, it rose to 0.175 with

1) high volume
2) double bottom with 0.165 neckline resistance broken.

I seriously fail. Extremely appalled at my extreme badly timed move.

I'm being turned off by all things about the market. I'll be ceasing all updates to this blog, and will be turning it private 24 hrs from now to decide if I should delete it. I have neither mood nor time to do anything on this blog anymore."

i try not to comment on their blog cos i will get screw. if you can't handle this kind of emotion which occur so very often, the best is to give up trading.

coconut said...

i'm not trying to make fun of the "poor" fellow, how can i? i encounter and suffer many more times than he did.

what's the big deal? did you bet everything on it? just move on will you?

averagejoe said...

Hi coconut

chill man don't be angry with him haha. I used to work in an environment where i got to interact with many retail traders. And through talking to them, i realised most of them are only focused on the short term. They only care about whether they can make money on the next trade and though they know the importance of cutting losses, deep down inside they don't want to. Also, i think most retail traders lack the mental capacity to perform on a long term basis. They cannot handle the large drawdowns and variance of trading. This blogger that you mentioned would probably jump at the next opportunity and hang on to his position and you might not be reading his posts anymore in the future.

coconut said...

he is still young and hope he will learn like i did before.

most important is to realise this will happen again and again, no way to escape from it, just face it.

just like market crash or black swan event, it will happen again and again. no matter how good you are, you will definately encounter it.

to hold on to losses or cut losses to me is really subjective, all depends on the trader and his risk management. a draw down is in fact holding on to losses, thats the cost of following trend, takes me a long time to learn (hold on to rotton trades haha). the best way i find is to blur out the concept of profit and loss in absolute terms. (for example, i lost 1,000 but hay look at fat, he lost 5,000, i won, or the market crash 10% but i only lost 3%, thats a winner haha)

although is ah "Q" spirit but it works for me.

coconut said...

the point is not to feel too bad or even feel happy when you make a bad trade.

on the opposite end, if you had made a big profit and you are over joy, search for someone who had made a killing and see how small your profit is. in this case you will be able to handle your emotion through time pass.

Fat88Trader said...

Wow I miss this discussion while on holiday, interesting insight by Coconut. I fully agree with his opinion.