Discover
My Blueprint For Trading Success,
No Matter What Market You Trade.
By David Jenyns & Trading
Secrets Revealed
So,
you have taken the monumental decision
and have decided that you would like
to trade! It is definitely a rewarding
career but it is also a difficult
one as well. It is a journey that
will require you to look deep within
yourself as well as look at a computer
screen at a stock chart. It is my
aim is to help you lay down your future
foundation to becoming an excellent
trader and to provide you with some
of the fundamental tools that you
will need to succeed.
Firstly, a word of warning! There
is a lot of information out thereon
the internet and other forms of media
– some good and some not so
good. All you really need to do is
type “trading” into a
Google search engine and it will come
up with millions of systems, ideas
and articles that offer guaranteed
success! Unfortunately, trading is
not that simple as otherwise we would
all be master traders! Trading involves
as much your personality as it does
your analytical skills. As such, a
system that may work for one individual
may not work for another purely because
each individual is different.
In this chapter, I want to discuss
the very first things you should consider
before even placing your first trade.
These are questions that will help
determine your personality and enable
you to design a system in the future
based on your own objectives and not
that of somebody else. I would also
suggest that you write the answer
to these questions down on a piece
of paper to help you focus your mind.
1. Your objectives
The first question you need to answer
is “What do you want to achieve
with trading?” It is simply
not enough to say that you want to
trade to make money (although this
is obviously the major reason)!
You need to look into the question
further and ask yourself the following
detailed questions. These are not
exhaustive and you may think of some
of your own to consider as well.
• How much do you want to make
a year?
The obvious answer to this would be
to say something like “as much
as possible.” However, you do
need to be realistic and have a definite
objective in mind. For example, is
it realistic to want to make 500%
a year while most other professional
fund managers struggle to make 30%?
Is it more appropriate to say 10-20%
and then build on this when this target
has been achieved consistently?
• How much initial capital do
you have to invest to begin with?
It is important to start off with
a reasonable capital seed. There are
numerous expenses associated with
trading. Commission charges by brokers
are one example. You need to ensure
that you have enough capital to get
going and then to keep afloat in the
future.
In addition, is this money that you
can afford to lose if the markets
turn bad? Never trade with money that
you can not afford to lose.
• How much time do you have
to invest on a daily basis to trading?
Do
you work during the day or are you
able to look at a trading screen
all day? This may help to answer
whether you will be a full or part
time trader. Being a part-time trader
does not necessarily mean that you
will earn less – it just means
that your strategy will be different
to that of a full time trader.
•
What will you use the money that
you gain as a result of trading
for?
Will
you use your winnings to invest
or will you be using it as a second
source of income?
•
How will you fund your set up and
recurring costs?
How
will you fund your set up costs
– e.g. computer, account set
up costs, trading software purchase
etc and how will you fund the recurring
costs of trading e.g. data feeds,
further training, internet access
etc.
2.
What will you trade?
After
completing your objectives, it is
then the time to select the markets
that you will trade. As an example,
will you trade the companies in
the DJIA or will you trade a commodity
like gold or oil? There are a plethora
of companies and other things that
can be traded and the choice should
ideally be based on your experience.
For example, it is probably not
a good idea for a beginner to start
trading in the futures market; however
trading the companies on the S&P
500 list may expose the novice to
less risk and volatility and may
therefore be a better option. The
choice, ultimately, is yours.
It
is now a good time to bust some
myths:
•
Trading more does not make you more
money – it can actually be
more expensive as you will be paying
a lot more in commission fees to
brokers.
• Trading all markets at once
does not make you more money –
it does not allow you to focus your
energy into one market that may
have a better chance of making you
more money.
The
best option is to concentrate your
energies and master just one market.
After mastering the market, you
will be in a better position to
move on to others.
3.
Design a trading plan
Another
fundamental and crucial area to
work on is your trading plan. This
is, in its simplest form, a set
of rules that you have developed
to tell you when to enter into a
trade, when to get out and how much
money to put into a trade according
to your risk level. Without a defined
set of rules to govern your trading,
you risk becoming undisciplined
and will eventually let your emotions
control your trading – this
is a recipe for disaster and you
will eventually fail at trading
and lose a lot of money. A trading
plan should be written down and
followed precisely. It should also
be reviewed and improved on a regular
basis. Back-testing the plan on
past data may also help to give
you confidence that your plan will
succeed in the future.
As
a general rule, the best plans tend
to be the ones that are the simplest
to follow. Over complicating your
plan will result in confusion and
may make the plan impossible to
trade. It should also be versatile
enough to work in a variety of market
conditions such as in a bear, bull
or sideways trending market.
4. Following your plan
Once
you have designed your plan, follow
it to the letter. The easiest thing
to do is to let your emotions get
the bettget the better of you and
let the two deadly emotions of fear
and greed take over. The market
may even reinforce bad behaviour
in the short term by giving you
an occasional winning trade –
however, this behaviour will not
be profitable in the long run and
you will eventually lose a lot of
money if the behaviour continues.
This is one of the reasons why novices
take a long time to learn to trade.
Unlike many other professions, a
trader is free to create whatever
rules he or she wants when trading
– this freedom can be very
beneficial but can also be disastrous
if left to an undisciplined trader.
5. Risk management
Managing
your risk is essential to your success
as a trader. It is best to start
with a small amount of money and
let your confidence grow from there.
Above all, only trade with money
that you are comfortable of losing
if things go wrong – in other
words, do not gamble with the rent
money!
Another
key to success is knowing when to
get out of a trade that is going
in the opposite direction to what
you would like it to. There is an
old saying that states “cut
losses short and let profits run.”
Unfortunately, human nature does
the exact opposite. It is the undisciplined
trader that will panic and freeze
with fear and will allow a small
loss to mount up to be a large one.
In a similar manner, an undisciplined
trader will take whatever profits
he or she has no matter how small
in fear that it will be lost in
the future. Trading will require
you to overcome these instincts.
In
the next chapter, we discuss the
area of money management as a central
part to any trading plan.
This article has been extracted from
David Jenyns' Trading Secrets Revealed
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