The Cold Facts the Ads Don’t tell you about

So you've heard it all before how some guy who had no knowledge of any financial market took $100 and turned it into $5000 in just 2 months from the comfort of his own home. These ads are littered all over the internet just waiting for some naive person to buy a “service” which falsifies the ideals around the field of trading.

The harsh reality is most traders don’t make it see their full potential. The failure rate of new start-ups is amongst the highest in the world and it doesn't help that the barriers of entry are very low. However the field of trading is more about skill and mastery than it is about money.

I decided to write this post today because I believe some traders are sold on the notion that trading is a way in which their wealth can be grown in astronomically percentages in a relatively small period of time. What they don’t know is that it’s far more difficult to be a consistent trader and being sold under the idea that it’s easy has the chance to ruin them financially.

 Don’t get me wrong, trading does have potential to grow your wealth provided you put hard work into it, but it’s not a decision which should be considered likely.

Recently a fellow trader and I were discussing the topic, in which I thought he summarized it quite well and I quote “If someone came to you and made you a promise to become a professional golfer or a brain surgeon with just a tiny amount of investment in time required, you would automatically write the idea off as lunacy”. I couldn't agree more.  

So here are some things you should keep in mind when thinking about trading:

1.      Risk Management

Always understand the risk which trading entails. Remember you are working with money, something which can be hard to come by. When you do trade, do so with money you can afford to lose. Also remember to control your trading losses, keep them to the minimum. The better you control your loses the better your chances of staying in the game.

2.       Having adequate time to dedicate to learning about trading.

Trading sometimes leaves a trader with more questions than answers. That’s the nature of trading and if you don’t have the desire or willingness to learn then simply don’t commit. The more information you have at your disposal the better position you’re in to make the right decision.  

3.        Accept that your emotions are going to confront you.

One of the hardest things about trading is dealing with the emotions that the markets can stir up inside you. It can leave you feeling confused, upset or even lost. Don’t give up; instead learn how to master your emotions.  By dealing with your emotions rationally you’re able to clear up your path to success. There are many books about trading psychology, don’t be shy to get stuck into them.

4.       Have reasonable goals that you can follow.

If you expecting to amass a fortune in 6 month, after which you going to retire to some exotic beach location, then you might as well stop trading. Trading is not a get rich quick scheme, it’s about persistence and consistency and setting realistic goals is what keeps you in check. Strive to meet your goals and stick to them as your guidelines.

The above list is some of the things I battled with when I first started trading and there most certainly more things you can add to it. If you would like to add something else to the list, drop me a mail at cadetrader@gmail.com or follow me on twitter: @CadeTradeR    

Using Higher Time Frames to Determine the Trend

The last article I posted I wrote about frustrations and how to deal with them by taking a step back and identifying your feelings and then find a more constructive way to deal with it rather than being destructive.

Today I continue with the topic of stepping back but much in a different way to the emotional side of things and more towards visualizing. As you know trading contains a vast amount of visual interpretation in terms of charting and if you want to improve your trading you have to master the art of being able to see a chart and identify the degree of trendiness at just a quick glance.

I found when I first started trading I would open up a chart and out sprang indicators and all different types of information. Now it’s all very well to use indicators in the assessment of a chart but it can be quite overpowering on your processing side of things if you are unaware of the different uses of each indicator. 

I recall times when I would try and interpret a chart but began to feel rather confused by the amount of information my mind had to process and not knowing the relevance of it all. The key thing here is relevance. How does one piece of data relate to another piece of data?

So I decided if I was going to understand the basics of a chart I would need to cut out every other indicator and just use one at a time, that way it would be as if I was using a microscope and studying the properties that each indicator yielded which would help in my understanding in its relevance.

After a while of thinking I decided it would be best to begin with price. Why price you ask? Well it’s quite simple; price is the data which is core to other data as indicators use price as an input to generate a result.

