Help me pick a market based on my strengths

[GriffinCO]

Hi All,

New to investing...read all the "New" stickies and "Essentials" threads. There is way too much information to try to learn everything about every market. Would love some help narrowing down the fire hose and choosing a market to get started with based on my strengths. So here's a quick overview:

Style: Swing Trading (I have a day job and can devote about 4-5 hours/week, can trade via app if necessary, though not always timely.)

Strengths:

- Great pattern recognition

- Strong Geopolitical analysis and forecasting (predicted Russia's moves step-by-step since the ousting of the Ukrainian president...including the taking of Crimea and continued build up on Ukraine's eastern border.) I have a very good track record at predicting country moves based on national security interest. This includes socio-economic decisions.

- Fairly technical background -- degree in physics/mathematics, work as a software project manager

- Avid meditator -- 15 years and sit daily for 30-40 minutes in the morning

- Strong ability to read people (Air Force Officer for 10 years, worked on masters in psychology)

- Very disciplined -- can work long term goals both personal and professional, bodybuilding, meditation, projects, budgeting


I enjoy geopolitics and pattern recognition quite a bit. Would be more like play than work for me. I can be very patient and have money set aside for investing that won't kill me to lose, nor is there pressure to win. I like figuring things out and applying methods and sticking to them. Consistency is a good way to describe a good part of my personality. I can also be very dynamic and have strong feelings when I "know" I'm right.

Sorry for the long post, but I wanted to give you ladies/gents enough information to make a fair recommendation for me. I don't want to be a jack of all trades (pardon the poor pun), just work to become exceptional in one small area (only going to another when I have the first one down cold.)

Thanks for taking the time to read this and for providing your recommendations.

Cheers!
Jamie

 

[I'vereadthemall]

Hi Jamie,

My suggestion would be to trade stocks and etfs. This way you have plenty of scope for putting your geopolitical brain to work. Forex is an obvious market but there are far less ways to be clever in the forex market than there are with individual stocks.

Which companies rely on Ukrainian factories for manufacturing, etc. which stocks have been hammered in anticipation of further trouble in Ukraine, and which are most likely to have a strong bounce if Ukrainian tensions ease? Which energy companies benefit if Sweeping sanctions are imposed on Russian energy exports? Etc, you get the picture.

My advice would also be to employ a medium term to long term trend following strategy and don't try and profit from the small moves.

As you know, geopolitical themes play out over weeks and months. The daily fluctuations are the media driven noise. Longer term perspective coupled with proper understanding of events will help you gain good entries from the noise created by the media and will also help you to stay with your position.

You should use trailing stop - losses if you take the trend following route.

I'd be careful, with ever feeling that you "know" you are right. That's when you risk it all on a single trade and it simply doesn't pan out. Better to have the attitude that you are 60% certain you are right, so I'd better not risk more than 5% on a single theme.

Diversify across uncorrelated assets. That is where the etfs come in handy. Again using Ukraine as an example, $CORN was a fine trade if you understood the dynamics at play.

I say trend following in particular because then you are not a Jack of all markets, master of none. You are master of one strategy which allows you to trade all markets. It is mechanical, testable and offers the perfect way to take advantage of global trends because when the trend following breakouts occur, you will have a far better opinion of whether the breakout is likely to be sustained based upon your better understanding of the geopolitical events that are underpinning the breakouts.

Hope I've given you something to think about.

Good luck!

 

[GriffinCO]

Hi Jamie,

My suggestion would be to trade stocks and etfs. This way you have plenty of scope for putting your geopolitical brain to work. Forex is an obvious market but there are far less ways to be clever in the forex market than there are with individual stocks...

This is fantastic insight, just the kind of advice I'm looking for. Especially the parts about trend trading and risk management when I "know" I'm right.

I think it was Sun Tzu that said, "Know the market and know yourself and in a 1000 trades you never blow up your account." Or something like that... :whistling

 

[teflon142]

I would say FX options

 

[NVP]

I would recommend you immerse yourself in learning broadly about the markets and methods of trading .......it will take about 6 months pushing hard

then start to specialise from there after this roadtrip

the markets will wait .......

and they wont care if you are a Fishmonger or an Finance Director, an Opera singer or an OAP ...................it will treat you just the same .......I promise

N

 

[hyunski]

Stocks would be best...may be biased but stocks are all about information, psychology and timing. You look for explosive fundamental trends to choose the stocks, look for fearful psychology and divide up your buys to get a relatively low price. Then you flip it to new buyers.

