I'm determined to learn about investing!

WarpSpeed

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Hello Everyone,

I just registered and I'm determined to learn about investing. I have a stack of books about the stock market I am going to read. The title of the first is, "The Neatest Little Guide to Stock Market Investing" by Jason Kelly. I just started on it tonight.

To tell you a little about myself I'm a twenty something year old single male from the USA. Life has been crazy in the past few years and I'm determined to do something with my life. My biggest problem is that I've had TOO MANY interests and have never focused on becoming an EXPERT about any one topic. I've decided to dedicate myself to learning about the stock market so one day I can earn a decent living for myself.

My goal is to put aside some of my other interests and focus on the stock market!

I appreciate any advice or suggestions anyone has to offer.

Sincerely,
WarpSpeed
 
Hello Everyone,

I just registered and I'm determined to learn about investing. I have a stack of books about the stock market I am going to read. The title of the first is, "The Neatest Little Guide to Stock Market Investing" by Jason Kelly. I just started on it tonight.

To tell you a little about myself I'm a twenty something year old single male from the USA. Life has been crazy in the past few years and I'm determined to do something with my life. My biggest problem is that I've had TOO MANY interests and have never focused on becoming an EXPERT about any one topic. I've decided to dedicate myself to learning about the stock market so one day I can earn a decent living for myself.

My goal is to put aside some of my other interests and focus on the stock market!

I appreciate any advice or suggestions anyone has to offer.

Sincerely,
WarpSpeed

Merry Christmas. :) I hope that you have been given some good reading material for the holliday. There is a big difference between investing and trading. You can do one, or both of the two, but you must know the difference, because trading is all about gearing up and can be very costly to a newcomer (and not so newcomers, if they get it wrong) and investing is for longer periods, with no gearing, just the money you have and your expertise in being able to spot cheap companies with growth potential, I mention this because T2W is,basically, a trading site although there are some investment threads on it.

Hope to be able to read your posts in the New Year.

Split
 
My goal is to put aside some of my other interests and focus on the stock market!
I appreciate any advice or suggestions anyone has to offer.
Hi WarpSpeed and welcome to T2W,
I might be wrong about this, but my guess is that as you begin to peel away the layers of trading / investing, you'll find one of two things will happen:
A) It will become all consuming and those other interests that you refer to will naturally recede into the background and/or disappear altogether. This isn't necessarily a good thing. Many members - especially full time traders working from home - struggle to get away from their screens and pursue other interests, especially ones that keep them physically fit and healthy. So, try not to be toooo obsessed with your new found enthusiasm and make some room for other interests, family and friends.
B) After a few weeks or months you'll realise the enormity of the subject that you've undertaken and it will overwhelm you, depress you and, ultimately, lead you to conclude that there must be easier ways to pursue your goals in life. It's at this point that a forum like T2W really comes into its own. There's no doubt whatsoever in my own mind that I wouldn't still be in this game but for the sanctuary that is T2W! That said, it too has to be 'learned'. Trying to sort the wheat from the chaff is hard at the best of times but none more so than when you are newbie just starting out. It's like the old catch 22 of not getting a job because you haven't got experience, very frustrating!

So, I suggest you read your books, read the forums - especially the articles in the Knowledge Lab and the threads in the first steps forum and feel free to ask any questions along the way. Enjoy!
Tim.
 
Merry Christmas. :) I hope that you have been given some good reading material for the holliday. There is a big difference between investing and trading. You can do one, or both of the two, but you must know the difference, because trading is all about gearing up and can be very costly to a newcomer (and not so newcomers, if they get it wrong) and investing is for longer periods, with no gearing, just the money you have and your expertise in being able to spot cheap companies with growth potential, I mention this because T2W is,basically, a trading site although there are some investment threads on it.

Hope to be able to read your posts in the New Year.

Split

Thanks! I hope you have a Merry Christmas too!

I have a stack of investment/trading books I purchased here and there over the years and I'm determined to study all of them. Then I want to start doing online research.

From what I have read so far I'm most interested in what is called "short term" trading where you purchase a stock when you think it will be going up the next several days to a week. From what I have read day trading is not something that most amateurs would have a lot of success at.

I plan to be spending a lot of time here.
 
