Best Thread Everything you always wanted to know about trading...but were afraid to ask!

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trader_dante

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Aug 18, 2005
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#1
This one is for the total newbies :)

I thought I'd answer just some of the questions I see asked all over this forum, time and time again and answer them all in one place.

I'm not some kind of guru so you may decide to take what I say with a pinch of salt but I do have considerable experience and I am a consistently profitable professional :)

Here are my views on some pertinent issues. Hope I don't get in a slanging match with anyone - it's just my 2 cents. Everyone will have different opinions. With that in mind, I'm not going to say "in my opinion" in every answer I provide.

Is trading just gambling?

The way most people approach the markets - YES. But a professional trader has an edge that plays out over time, meaning that whilst the outcome of any one trade may be uncertain, the outcome of many trades have sufficiently great odds, that the trader is highly likely to come out ahead. Think about it like this: we all see the person that frequents a casino as a gambler but is the casino itself gambling? Yes and No. A punter may get lucky and take a huge amount of money off of the house but the odds are stacked in the houses favour (the green box on the black and red roulette wheel and the house limits as two examples) sufficiently enough to assure that over the long run, they continue to stay in business.

Is trading as exciting as the media makes it out to be?

Perhaps trading in general is...the possibility of big wins or big losses, the emotional rollercoaster that occurs naturally as a result of entering positions...the steep rises and declines in the global markets and the potential they bring...the pictures in the media of people holding their heads as markets plummet or the clamour of the traders in the pits...this creates an aura of excitement to the novice. But what I have found is that the big earners treat it much like any other job. The longer term traders spend half their time waiting before entering and then entering and sitting on their hands which in itself is somewhat dull...even the short term traders just click away - making profits, making losses...the odd bit of news or extraordinary market move creates a momentary flicker of excitement to relieve the tedium but on the whole...it's just a job like any other. I've found that the more you make and the better you get, the less exciting it becomes.

What type of trading is most profitable? Scalping? Swing trading? Position trading?

Very hard to answer. But I believe the best traders do a mixture of all. They know when to scalp and when to try and run a position.

Should I spreadbet or should I go direct market?

This has caused more debate than anything else on boards like this. My answer is as follows: if you have a small amount of money to begin with, you should start off spread betting. If you are swing or position trading and intend on making a lot of money, you should, again, be spread betting where the spread or manner of execution (delays, slippage) matters little and the tax saving is sufficient to make it worthwhile.

On the other hand, if you want to scalp, you should go direct market where trading execution is paramount - trading at the best bid and offer is of necessity and the true dynamics of the market can be learnt and studied.

Do the people that make millions have any kind of edge that Joe public can't get?

No way. The people that make millions are, for the most part, trading off of patterns that they have observed from watching the markets time and time again. Patterns that form as a result of what everyone else in the market is doing. And support/resistance is always one of the most often watched and used tools among consistently profitable and high earning traders. I have never seen anyone doing anything that cannot be done from the comfort of home. Again, for scalpers, you will need super quick execution (perhaps even a direct connection to the exchange) but apart from that, we are not talking about inside info or magic indicators known to only the privileged few.

How much capital do I need to begin?

If you simply want to learn the ropes, you can start these days with as little as £10, betting pennies to see if you are right or wrong and how you handle yourself. If you want to earn a living off of trading I would say you probably need around £10,000. However, once you know what you are doing, you can get £10,000 starting from next to nothing. I have made that amount many times over from starting stakes of as little as £50.

How much can I earn trading? And how long until I could realistically make £1m?

The sky is most certainly the limit but it really depends on your stakes. It is realistic to assume that a proficient scalper can average at least 20 ticks, per contract, per day, fairly effortlessly and a good swing trader will average the same amount when you divide their net gain by the time taken to make it. So if you are trading at £1 a tick thats £20 a day income, or £10 a tick, that is £200 per day income.

To answer the second part of that question: I took it from a good source who has seen hundreds, naybe even thousands of grads come through his doors, that the quickest anyone has ever made a cool mill from a standing start of zero (with margin to take a trade) is two years.

Who should I listen to on these boards?

Anyone as long as they DON'T tell you that something CANNOT BE DONE. If someone says those three magic words, run a mile.

Is there any kind of system out there that can make me big money with little work?

Again, often debated. The simple answer is MAYBE. People often say "If a system is so profitable why is someone selling it"? The reason may well be that the trader who created it, cannot seem to follow it. Again, this is why many (but note, not all) traders who failed to make or keep money become seminar speakers or write books. It doesn't mean they don't know how to trade. They may well be the most reliable fount of knowledge out there but for some reason they cannot do it themselves. They cannot put into practice what they know to be true. This is a very hard phenomenon to understand but it is 100% true. KNOWING AND DOING ARE TWO COMPLETELY DIFFERENT THINGS. But since we are all unique, you don't necesarily need to learn off a doer, just a knower ;)

Going back to systems that are sold all over the place though (money back guarantee - 300% profit every 5 days - you know the score), the problem is: if

50% of systems sold are created by charlatans, are useless and don't work and;
50% of systems have an edge but rely on strict following of rules (which most people cannot seem to do)

Where does that leave the system buyer?


