Trader Q&A's

Morris -
Agree with everything you wrote except that bit about 'making £50 per day'. The actual amount is immaterial £5, 5p, 5 million, the fact is that you are thinking about the money again. Then the natural inclination is to multiply that £50 by 250 working days and think '...mmmmm... £12.5k /year for an hours work each day....yeah, great!' You will automatically cut your profits short and probably let you loses run.
As far as I am concerned, never think about the money on a day to day basis, think about having the correct position size, the stops in the right place and the correct price target. The money doesn't come into it.
 
hjk,
Perfect scenario as long as you've got a second income or a legacy.
Dr. Elder reckons you probably need £100k and be v. good to 'trade for a living'. Sounds about right and that is the problem.
How do u earn a living at a 'normal' job and make consistent profits trading the markets at the same time ?
 
Hi Sift2win
Sorry, these message boards confuse me sometimes, which scenario was that?

I'd agree with Dr. Elder. £100k minimum.

Me, personally? i trade full time. But I think it would be possible to trade successfully whilst holding down another full time job. Obviously your time frame is going to have to be much longer, days if not weeks. Stop losses and target prices will be much larger which means trading size will be v.much reduced. The upside is that you should be trading a lot less frequently (so commission charges shouldn't be a problem) and just 'end-of-day data' is required not 'real time' which will be cheaper. It is a different kettle of fish to 'day-trading'.

Are you going back to full time emplyment or p/t? Will you still keep up your interest in the markets? Any regrets?
 
Hi hjk,
the scenario of not thinking about the money. I was working 2 days anyway but offer came up I had to take. I will be home based so can keep an eye out on what's happening. Agree with your analysis about longer time frames and wider stops. I do regret not becoming a skilful 'day trader' but found myself in a cul de sac as no-one I knew was interested or could help when things went wrong. I have learned tons so will never give up. Actually think that with you guys to talk to now and being better off I will trade better. We'll see. Still want to be able to say I make my living as a trader. So far I fit the bill with all the patience, discipline bit, just where is the fun and the rewards. The irony is that as I became more knowledgeable and wanted to start real time/short term trading I had run out of money. So back to the grind and save up for another try. Have just joined Society of TA, fancy getting the qualification.
Good luck.
 
Morris -
Yes, the number one rule in life AND trading is 'follow your own light' (or variation of same)

But I'm talking about rules 2 to ten of trading, break too many of those and you might as well hit the roulette wheel.

Hjk
 
Well here's a list of rules which I think are pretty good.

Courtesy of Alan Farley [author of Master Swing Trader]

20 RULES TO STOP LOSING MONEY IN 2002

1. Don't trust others opinions -
It's your money at stake, not theirs. Do your own analysis, regardless of the information source.

2. Don't believe in a company -
Trading is not investment. Remember the numbers and forget the press releases. Leave the American Dream to Peter Lynch.

3. Don't break your rules -
You made them for tough situations, just like the one you're probably in right now.

4. Don't try to get even -
Trading is never a game of catch-up. Every position must stand on its merits. Take your loss with composure, and take the next trade with absolute discipline.

5. Don't trade over your head -
If your last name isn't Buffett or Cramer, don't trade like them. Concentrate on playing the game well, and don't worry about making money.

6. Don't seek the Holy Grail -
There is no secret trading formula, other than solid risk management. So stop looking for it.

7. Don't forget your discipline -
Learning the basics is easy. Most traders fail due to a lack of discipline, not a lack of knowledge.

8. Don't chase the crowd -
Listen to the beat of your own drummer. By the time the crowd acts, you're probably too late…or too early.

9. Don't trade the obvious -
The prettiest patterns set up the most painful losses. If it looks too good to be true, it probably is.

10. Don't ignore the warning signs -
Big losses rarely come without warning. Don't wait for a lifeboat to abandon a sinking ship.

11. Don't count your chickens -
Profits aren't booked until the trade is closed. The market gives and the market takes away with great fury.

12. Don't forget the plan -
Remember the reasons you took the trade in the first place, and don't get blinded by volatility.

13. Don't have a paycheck mentality -
You don't deserve anything for all of your hard work. The market only pays off when you're right, and your timing is really, really good.

14. Don't join a group -
Trading is not a team sport. Avoid stock boards, chatrooms and financial TV. You want the truth, not blind support from others with your point of view.

15. Don't ignore your intuition -
Respect the little voice that tells you what to do, and what to avoid. That's the voice of the winner trying to get into your thick head.

16. Don't hate losing -
Expect to win and lose with great regularity. Expect the losing to teach you more about winning, than the winning itself.

17. Don't fall into the complexity trap -
A well-trained eye is more effective than a stack of indicators. Common sense is more valuable than a backtested system.

18. Don't confuse execution with opportunity -
Overpriced software won't help you trade like a pro. Pretty colors and flashing lights make you a faster trader, not a better one.

19. Don't project your personal life -
Trading gives you the perfect opportunity to discover just how screwed up your life really is. Get your own house in order before playing the markets.

20. Don't think its entertainment -
Trading should be boring most of the time, just like the real job you have right now.
 
