Ownership, Planning, Working, Analyst, Artist, Trader
The first three stages are obstacles, while the second three involve the process of learning to trade. Today's lesson covers step 3 of the six stages: working.
In stage two, planning, we covered the importance of selecting a trading methodology which will be the most important choice you make as a self-taught trader. Step 3 is an extension of the planning stage, when you sit down and spell out your trading plan based on your methodology. Generally speaking the less moving parts to a method the better. Less is definitely more in this business. A friend used to work in the system development areas for one of the biggest broker dealers in the business and the rule of thumb was if a system designer could not explain and demonstrate his method/system in five minutes they wanted nothing to do with it. One of my earlier trading mentors, Bill Williams insisted that in order to trade for him, or use his method, you needed to be able to analyze a market in about 10 seconds. A cluttered chart is the product of a cluttered mind. Hard work should not go into creating the methodology - most methodologies have already been created, or are a slight variation of an existing method. Understand that there is very little new under the sun, and most successful methods give the same signals at the same time. The difference is traders being on their post and executing their trading plan properly. The actual work should go into spelling out your trading plan, and then back-testing it, and then making sure you spend as much time as you can on the screen in live markets. The trading plan should be no more than one page long and define how you determine the market to trade -- overview --what you look for to tell you a trade is forthcoming -- trade set-up -- what needs to occur to enter a trade -- signal or trigger -- and how you manage the trade -- your risk & exit strategy.
Work ethic is important, but patience is more so. Just because you are sitting in your office with live markets in front of you does not mean you must trade. This is where your planning comes into play. No trigger, no trade. Most self-taught traders get into trouble because of their previous experiences and existing perception that they can out-work their competition. Trading is as simple as waiting for the market to give you a trigger - an occurrence which you have no control over -- then clicking your computers mouse, and sitting tight until the market does what it's going to do - again a process you have absolutely no control over - and then clicking the mouse again. You either made money, or lost money. Then the process of waiting starts over again. There is no real work involved other than maintaining a positive attitude and focus. Most people who have enjoyed self-made successes have a hard time accepting that they have no control over the process and instead of rolling up their sleeves and taking action need to actually surrender to what the market tells them to do. Someone who may have built a successful business, or risen up the ranks of a competitive, successful company may find it difficult that success is now based on sitting and waiting. If you are a trend trader and find yourself in a counter-trending environment, or vice versa, you better know it and keep your sails trimmed. Success as a trader depends on being in the right place at the right time, and that's where the work ethic comes in: being on your post, and not procrastinating when everything is aligned and the trade trigger is given.
Trading is a risky endeavor and not suitable for all investors!
To see Jay Norris point out trade set-ups and signals in live markets during the London/U.S. overlap every Monday and Friday go to Live Market Exercise. Jay is the author of Mastering the Currency Market, McGraw-Hill, 2009 and Mastering Trade Selection and Management, McGraw-Hill, 2011