Hi WarpSpeed and welcome to T2W,
I might be wrong about this, but my guess is that as you begin to peel away the layers of trading / investing, you'll find one of two things will happen:
A) It will become all consuming and those other interests that you refer to will naturally recede into the background and/or disappear altogether. This isn't necessarily a good thing. Many members - especially full time traders working from home - struggle to get away from their screens and pursue other interests, especially ones that keep them physically fit and healthy. So, try not to be toooo obsessed with your new found enthusiasm and make some room for other interests, family and friends.
B) After a few weeks or months you'll realise the enormity of the subject that you've undertaken and it will overwhelm you, depress you and, ultimately, lead you to conclude that there must be easier ways to pursue your goals in life. It's at this point that a forum like T2W really comes into its own. There's no doubt whatsoever in my own mind that I wouldn't still be in this game but for the sanctuary that is T2W! That said, it too has to be 'learned'. Trying to sort the wheat from the chaff is hard at the best of times but none more so than when you are newbie just starting out. It's like the old catch 22 of not getting a job because you haven't got experience, very frustrating!

So, I suggest you read your books, read the forums - especially the articles in the Knowledge Lab and the threads in the first steps forum and feel free to ask any questions along the way. Enjoy!
Tim.

Hello Timsk,

Thanks for the advice.
 
Great advice here !

Wrote the following in another thread earlier:

One essential thing one needs to realize is that people tend to strongly over-estimate what they can do in the short term, while severely under-estimating what they can achieve over time...

Best trading advice I ever received was from, amongst a few others,

Amazon.com: Reminiscences of a Stock Operator (A Marketplace Book): Books: Edwin Lefèvre,

Amazon.com: Market Wizards: Interviews with Top Traders: Books: Jack D. Schwager, (and the second one)

Amazon.com: Pit Bull: Lessons from Wall Street's Champion Day Trader: Books: Martin Schwartz,

Amazon.com: The Logical Trader: Books: Mark B. Fisher,

Amazon.com: Trader Vic--Methods of a Wall Street Master: Books: Victor Sperandeo,T. Sullivan Brown

Amazon.com: Trading Risk: Enhanced Profitability through Risk Control: Books: Kenneth L. Grant

and

Amazon.com: Trading in the Zone: Master the Market with Confidence, Discipline and a Winning Attitude: Books: Mark Douglas

The success relevant insights for me at least essentially consisted of the following:

Anything can happen at any time in the markets (think, all it takes is one massive order that can be anything, a hedge, a position being covered, somebody entering the market with a view diametrically opposed to yours, but that will all have the same effect of throwing all of your clever analysis overboard and triggering your stop loss)...

You don't have to know what happens next to make money (reacting to what happens is entirely sufficient)...

Losing is part and parcel of trading...

You can be wrong 70% of the time, but if on average your winners are three times the size of your losers you will still be outperforming most others in the markets over time...

Research in hedge funds (from the above "Trading Risk") shows that across all trading styles and portfolio managers, the overwhelming majority of profits will always come from a handful of trades, the old 20/80 principle again, which is corroborated by the fact that both the Turtles, with a very low hit rate but far larger winners than losers, had that phenomenon as well as "Pit Bull" Marty Schwartz, who had a very high hit rate, but smaller winners than losers...

Focus on protecting what you have so that you can participate in the market the next day...

Before you put on a trade, know where your stop loss will be !

The distance from your entry to your stop loss will translate into how much you are willing to lose per trade...

1 - 2% loss per trade should probably not be exceeded...

Counter-intuitively, low hit rate strategies are probably more profitable over time than high hit rate strategies but more difficult psychologically...

If you decide to focus on a high win rate strategy through having winners that on average are smaller than your losers, you will still face eventual outlier events where you have substantial strings of losing trades...

If you're betting 5 or even 10% per trade you'll be spending all of your time either digging very deep holes even deeper, or trying to surface from the depths, but what you won't be doing is enjoying much time on new peaks.

Good luck and Merry Christmas :)
 
Before you put on a trade, know where your stop loss will be !

I would alter that slightly.

It's been my experience that too many traders think of stops as being "I don't want to lose any more than ...." levels, when they should be thinking "At what price level is the market telling me the trade isn't going to do what was anticipated?". It's a subtle different, but one that can prevent the needless hitting of stops which were put too close because the trader didn't want to lose more than some amount of money.