What is the quickest way to learn how to trade?

Spend as much time as you can watching the markets and how they move. But rather than starting aimlessly at a chart, use a frame of reference. By that, I mean, look at popular patterns and see how the market plays them out. When the market accelerates towards support is it more likely than not to break or hold? When the market takes out an obviously visible pattern like a head and shoulders does it go without looking back or does it retest? Does the European and US daily trend continue on in the Asian session or is it faded? How far does the market move in a straight line before a pullback? Watch and absorb. Takes notes.
 
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sighthound

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Aug 20, 2006
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#2
TD from your own experience and opinion could you give a summary of the pitfalls or mistakes that traders should try to avoid the most whilst on the learning curve.
 

trader_dante

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#3
TD from your own experience and opinion could you give a summary of the pitfalls or mistakes that traders should try to avoid the most whilst on the learning curve.
There are so many I would be here forever...

But here are a few:

1) The biggest pitfall is wanting to get rich quick and therefore risking too much. I had a PM from a person that shall remain unnamed, recently, telling me that they had had great success on a strategy and then blown their whole account trading at £75pp and higher with only a 15k account. The math is not hard...20 ticks offside and you are down 10% of your net worth...No matter how well you are doing you should always protect your capital first and foremost. Think about how to get the biggest "bang for your buck" i.e successful pyramiding or excellent entry and holding for the duration of a trend rather than just cracking something at massive size and hoping it comes good.

2) A massive pitfall is thinking that you have to be trading all the time to make big money. This, is, I am sure, why people start off trading on the 5m tf. Look at the oppportunities! The market is moving up and down all day! It took me a long time to realise that the high probability trades are not, for the most part, coming at a rate of fifty per day. There are a few excellent opportunities to make big money that come along depending on your trading style and the game is to work out what these are and when they occur. Many new traders like to look at every massive green and red candle on the chart with hindsight and imagine how much money they could make by catching every swing. The sooner a trader realises that they cannot catch every move but they can make big money without needing too, the quicker they become consistently high earners.

3) Try to avoid the OBVIOUS trades. E.g. news hits the wires that there is only 2 days supply of Oil left in the world, massive green candle appears on the charts, so you so go long immediately. All you are going to do is provide liquidity for the big boys who need size to get out.

4) A major mistake is spending all your time looking for that elusive system that works 100% of the time. You can make more money than most people dream about by being right only 10% of the time. What matters is how much you win when you are win and how much you lose when you lose not how often you win or lose!

As far as systems go, all you really need is to understand the basic concepts of support/resistance and how markets move (e.g. large trend up/down, bull or bear flag continuation pattern, breakout...this is the most common and the most obvious. Newbies have no idea how there are kids out there making MILLIONS trading this obvious sh*t and not trying to be clever with multiple indicators and the like.

Also, far too much time is wasted by new traders trying various things out and not giving any of them long enough to work out for them. This was a major mistake I made: I would try one thing out and then the first time it had a couple of losers I would go on to the next best thing.

5) A big mistake is that of wanting to be RIGHT rather than wanting to make MONEY. This means you hold on to your losers (don't worry, they will come back, I will be RIGHT, I don't have to take a loss on this) and you don't hold your winners because you are scared you're suddenly going to be wrong and give back what you made so take the profit quickly - it may be small but at least you were right...etc

6) Wanting to do what someone else is doing is a major pitfall. There is a big difference between what a person wants to do and what they are good at doing. If you are not quick thinking, you are not aggressive and you don't have the time to devote to it, you should not be thinking of scalping just because you heard there are some legendary traders doing it. Equally, if you don't have a huge amount of capital and you are not extremely patient and are not versed in fundamentals you are not going to become the next Warren Buffet or George Soros. You have to play to your own individual strengths and away from your weaknesses. And the sooner you work out what these are the better for your trading.
 
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Apr 16, 2008
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#4
"If you want to earn a living off of trading I would say you probably need around £10,000."

Just out of curiosity, how much do you risk per trade to be able to make a living off of 10,000?
 

trader_dante

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#5
"If you want to earn a living off of trading I would say you probably need around £10,000."

Just out of curiosity, how much do you risk per trade to be able to make a living off of 10,000?
You could risk 5% (£500) and make a comfortable living off of that...(a return of say £500-£1,000+ per day on average)...