Here's an analogy:
You start buying playstation 4's in september when prices are relatively low, with the foresight that in december, ps4 prices tend to go up due to christmas. You then flip it to buyers in december for a profit.

The same idea goes into stocks...anticipate a non-speculative catalyst with a set time that it will happen on, start buying when prices are seeing an inflection point at a low, then flip it when the catalyst becomes publicly known. If you like fundamental analysis of concentrated information you'd probably prefer stocks...but if you're more macro/world news and widespread information, then FX, although the embedded leverage really requires you to be a day trader than a position trader.

Also, stocks require you to figure out investor psychology. You want to know who's shorting, what institutions are buying, if insiders are selling, etc which can be a fun game in its own regard.

Stocks have the advantage of less waiting time...there are thousands out there and as long as you collect information quickly enough, you don't have to "wait" for the right setup if you have a screener you can trust.

Stocks also have the effect of diversification. This largely reduces volatility in your account and your temperance since you're not all-in on one single asset which stresses you out. Might want to read about kelly criterion since you have an engineering background.

Stocks aren't uniformly liquid though, which can be a pain if you've chosen a stock that you really like. If it's illiquid you have to wait longer to get in and take more risk.

Stocks have HFT's scurrying around for every chance to rip you off. This again means that you should trade only liquid stocks that can limit your options.

Stocks can also go bankrupt within days, which doesn't happen in commodities/fx although options can go to zero.

Stocks force you to make bets on quarterly earnings if you're a position trader, which exposes you to unwanted price volatility.

Also, technical analysis works differently on stocks. For example, NYSE stocks behave very differently from NASDAQ. Utility stocks behave very differently from biotech, etc. Here's a short theory I've developed on stock market technical analysis, or just "when you should roughly buy and sell" (http://www.speedyshare.com/6BRmn/Theory-of-Stocks.pdf)

There are a lot more aspects but if you have a military background I don't think it's too different from having your own "situation room" where information comes in quickly and you analyze what it means to make your trading decisions. Here are a couple of resources to get you started for stocks. I use all of them:

finviz.com - screener, news, charts
freestockcharts.com - intra-day stock charts
insider-monitor.com/search.html - insider trades
whalewisdom.com/stock/ - institutional trades
biz.yahoo.com/ic/ind_index.html - industry specific news
businesswire.com/portal/site/home/events/ - monitoring trade shows for new products
seekingalpha.com/news/all - news, earnings transcripts (forget WSJ, bloomberg, etc. this is most relevant)
finance.google.com - quick check on company financials
sec.gov/edgar/searchedgar/companysearch.html - your #1 primary information source on stocks

Other tips:
1. Please please please trade small until you understand what is actually going on. You will remember this when you lose a lot of money on an impulsive trade. I only roughly figured out what is going on 2 years into this, and after losing 70% of my account.
2. Don't use leverage until you figure it out
3. If you don't like keeping journals, at least keep a blog to formalize your ideas. You'll be surprised at how valuable it is forcing yourself to post ideas to the public, because you will have to structure your idea/post as well as in your head.
4. The most important thing is building an infrastructure that you can gather information from (news, prices, etc). Analysis comes AFTER this.
5. Your analysis should occur in this order: technical --> fundamental --> intra-day technical
* Is it cheap to even consider buying? --> Why should I buy this? --> How can I get the cheapest price?
* Don't waste your time doing fundamental analysis on a stock that jumped 20% yesterday...you know you shouldn't even consider buying anything remotely expensive
6. Despite this order, technical analysis is always secondary to fundamental analysis. What drives stock prices is information, and there needs to be a strong reason for people to buy. Technical analysis is only about getting in at the best price, nothing else.
7. Use limit orders, it is ALWAYS worth the wait.
8. Don't feel guilty holding cash. It is better than holding something that loses money.
9. If you immediately feel guilty/unsure after you execute a trade, get out immediately. If prices go south, you just saved money. If prices go up, you just saved yourself from reinforcing bad, speculative behavior.

There is a lot more, but they don't get fully appreciated until you actually experience losses and realize why your behavior was wrong.

 

[rsh01]

ignore everyone else, choose learning PA

then you can choose to trade whichever financial instrument / market you want.

the skill is the same with any, imo.

g/l

 

[Forexmospherian]

Hi Jamie

I see you have not listed your weaknesses and many might look upon those as more important than your strengths . If you feel you don't have many just ask your partner - or ex partner - they normally know

I agree it best to be really good at one area than a jack of all trades - but you do need to check out all the different financial instruments.