   

One of the basic functions of price is in a given period of time we are able to determine which of the participants had more influence on the price in that period. For example if at the end of the day a specific stock closes higher than its previous day we can conclude that there were more buyers than sellers on that day and vice versa.

What we also know is that technical analysis is based on historical events. What this means is that over time, investors and traders leave a footprint on the market as the weeks and months go by. This in turn allows both parties to determine in which direction the market has trended over a series of time. Upwards, downwards or sideways.

What does this all mean when it comes to trading? As a basic rule, you should always find the primary trend in the security you wish to trade. If you are unable to find the trend, pull the chart out towards a greater length of time. If you using an hourly chart pull out towards daily or weekly so that you are able to trade in the direction of the primary trend. By doing this you are allowing the market to take you to where you want to go. 

  

If you ever get stuck on this concept think of it as a river flowing. If you jump in the river where are you going to swim? Will you swim against the current thus exerting more force on your body or will you swim with the flow, allowing the flow of the water to move you to where you want to be.

I would like to thank everyone who read my first blog. I hope it’s the beginning of many more to come. If you wish to email me you can at cadetrader@gmail.com or if you would like to follow me on twitter to get my latest posts you can too via @CadeTradeR  

Frustrations in Trading & How to Deal with It

Frustration, the kind of feeling when nothing quite works out the way you thought it would. We've all experienced it when it comes to trading. The financial markets at any given time are in constant flow of motion, adapting to new information as it comes along. One moment feelings of elation and recklessness bound the markets, the next doom and gloom as if the world were coming to an end.

But how does this impact on your trading? Maybe you took the view the market was going to trend upwards and instead turned down. One trade after the other, your stop losses keep getting hit. The more times you lose the more resentment and anger build up inside you until you finally throw in the towel out of pure frustration left only with a drawdown in capital, a string of losses and a bruised ego.  

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Sound familiar?  The fact is most traders at some time or another are going to feel this way. It’s perfectly normal to feel like this from time to time; the markets never work in perfect tandem with your trading plan.

Obviously the scenario above is not the only way in which frustration may enter your trading, but the lesson here is to identify what makes you most frustrated in your trading and then deal with it in a constructive manner.  

I want to share one of my experiences with you:

Beginning of January, feeling fresh from the holidays I pulled up some charts to see if there were any potential setups presenting themselves. Rationalizing that it was still the beginning of January and that not many traders were back from the holidays, I put the lack of any setups down to that. However the problem came in when after 2-3 weeks of not seeing anything my mind started to wonder. This is when my frustration began to set in. Negative thoughts were flooding my mind.

Was I losing my touch? Was I being lazy? Why can’t I see anything? I want to trade, but there were no signals. Maybe I could force a trade, but that would go against my rules and possibly damage my capital.

I had 2 options on how to deal with this and I’ll explain both:

The first is to allow myself to absorb all the negative self-talk and take a trade although I was aware that it was not high probability. By doing this I would be allowing my emotions to take control of my trading which could have dire consequences. Emotions are destructive, devious and damaging when they get drawn into the trading process.

The second option would be to step back, identify the feeling of frustration and then put a rational explanation to it. Most times you find when you frustrated you tend to see things worse than what they are, by taking a step back you see the picture clearer and are in a better position to make the right decision.

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I chose to follow the second option from experience with dealing in the first option. If ever you get the feeling of frustration crowding your mind, take a step back. Think about the situation and cool down your emotions and when you enter back into the realm of decision making you can rest sound knowing that the decision you made was well thought through. Trading can be very tough mentally so you need to be aware of your own emotions before you understand the emotions of the market.

If you would like to contact me you can through my email at cadetrader@gmail or if you wish to follow me on twitter and get the latest updates of news, interesting commentary and general trends in the market, my twitter handle is @CadeTradeR if you follow this link it’ll take you directly to my twitter timeline:https://twitter.com/CadeTradeR