The thing about it being easier psychologically to accept a loss of £50 than £500 is easily explained. If you are trading with a pot of £1000 and get totally wiped out it is far easier to find another £1000 to start again than it would be to find another £10K or £100K. Therefore position sizing on the 1K can be less conservative without exceeding the comfort zone and leading to bad trading (such as failing to cut losses/run profits). But double the account size to 2K and the effects of a total wipe out get worse - in the case of FTSEB he would still have to go and get a job to save up another starting pot, but it would take twice as long to get back to the same level. So the comfort zone for position sizing naturally becomes more conservative. It is certainly possible to do very well indeed day trading with a 5K or 10K account, but the appropriate position sizing needs to be psychologically comfortable and it won't be unless the money in the account is replaceable - because the trader in question has another source of income or the 100K capital Elder mentions.

FTSEB, what have your experiences of increasing position size been, if you have done it?
 
Sifts2Win -
Trading is the most lonely occupation in the world even when sitting in a room full of other traders.
For me, thankfully, i am an anti-social git anyway.

You say you 'still want to be able to say I make my living as a trader'. Doesn't that imply an 'ego' thing? You like the IDEA of being a trader which could get in the way of becoming a trader.
 
Morris
All good rules, even no.14 which is why I have only joined this T2W out of general interest after 10+ yrs trading.
 
Well, it's great to have a thread that talks about money management :)

Hi Razorgirl
what have your experiences of increasing position size been, if you have done it?
I tried it about a month ago and the market took my money and never looked back (I did go in heavy). :(, I'm now fading in and out of positions, and using money management a lot better.

Any tips on increasing position size would be great. :)
 
Any tips on increasing position size ?
Don't until you've doubled/tripled your capital! :) -Well actually I'm quite serious.
 
Hjk,
you have a point. Maybe I am not comfortable with being so unsociable which I have mastered these last few years. The ego bit is harder. I know its not glamorous and exciting but possibly at some level I think its cool and different, which is very sad. I'm off to see a shrink right now. Can I send u the bill ?
 
Sifts2win -
Most people are by nature fairly gregarious, they like to be in a 'group' and feel much more comfortable there. That as you know is no use for a trader, in fact it is downright dangerous. But does being a good trader HAVE to mean being 'alone'? I do try my best to separate my trading life from my social life, but then agian 'you are what you do' even more so as a trader than any other 'job'.

Save your (my?) money at the shrink's. Just tell everyone how boring, crap, lonely it is to be a trader - a bit of sincere self-deprecation is guaranteed to deflate the ego! :)
 
Sifts2win -
Also, if you can't recreate that scenario of 'not thinking about the money' doesn't that automatically mean you are trading outside your comfort zone? Either too big position size or trading with 'scared' money?
 
FTSEB, suppose having doubled your money plus a bit extra, without increasing your position size, you were to take your original stake of 1K out of your account and put it in a savings account. This gives you a back-up pot. Your position size is now based on what is left in your account (less any drawings of course) and grows with it - you should be able to be more confident as you have now protected your original capital so you can start again if it all goes horribly wrong. Then as your account size increases take more out and add it to your back up pot, so your position size goes up proportionately with your trading account but not proportionately with your total capital.

I suppose this is another way of saying "don''t till you've tripled your capital" and also "don't risk money you cannot afford to lose".
 
Hjk,
The large ego is well and truly hidden. I was once a master of self deprecation and to be fair I have found out a lot about myself through trading. I've more bottle than I imagined and have realised there is nothing worth worrying about in your entire life. Its all just a game !
I used to trade too big and had some serious sleepless nights in the early days. But you're right again, I can just about trade now when my hands have stopped shaking enough to press the button. Seriously I am trading with 'scared' money so the cushion of the job will hopefully free me from that. Also trading for small amounts prevents me from taking profits as my 'ego' says "its not worth it, leave it and hope for the big move tomorrow!!!" which often results in a break even trade or a loss. I reckon tradings more about your pysche than all the rest put together.
 
S2W-
Yep, In 'Van Tharp's' book he argues that trading is 90% psychology and the other 10% is just following a list of simple rules.
I agree with him.
 
Hi all,

Interesting thread.

A lot the answers rely on your personal circumstances and the things (including other income) that you have in your life besides trading.

For me I have two young children, I want to work from home and I'm basically happy just to compound my capital, I don't need to draw income from it. So my trading is essentially a way of growing capital, hopefully at a higher rate than the building society.

None of which means I don't have a passion for trading. I do, I love it. But it's a job to me, I have never seen it as a way of making lots of money. That's one of the reasons why my capital management rules can be so tight (no more than 1% on each trade). Slow and steady is my motto. Boring and dull :)
 
Re: 90% psychology 10% rules, I agree. But this suggests that if you removed the human element and had a machine trade your rules, you'd be more succesful (and possible more sociable!). But thats another story, and something I'm looking at outside of trading hours.

Re: Chatrooms / BBs. I can see where he's coming from with rule 14, and you're absolutely right about "follow your own light", but if it wasnt for rooms and boards like T2W, I would never have learnt 1/10th of what I have, and continue to learn. There's also a certain comfort from being able to see other people having a bad day when you are, but that's back to the whole psychology thing :)

H.
 
Top