In spread betting terms I was earning a living off of about £50 risk per day...a living being £75 - £150 per day after tax.
 

new_trader

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Jan 1, 2006
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#6
5) A big mistake is that of wanting to be RIGHT rather than wanting to make MONEY. This means you hold on to your losers (don't worry, they will come back, I will be RIGHT, I don't have to take a loss on this) and you don't hold your winners because you are scared you're suddenly going to be wrong and give back what you made so take the profit quickly - it may be small but at least you were right...etc.
I disagree 100%. I think most of what you have written appeals to hit-and-miss trading. Do you honestly think you have to tell people who come here to learn how to trade that they need to want to make money? :rolleyes:

I'm sure system vendors only appeal to those who want to be right...that is why there are so many around! :LOL:
 

new_trader

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Jan 1, 2006
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#8
Yes.

Because there are many people that think they want to make money, when in actual fact they do not. They want something else out of the market.
Strange that you talk about gambling , 'edges' and proficiency and then go on to say that being right shouldn't be the motivation.

Anyway, I am not going to argue, my opinions are expressed perfectly in this article so there is no point in repeating or rephrasing. It won't appeal to those motivated by the want of money.


http://www.trade2win.com/boards/701936-post15.html
 

forker

Well-known member
Jul 12, 2008
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#9
Strange that you talk about gambling , 'edges' and proficiency and then go on to say that being right shouldn't be the motivation.

Anyway, I am not going to argue, my opinions are expressed perfectly in this article so there is no point in repeating or rephrasing. It won't appeal to those motivated by the want of money.


http://www.trade2win.com/boards/701936-post15.html
i totally agree with dante on this one, trading is exactly like gambling "mentally that is". a typical trader doesnt think in probabilities and tends to think of their system as telling them something is going to happen when all it really is giving is a probability. no 2 trades are alike and as simple and "duh" this may sound to someone making money its the main reason a typical trader constantly adjusts his methods and moves onto other methods. why do they hang onto losers, why do they speak as if their system is yoda? its because they think in the now moment and not the bigger picture. some of you say an edge doesnt exist, others do, what is an edge.. its nothing more than some kind of pattern that has a probably outcome weighted on one way more than the other. it doesnt mean it wil work now, or the next or even in 7 losers in a row but over time it does work itself out to give you an edge which is simply the higher probability of an outcome.
 
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0007

Well-known member
Jun 19, 2005
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#10
There are so many I would be here forever...

But here are a few:

5) A big mistake is that of wanting to be RIGHT rather than wanting to make MONEY. This means you hold on to your losers (don't worry, they will come back, I will be RIGHT, I don't have to take a loss on this) and you don't hold your winners because you are scared you're suddenly going to be wrong and give back what you made so take the profit quickly - it may be small but at least you were right...etc
Totally agree with this. Until I forced myself to acknowledge (and act upon) that it's your overall plan and overall results that need to be right this gave me significant problems. Psychologically I still find it hard to admit that I am wrong and the market is always right about any individual trade (no shame - I'm a bloke aren'i ? :LOL:).

Trades are like London buses and tube trains: miss one - no hassle, there'll be another one along soon.
 
Feb 20, 2008
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#11
Who should I listen to on these boards?

Anyone as long as they DON'T tell you that something CANNOT BE DONE. If someone says those three magic words, run a mile.
So if someone asks if they can plant some magic beans in their garden to grow a money tree, they should ignore those that say it cannot be done ?

There's plenty of stuff that cannot be done.

Only taking positive advice is called "confirmation bias" - you should read up on it, it's the cause of many lost shirts.
 

trader_dante

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#12
So if someone asks if they can plant some magic beans in their garden to grow a money tree, they should ignore those that say it cannot be done ?

There's plenty of stuff that cannot be done.

Only taking positive advice is called "confirmation bias" - you should read up on it, it's the cause of many lost shirts.
I simply mean, mate, there are a lot of people that will tell you something cannot be done because they cannot do it themselves.

Look at all the goons that shout off on these boards saying that you CANNOT make money spread betting for example...what a lot of horse****.
 
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trader_dante

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#13
Here are just some of the facts I've been told in my trading career from other "traders":

"You cannot make money spread betting as the companies are corrupt and will not let you win"

"Pin bars don't work".

"You cannot make money trading news"

"You cannot make money using tight stops"

"Technical analysis doesn't work with any consistency"

"You should never let a winner turn into a loser"

"You can never go broke taking small profits - You cannot make money trying to go for home runs"

And many, many more. So many I can't remember most of them.

And the funniest thing is, between me and some of the guys I sit with, we have, in our own trading, disproved every single one.
 
Feb 20, 2008
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#14
Here are just some of the facts I've been told in my trading career from other "traders":

"You cannot make money spread betting as the companies are corrupt and will not let you win"

"Pin bars don't work".

