Long Trading Related Ramble (3)

Písmo: A ++ A --

A methodology needs to be chosen that fits with your personality and individual risk tolerance and level of aggresion. Also, capitalization needs to be considered. Obviously, someone with limited capital wouldnt have much of a chance for longer term outlooks, right?

I would like to point out that it is more important to have a solid base of training, knowledge, and practise than a large amount of funds. Without adequate knowledge as to what it takes to make money in this business, it really doesnt matter how much one starts with.

It is important for a new trader to not be in a hurry to trade. I believe this is the single, most common reason why new traders fail. They lack the patience and discipline to stay out until a good knowledge base is established, and until a clearly defined plan is developed.

It is absolutely critical for the new trader to have patience and avoid the temptation of giving in to impulsivenes.Let me highlight a few pointers for the new trader which may be helpful.

Have patience. It is absolutely critical for the new trader to have patience and avoid the temptation of giving in to impulsivenes. The markets arent going anywhere. Today sugar is in a terrific rally. Last year and some of this year so were the energies, among others. Later this year it may be the grains or OJ.

The point is that there are ALWAYS good trading opportunities. In my years of trading, there has never once been a shortage in trading opportunities for me. In the years ahead, it will be the same. So preserve your capital and wait until YOU are ready and have gone through a detailed process of preparation and training.

Take the time to learn what drives the markets and in learning the basics. Now, in saying taking the time to learn the basics, do not assume you do already know it. You do not. I am not talking about the mechanics of placing an order, knowing what going long and short is, or knowing a few basic chart formations. No. What I am talking about is nothing short of getting a solid education on the business of trading.

What information do traders look at when making decisions? What methods do the successful / professional traders use? What are some of the factors that are linked with successful traders? Etcetera. This is the kind of knowledge base you need to build. Since a large majority of traders use technical analysis in making trading decisions, than it is only logical to be well versed in this subject. A pretty good book is The Technical Analysis of the Futures Markets by John Murphy, which you can review and get via Amazon, should you wish to.

Why study these things? And which indicators are best to use? I can only answer the first question… and only offer an innocent advice on the second one.

A beginner wants to be well versed in a variety of indicators and analytical methods for the simple reason that many people follow them. What makes a market tick? Crowd behavior. Mass psychology. Pure and simple. The one commonality that all markets share is the human element. It is people that drive markets. And it is the thoughts, feelings and beliefs that people have and express that is directly responsible for price action. So, if a majority of traders are making choices based on a set of indicators… it only makes sense to know them.

Some markets like the indexes, financials, and currencies, are heavily influenced by technicals (support and resistance, short term sentiment indicators, trends, etc.). So if one is trading heavily in these markets, it is only prudent to have a good understanding of these technicals.

Other markets like the meats, grains or softs sure are to a certain degree influenced by fundamental factors like supply and demand, weather conditions, crop reports etc. So if trading these markets, it may help (but may not!) to have an awarenes of fundamentals.

Also understand that there is an element of overlap. It is a good idea to be aware of both fundamentals and technicals. The current situation in indexes is a good example. Key report dates, and the current of inflation fears is IMHO important to take into consideration along with other important technical info. This information can greatly assist in trading decisions.

So if I am going long the S&P based on my indicators showing me a possible reversal off a support level (= a trade based on technicals), I can be aware of the limited upside potential due to recurrent market jitters because of inflation fears (= trade management that takes into account fundamental info).

In this way, I can get protective of profits after a decent gain or at the first sign of the trade invalidating my outlook.

For continuation, see part four of this rather long original article.