So I would say "Before you put on a trade, know the point you are going to get out because the market isn't performing as expected."
 
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also worth noting and understanding that trading and investing are two very different things
 
WarpSpeed,
If you don't already have Rhody Traders book in your collection, you might want to add it. I'm loathed to recommend a book that I've not actually read myself :eek: but, I've read enough of John's (Rhody T's) posts and articles to be pretty confident that, at the very least, it will point you in the right direction. Also, the editorial reviews include one by Brett Steenbarger (very cool) and one by none other than our great leader, Paul Gould a.k.a. 'Sharky'.
Tim.
 
If you don't already have Rhody Traders book in your collection, you might want to add it.

Rhody wrote a book ?

Good stuff Rhody, congratulations.
grinning-smiley-003.gif


Have a pointer where / under what name that's to be found ?

Thanks
 
Rhody wrote a book ?

Good stuff Rhody, congratulations.
grinning-smiley-003.gif

Cheers mate - though it's not nearly as glamorous as you might have been led to believe. :cool:

Have a pointer where / under what name that's to be found ?

Since Tim brought it up, and you've asked directly, I guess I'm not at risk of running afoul of the site guidelines by saying it's The Essentials of Trading, which you can get from any of the major online retailers.
 
Hey, I think that''s really really cool John :)

I'll be sure to get that as I like your posts here too.

:)
 
Hey, I think that''s really really cool John :)
I'll be sure to get that as I like your posts here too.
:)
John,
Please Pm me asap, as we urgently need to discuss my commission!
:cheesy::cheesy::cheesy:
Tim.
 
I appreciate any advice or suggestions anyone has to offer.

Sincerely,
WarpSpeed

The following, posted elsewhere, may be of help:

In order to succeed at trading, you must have an edge. Your edge begins with the knowledge you gain through your research and testing that a particular price pattern or market behavior offers a level of predictability and a risk to reward ratio that provides a consistently profitable outcome over time. Without it, one is just "playing" the market in order to have something to talk about on message boards. To get it, you have to know exactly what you're looking for and what to do with it once you've found it. This process is what the journal is all about.

The journal goes through several stages depending on where you are. Once you've decided where you want to concentrate your efforts (at this level, the journal may resemble a diary), then you begin the process of developing a system (or method, strategy, procedure, whatever you want to call it). Here the journal takes on a different character. Once you've developed a tentative/preliminary system, you begin testing/trading it, and the journal adopts a still different character.

The first step is to decide what kind of trader you want to be.

* What do you want to accomplish with your trading? Is it recreational? Supplementary income? A part-time job? Do you want to make a living at it? Even the greenest of the green knows whether or not he wants to make a living at it, trade only part time, trade for recreation, trade for the action, trade to have something to talk about with other traders (for whatever reason), trade only long enough to earn money to do or buy X.

* Do you have any idea what sort of trading is most comfortable? Long or intermediate-term trading? Short-term trading? Day-trading? Trend-trading? Scalping? (Note here that a short-term trader, for example, does not become a long-term trader just because his stop was hit and he didn't sell; a long-term trader doesn't become a short-term trader because he chickened out and sold too soon. Each of these approaches are selected deliberately and for thoroughly-considered reasons.) How patient are you? How adventurous? Are you a leader or a follower (most people think they're leaders)?

The second step is to decide what you're going to trade and when you're going to trade it.

* Have you found an instrument -- futures, stocks, ETFs, bonds, options -- that provides you with the range and volatility you require but also the safety that enables you to relax and trade in an objective and rational manner?

* Have you yet found a time (5m, hourly, weekly) or tick (1t, 200t) or volume (1K, 100K) interval that gives you enough trading opportunities but also gives you enough time to think about what you're doing? If you want to limit your trading to the "morning", are you physically and psychologically prepared to trade all day? If not, can you shrug off whatever opportunities you may miss by limiting the amount of time you spend trading?

The third step is to develop your system*.

A system consists of (a) a set of rules that you use to select profitable positions and (b) a set of rules that you use to manage the trade once you're in it. (*Note: again, whether you call it a system, a method, a strategy, a plan, a scheme, an approach, a procedure, or a modus operandi is not as important as sitting down and doing it.)