"You cannot make money trading news"

"You cannot make money using tight stops"

"Technical analysis doesn't work with any consistency"

"You should never let a winner turn into a loser"

"You can never go broke taking small profits - You cannot make money trying to go for home runs"

And many, many more. So many I can't remember most of them.

And the funniest thing is, between me and some of the guys I sit with, we have, in our own trading, disproved every single one.
I hear that...

Actually if someone can give me instructions for this one : "You should never let a winner turn into a loser" it would be most appreciated !!
 

foredog

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Oct 15, 2007
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#16
I hear that...

Actually if someone can give me instructions for this one : "You should never let a winner turn into a loser" it would be most appreciated !!
Maybe it should be more like...don't let a large profit turn into a larrge loss.

eg if you're up 2 pips/points/ticks don't immediately pull stop up to Breakeven

BUT

if you've risked 50 and you're up 150 then don't give back 200 shooting for 10 more.
 

trader_dante

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#17
It really all depends on your style of trading...a scalper is not going to let a 10 tick win turn into a loser at all....unless they really can't help it...position traders will probably be much more likely to see price fluctuate onside and offside, particularly if their analysis is good but their timing isn't...

I know that for my personal strategy, the quickest way to turn it from a winning strategy into a losing one is to to move your stop to breakeven or lock in profit too quickly. This is regardless of how much I am up. On Cable right now the latest setup is up 293 pips and the stop is placed where I will take a loss of 30 pips.
 

foredog

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Oct 15, 2007
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#18
It really all depends on your style of trading...a scalper is not going to let a 10 tick win turn into a loser at all....unless they really can't help it...position traders will probably be much more likely to see price fluctuate onside and offside, particularly if their analysis is good but their timing isn't...

I know that for my personal strategy, the quickest way to turn it from a winning strategy into a losing one is to to move your stop to breakeven or lock in profit too quickly. This is regardless of how much I am up. On Cable right now the latest setup is up 293 pips and the stop is placed where I will take a loss of 30 pips.
You have moved up that stop though so the trade had a ???pips stop and now that potential loss has been reduced drastically so your winning trade would not turn into a LARGE loss.
 
Feb 8, 2009
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#19
You might want to use something like this.



euro charts Pictures, euro charts Images, euro charts Photos, euro charts Videos - Image - TinyPic - Free Image Hosting, Photo Sharing & Video Hosting

Red A & B show two previous swing points giving us a true TDM trend line. Line 1 (the yellow Line)

Imagine that point C (the red C) is your next swing point (I do this with certain indicators), we then take the Yellow Line and transfer it to point C (the red C) and use this trend line as a stop loss line until we get a true TDM trend line (which is the black line from the black A to the black C and then this becomes our stop loss line.

Now when your indicators reach a certain point you stop taking notice of the trend line and in the case of the charts shown you use the low of the previous candle -1 as your stop loss.

I use this technique to maximise the runs that I get into.

cheers
 

Taylored001

Active member
Nov 20, 2008
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#20
Heres a simple method that i wouldn't call gambling. Most people won't like it but the fact is i've made money using it overall through the past, i don't use it anymore i have a better technique :p
Use this on the FTSE100; Just DO it. Don't change it.
1) On the 4-hour chart, use the 5EMA and 10EMA to define the trend, (Up or down) If the current bar is crossing over the EMA's; don't trade until its finished. So first question; 4-hour chart up or down?

2) On 4-hour chart is stochastics headed in direction of trend (overbought/oversold is fine) ?

If the stochastics is heading up and the 4-hour chart is up. (We'll call this condition 1)
OR
the stochastics is heading down and the 4-hour chart trend is down. (We'll call this condition 2)

Move onto step 3.

3) If in condition 1, on the 5-minute chart, wait for the MACD to be negative. When 3 increasing bars of MACD histogram occur, enter the trade, have a stop of 15 and target of 12.
The MACD depending on your platform should be red on the 3rd bar of increasing value (not green yet)

If in condition 2, on the 5-minute chart, wait for the MACD to be positive, When 3 decreasing bars occur on the MACD histogram, enter the trade, stop of 15, target 12.


Persist with it, overall it wins. In consolidations (flags etc) its easier to lose, but the clear strong bull parts of the 4-hour chart give so much opportunities and wins that they completely offset any losses. So just persist with it, it will make you money.

Now; risk management.
Only trade 1% of your total capital on any single trade.
So if you have 10,000, each trade should risk 100.
To calculate this, do your total risk (100) divided by points risk (which in this case is 15)
AKA, £6.333 per point.

Don't give up, do this strategy and it will work - i don't want to see you moaning on the forum tommorow asking for a good strategy because this didn't work today. Do it for a week, you'll be pleased.
 
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