For instance I looked at stocks and shares and played about with them for a few years before going into the FX market. For the last 11+ years I have only ever traded currency pairs and never look at any other instrument or market at all - and as far as I am concerned - there are differences - but you do need the same main skills to have any chance of making money from any probability "game"

Also unfortunately some of the strengths you have mentioned can be looked upon as weaknesses for trading - so be aware of that - especially if you only are part time with 5 hrs a week

Good Luck

Regards

F

 

[I'vereadthemall]

This is fantastic insight, just the kind of advice I'm looking for. Especially the parts about trend trading and risk management when I "know" I'm right.

I think it was Sun Tzu that said, "Know the market and know yourself and in a 1000 trades you never blow up your account." Or something like that... :whistling

If I were you I'd read 'how to make money in stocks', 'trend following', 'following the trend' and 'the honest guide to stock trading'.

They each cover risk management and trend following strategy in detail.

 

[wallstreetwarrior87]

Strengths:

- Great pattern recognition

- Strong Geopolitical analysis and forecasting (predicted Russia's moves step-by-step since the ousting of the Ukrainian president...including the taking of Crimea and continued build up on Ukraine's eastern border.) I have a very good track record at predicting country moves based on national security interest. This includes socio-economic decisions.

- Fairly technical background -- degree in physics/mathematics, work as a software project manager

- Avid meditator -- 15 years and sit daily for 30-40 minutes in the morning

- Strong ability to read people (Air Force Officer for 10 years, worked on masters in psychology)

- Very disciplined -- can work long term goals both personal and professional, bodybuilding, meditation, projects, budgeting




Thanks for taking the time to read this and for providing your recommendations.

Cheers!
Jamie

I agree with RHS01.

Firstly get an overall grounding of market dynamics (you chose what you think is needed). Then use your skills in reading people, and apply this to price action. After a few months you will then be able to deduce the elements of the market dynamics you need to be able to progress.

Please don not see pattern recognition as anything more than it is. If your strength is understanding a pattern, then this is a different matter, and as a result you will have a pretty high success rate with your trades when you are doing the business.

Pattern recognition = seeing is believing! If you are good at reading people, then you will work it out over time.

So a little point to ponder, if you did see pattern recognition as your strength; would you there for see it as your weakness when the pattern fails?

Enjoy the ride

 

[GriffinCO]

Lots of great advice here. Thank you all for the recommendations and insight. Love the book suggestions I'vereadthemall...certainly appeals to my research-oriented nature (being well-prepared makes it easier to proceed with confidence when I see everything come together.) And EXCELLENT point about understanding the patterns, Wallstreetwarrior.

I LOVE psychology. Understanding the motivators that drive peoples' actions are fascinating to me. And you learn a lot about the ego (especially your own) through meditation.

Great points about weaknesses (the bit about asking my ex's gave me a good chuckle with the truth of it.) Here's a few:

- Can think I'm the smartest guy in the room
- Can be stubborn
- Can get bored with anything that's rote...patience I can have in spades, but for the love of God please don't make me do the same mundane task over and over again


I try to be aware of those (meditation helps), but they're the flip side of some of my strengths. Also try to balance some of those out with discipline (probably the flip side of stubbornness.)

Thanks all for taking the time to post thoughtful responses. This helps tremendously!

Jamie

 

[I'vereadthemall]

Lots of great advice here. Thank you all for the recommendations and insight. Love the book suggestions I'vereadthemall...certainly appeals to my research-oriented nature (being well-prepared makes it easier to proceed with confidence when I see everything come together.) And EXCELLENT point about understanding the patterns, Wallstreetwarrior.

I LOVE psychology. Understanding the motivators that drive peoples' actions are fascinating to me. And you learn a lot about the ego (especially your own) through meditation.

Great points about weaknesses (the bit about asking my ex's gave me a good chuckle with the truth of it.) Here's a few:

- Can think I'm the smartest guy in the room
- Can be stubborn
- Can get bored with anything that's rote...patience I can have in spades, but for the love of God please don't make me do the same mundane task over and over again


I try to be aware of those (meditation helps), but they're the flip side of some of my strengths. Also try to balance some of those out with discipline (probably the flip side of stubbornness.)

Thanks all for taking the time to post thoughtful responses. This helps tremendously!

Jamie

Hey Jamie,

I hate to tell you but profitable trading largely involves doing the same mundane task over and over again!