* Developing a system begins with deciding just what it is you're looking for. Therefore, begin by studying price movement in real time (or at the end of the day through "replay", if your charting program offers it). By "study", I mean to observe it with intent, not just read about it or listen to somebody talk about it. Note the conditions under which price rises, falls, drifts. Make every effort to avoid imposing your biases onto what you observe. You may see trading as a war, a competition, a game, or a puzzle. You may think you're out to kill somebody, outwit somebody, or are out only to detect the flow and slip into it, riding the waves as if you were sailing. None of this should be allowed to affect what you observe.

* Develop a set of preliminary hypotheses which exploit the profit opportunities presented by these movements, e.g. price began trending "here". Price broke out "there". Price reversed "there". What can I do to take advantage of that? What do I have to look for?

* Decide what strategy will best take advantage of what you think you've found. Are you looking to catch a reversal in the hopes that it will become a trend? Or are you looking to trade series of reversals within the day's or week's range? Or do you prefer to wait for a breakout and trade what may become a trend? Or would you rather wait for a retracement in what may be shaping up to be a trend? Limit yourself to only one strategy at the beginning.

* Carefully define the setup which implements this strategy, preferably using old charts (attempting to define the setup by studying realtime charts is inefficient since you don't yet know what it is that you're looking for). This is called "backtesting". All else flows from this. Unless you know what you're looking for, you cannot test it, much less screen for it. If you have not tested it, you have no idea of the probability of its success. With no idea of the probability of success, any trades made are essentially guesses.

Therefore, focus on the setup. One setup. Determine its characteristics. Define it so specifically and so thoroughly that you can recognize it without any doubt whatsoever in real time. Decide provisionally where best to enter, what the target ought to be, where the stop should be placed, and so on. Only after the setup is defined and tested (and it can't, ipso facto, be tested until it's been defined) can one even begin to think about trading it with real money, much less trading multiple setups. Attempting to shortcut this process merely expands the amount of time it will take to develop the necessary skills. Nothing is gained by painting the house before scraping it, cleaning it, and priming it since you'll have to do it all over again sooner rather than later.

* Forward-test what you have so far, again using old charts, preferably replaying them (if replay is not available to you, then scroll through them, bar by bar). In other words, "pre-test" the setup. Make whatever modifications are necessary to the setup, i.e., re-examine and re-define your strategy. Address risk management, trade management, money management in further detail. Determine the ratio of winning trades to losing trades (you will, of course, have to define "winner" and "loser", which is where risk management and trade management come in). Determine the ratio of profit to loss. Determine the maximum loss. Determine the maximum number of consecutive losers.


Note that beginners often use "win/loss" to combine two separate considerations into one, and failing to keep them separate can create problems. One is win:lose. The other is profit:loss. Between the two, the "lose" and the "loss" have two distinct meanings. Win:lose refers to the ratio of winning trades to losing trades. Profit:loss means, expectedly, the ratio of profit to loss.​


You'll read that the % of winners can be less than the % of losers as long as the winners are sufficiently profitable, one's management is superior, etc. And, yes, theoretically, one can "win" less than 50% of the time if his profits sufficiently outweigh his losses. But if your real-time real-money test begins with a string of the losses anticipated by your backtest, you'll be out of the game almost before it begins. In fact, one can be left high and dry even if his % of wins outnumber his % of losses, as mentioned above, if there is insufficient control of the amount of loss OR if the losses occur in sufficiently high numbers at the beginning of the trial.Then there are commissions and assorted trading costs to take into account, which is why traders who actually trade find that, without size, all the postulations about percentage don't mean much in practice.​

* Paper-trade this plan, in a simulated environment, as a semi-final test, until you are satisfied that it performs at least as well as it did during the previous testing phase. This may take several months or more depending on how many trials you perform. If your plan is not consistently profitable, go back however many steps are necessary to arrive at a potential solution. (See also Making High Probability Trades.)

* Trade the plan using real money in real time, spending only what is absolutely necessary on "tools" (currently -- 2006 -- this is SierraCharts with an IB feed) and trading the minimum number of shares, contracts, etc., allowable. If your plan is not consistently profitable, go back however many steps are necessary to arrive at a potential solution. Recalculate your win rate and profit:loss ratio on a continuing basis.

