The fact is that the overwhelming majority of new traders lose their trading capital when they start. Markets have a way of seductively looking predictable and tradeable, but that's only until you take a position. At that point, they go nuts and you lose your money.
But now, I'm going to turn around and tell you that yes, it is possible to make money in trading . There are some basic ground rules you need to know, and you have to have or develop a lot of patience. Advice (even mine) must be taken and viewed with a critical eye. The trick is to learn a lot, watch what other people are doing, and then you will have the foundation to pick out what is right and wrong for you. Trading is an intensely individual effort.
The 11-Step Plan to Trading Success
1. Get some books that give a basic overview of the stocks, options and futures markets.
2. Get a book on technical analysis of stocks and futures.You're welcome to do fundamental analysis if you want (growth prospects, industry profile, interest rates, etc.), but I'm a technical trader, so you get my point of view here.
3. Read the books. If you feel impatient, well, then this is good training. Sit and read. Yes, the markets are in motion now, but they will still be in motion when you are ready to trade. There is no single grand missed opportunity here. The markets will give us opportunities every day.
4. Now get a book on trading discipline, money management, etc., if you haven't already read some things about those topics. Don't overdose on psychology; everyone will pretty much say the same things. One iteration of, "Control risk, stay capitalized, use stops" is about all you need, though you may need to read it a few times
5. Figure out how you're going to get your data. A good idea is to subscribe to a data service like Technical Trends. (http://www.technicaltrends.com). They give you data including intra day data during market hours) and a free software and a daily newsletter
6. Start watching markets. You may notice that you have not started trading yet. Good. Yes, you probably just missed that huge move in Rolta. So what? Be patient. Say it with me again: Markets are in motion now, but they will still be in motion when you are ready to trade. Do not be led astray by the feeling of missing the train. So, start watching markets. Find your favorite technical formations and indicators. Watch the markets go up and down, or not.
7. At some point, you should start looking at a market and saying, "It's going to go up. It's right there in front of me. When this starts to happen, it is a sign that you are ready to paper trade. Set up a simple way for yourself to track the following things:
* The date you took the trade
* The date you exited the trade
* Your entry price
* Your exit price
* Net result after subtracting commissions and fees
* The reason you took the trade
* The reason why you exited
* Anything about why it did or didn't work.
And then write down your entry price. Be realistic to the point of pessimism; you're not trying to convince yourself to trade, here, you're trying to demonstrate that your reasoning is sound. You already know that you want to trade, and that you want to win. The easiest thing to do is to take the closing price for the day. Whatever you do, do not use the high or low for the day as an entry or exit price. It's just not realistic.
8. Now that you're here, paper trade like crazy. Do as many markets as you want, because it's free. This will give you a great idea of how much work you can handle. Never pull tricks like letting things drift for a few days, and then going back to discover that if you'd exited on Wednesday, you would have had a nice profit, so you make your paper exit occur on that Wednesday. If you didn't make that decision on Wednesday, it's lost forever. This is a dry run for what you will do when you are trading. Never, ever, give yourself slack by being generous with entries and exits, omitting bad trades, changing your mind after entry, none of that. You are lying to yourself, and you are trying to hurry and convince yourself to trade, not to prove that your method works.
9. Paper trade until you have had at least half a dozen trades in strongly trending markets, in whipsaw (violent ups and downs without actually going anywhere) markets, in gradual trend markets, and in doldrums markets. This will take many weeks to the better part of a year. Impatient? So what? One more time: Markets are in motion now, but they will still be in motion when it's time for you to take real trades. Work on your system
10. When, and only when, you have adequately tested your system on paper and found that it worked pretty well in many circumstances, and it's something you have time to do, and you have the money to risk, then go find a broker (with low commissions) you like and open an account.
11. Get going! You tested your system, right? Then look for signals and take them just as aggressively as you did on paper. Change nothing about your approach in the real market. If you are being timid, then you lack confidence in something; stop trading and figure out what's wrong. Are you taking losses? Are they unexpected? Really? Then stop trading and figure out why your paper trading didn't take account of what is happening now. If there is a fatal flaw (a couple of ticks here or there is making a big difference in the real world, for example), stop and get back to work on your system. Don't tinker with the system in the actual market; this is what I did for a while, and it's just a frustrating way to lose money. If you are taking expected losses but decide that real money going down the drain is too painful, then stop trading and start looking for a new way to approach your trading.
