Saturday, May 14, 2011

Lesson No 6 - How do you want to trade?

Full Time or Part Time?

Scalper?
Day Trader?
Spreader?
Position Trader? or
Option Trader?

For someone who is new to trading, jumping in to be a full time trader is like on a suicide mission, the risk of losing your capital is extremely high. With 90% failure rate, what do you think your odds will be against all those veteran traders?

If you are having a decent paying job, think carefully before you embark on this treacherous mission straight away. There are so many things to learn about trading, it will probably take a few years, just like going to school and paying tuition fees.

Ask yourself honestly whether you are prepared go without income for a year or two, even losing your capital.

For someone new, I suggest starting out as a part time trader taking a few hours (3 would be ideal) at night to focus on trading. Anything more than that will be very tiring since you need to work the next day, don't burn yourself out, have a clear mind.

Open an account with Interactive Brokers as a retail customer to trade any International product.(they offer one of the lowest comm rate). When your daily trading volume goes up, consider joining any of the Exchanges as a member to enjoy even lower comm. Check out SGX website and membership department, the Exchange offer some incentives and clearing fee rebates for new members.

Read some good trading books.
Learn about Technical and Fundamental Analysis.
Learn to be proficient in the Trading Platform for execution of trades.
Learn the charting platform.

Visit websites like www.investopedia.com for financial terms and tutorials and www.elitetrader.com, a community for active traders.

Join AFACT (Association of Financial and commodity Traders) at www.afact.org.sg for support and events, participate in the Forum, read the past threads to learn more about the trading.

To shortcut the learning process, visit www.sgxacademy.com for the various courses offered. Singaporeans who are in the financial or related industry can apply for 50% funding for some of the courses.

Once you are ready, decide on what instrument to trade, choose a contract you are comfortable, with good daily volume and volatility.

For a newcomer, I suggest doing light scalping or day trading, square off the position at the end of the day to reduce overnight risk. Have a set of rules governing how you want to engage the market, follow them strictly with military discipline. There should not be "If" or "should" in your vocabulary as excuses for any mistake made, just learn from it and move forward.

Start out with only 1 contract, until you are consistently making money doing so before attempting to add an additional contract. Many traders start losing money by increasing their trading size because they are unable to adjust their mentality to the higher risk of trading. It's one of the many challenges facing even veteran traders like myself.

Be patient, selective and justify the entry before putting in a trade, then put in a stop order immediately (without fail). It's OK not to trade for the session if you don't have a set up for an entry, that will actually build up your patience. Limit yourself to not more than 3 entries and set a limit losses for the night (maximum $300 to $500 depending on your risk tolerance).

It's very important to justify a trade entry, reasons for taking that trade. WHY? You must be able to explain and be accountable for your action. It doesn't matter if you are wrong, your stop will protect you from disaster. Once you are doing the right thing, practice will make perfect, subconsciously, you are developing good trading habits.

9 comments:

forex ranger said...

Sorry FATT, I need to borrow your comment space to reach coconut...

Hi Coconut, FYI, I did a poll in AFACT forum with FATT's earlier subject on good traders & good gamblers...

The results I gathered out of 20 votes cast in the two weeks duration was 11 (55%) vs 9 (45%) for "a good trader should make a good gambler vs a good gambler should make a good trader" respectively.

Borrowing the lines from returning officer: "Pursuant to section 49, sub section 70, paragraph A of the parliamentary act, I hereby declare a good trader the winner."

Fat88Trader said...

Ha ha, the truth is, all the great traders I know don't gamble in the Casino except the mediocre ones.

And, 90% of the traders are gamblers since the success rate in trading is only 10%.

So, if one is still losing money in trading now, should he be known as a trader or gambler?

coconut said...

ops sorry i didn't follow up, thanks forex ranger, i did read onto AFACT, great place to be.

being busy watching the latest "the three kingdom" - chinese production, highly recommended for all traders. "all things are set, short of east wind" - kongming, is the guiding light for position trading to me. and the "red cliff" battle is the most talk about battle of all time.

the result is interesting but i agreed with fat, good traders does not (want to) gamble.

the process should be from gambler to trader and not back (trader to gambler). a gambler does not know the odds but the trader, through his experiences should know the odds.

thanks for the update.

coconut said...

and interestingly, i view my trading and account size is exactly like i'm building an army. and (position) trading is very much like a game of war.

Fat88Trader said...

It's surprising that Singaporeans are ranked as the world's second biggest gamblers after the Austraians with losses incurred per adult amounting to S$1,451.

coconut said...

not surprise, cos there are many chinese and they are rich.

being a addicted gambler is a desaster, but to be a good trader one has step into desaster.

gambler love the unknown, the excitment, the winning, the boosting and the risk taking and step deeply into it.

while a good trader knowing that he is in the middle of it, do the opposite and trying to get out of it.

coconut said...

chinese saying, "chaotic world create hero"

markets create good traders.

Bala said...

Dear FATT,

How do we define the day traders, anyone who do not carry forward overnight positons called as "day traders".

If so, all scalpers are day traders.

Fat88Trader said...

A Day Trader would normally square off his positions by the end of the day without exposing to overnight risk. A Day Trader don't go in and out of a trade with high frequency unlike a scalper.

A Day Trader takes just a few trades a day, low volume with longer time frame and bigger profit target.

A Scalper is a very very short term trader looking for small profit for every trade and accumulating them with plenty of hard work.

Big Scalpers trade hundreds and thousands of round turn a day. Exchanges love them for contributing to the contract's volume and comm.

Unfortunately, the Algos have bulldoze their way to take over from the spreaders and scalpers with their speed in execution.