* If your plan is consistently profitable in practice, increase your size to what is a comfortable level, maintaining a continuous loop of re-appraisal and re-evaluation. When things come unglued, back up as far as necessary to regain your footing.


Novices rarely do any of this. They borrow something from somebody or somewhere and perhaps modify it somewhat, but they rarely go through the defining and testing process themselves. Some just try whatever seems like a good idea and hope for the best.

If one has absolutely no idea where to begin, there is nothing wrong with using a canned strategy IF it is used only as a point of departure. In other words, the canned strategy, regardless of what it is or what claims are made for it, still has to be tested, which often entails taking what is unexpectedly vague to begin with and defining it to a level of specificity that enables the testing to take place (it should come as no surprise that those who do go through the process succeed and those who don't, struggle, often to the point of being driven out of the market). Examples of canned strategies that are reasonably well-defined include the Darvas Box, the Ross Hook, the Opening Range Breakout, O'Neil's Cup With Handle, Dunnigan's One-Way Formula. Some of these are more vague than others and will require considerable work on definition before they can be tested. But they serve as points of departure.

Recommended Books:

Winning the Mental Game on Wall Street (aka General Semantics of Wall Street)
by John Magee (see my review)


The Nature of Risk/How to Buy/When to Sell
by Justin Mamis (see my reviews)


And if you're greener than green . . .

The Wall Street Journal Complete Money and Investing Guidebook

or

Standard and Poor's Guide to Money and Investing

Good luck.

Db
 
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The one thing that never worked for me was 'having a plan' and 'devising a system'. I hate backtesting because the logic of it escapes me. If I want to bet on price patterns based on backtesting, I am really looking to do what a good gambler would do, namely play the numbers and make sure I last long enough.

You definitely have to trade with an edge but that only comes with experience. That is why no amount of backtesting and system devising would make a novice successful. The markets are readable, that is for sure. For me it is a matter of being part of the move. I sit here 12 hours a day, every day. I follow the news, see the impact of the news, see how sentiments change and look at how the price is affected as a result. After a while, you get a good feel for what is happening. I would be sceptical about people who claim a hit rate more than 50% with more than 1:1 ratio without being there all the time. I don't think that happens. Sure, you can do well for a while but I am sure that is purely due to luck.

I do not believe people who are not doing this full time and spending lots of hours can have an edge that is better than chance. What they can do is put trades on, cut their losses and let their profits run. To do that, you can toss a coin, follow the trend, trade support/resistence. Your method is not going to make a difference because you do not have enough information unless this is your job or you spend a huge amount of time doing it.

Making a living trading is very hard. If you currently make £2k in your day job and have 50k to trade with and decide to do it full time, you will be in big trouble very quickly. An experienced trader can make more than £2k from £50 but a novice is almost guaranteed to lose it all because it takes an unbelievable length of time to learn to trade successfully. It makes no difference whether you have a plan or not. Firstly, you are extremely unlikely to have a plan that works. Secondly, even if you did have such a plan, you would not follow it. Things will go wrong and badly.

The cost is too high both emotionally and physically. Unless you have a burning desire and an overidding reason for it, I would not advise people to take up trading. In most cases, it is not worth the pain. By all means be a trader, but get into it with your eyes wide open, be realistic. Most of all, make sure you can take the blows you will receive. Believe me, you will have hard times you never imagined possible. All the advice you get from books and articles don't mean anything. You will find the whole thing unfathomable.

You have to be an exceptional human being to make this work. You have to think outside the box. You will find, after all said and done, this is about three things: intelliegence, experience and lots of courage. The trouble is your chances of getting there are very very slim. Realise all of this and be honest. This is the price, are you prepared to take it? If your answer is 'yes', then you will succeed. If you doubt how hard it is going to be and tell yourself you are a different case, don't even think about doing this.

Good luck and happy holidays.
 
Keep in mind also that "trading" encompasses a great deal more than just scalping, nor does trading require sitting in front of a screen for 12 hours a day. Decide first just what it is that you want. Then determine how you're going to go about getting it. If that requires being at your computer all day, so be it. But if that's not what you want to do with your day/life, reexamine your goals.

Simply having a plan will provide you with more of an edge than the vast majority of traders, beginning or otherwise.

Db
 
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