Monday, April 29, 2013

2 Years of Trading - Lessons Learned (Part 2 of 3) - The Learning Process

[This is a continuation of the first blog post in the series:  LESSONS LEARNED (Part 1 of 3): TRADING FUNDAMENTALS]


I wish I had done a consistently better job at keeping a trading journal
Who knows where I'd be now if I had a journaling system such as Tradervue many years ago.  As I've written about many times before, Tradervue is a powerful online trade journal system that has made it a lot easier to journal and to analyze the statistics of my trading

Or what if years ago before the Internet, I consistently journaled in a simple paper notebook and more importantly, had the discipline to review and take corrective action on a regular basis?  Would I have been able identify my strengths and find my style more quickly?  Could I have discovered how to achieve mental control more effectively?

Keeping a journal is something most say you should do, but writing about and having to relive a really bad day can be difficult. In many ways, this blog has been somewhat of a trading journal at times, but it has been far from consistent.  A true journal is one of those tough nitty gritty tasks that most people don't take seriously, and so I keep in mind that most people are not consistently successful traders.

There are no right or wrong ways of keeping a journal, although there are some good guidelines and templates out there.  But in the end, you should be able to understand why you are not (or are) following your trading plan, focus on areas of improvement, understand what your strengths are, improve awareness to know when you should and should not trade, etc.

Especially during the early formative period when the learning curve is steep, I believe keeping a journal is not an option, it's a must do.  As time passes and experience is gained, the nature of the trading journal also begins to evolve.

Paper trading is good, but I believe betting very small is better
There is much debate on whether paper trading is useful or not.  Once again, everyone is different.  For me, I believe learning with real money, even if very it's a small risk, is better than paper trading via a SIM account.  There's nothing like having real money on the line.

There have been times when I absolutely got killed on a % of account basis trading the ES E-mini.  Due to the tick size and average movement (rotations) in the ES, it's easy to go on tilt and lose over $1k trading only one contract.  Yes, been there a few times.  On another note, I always wonder why I never went on tilt and made over $1k trading one contract.

Other "trade small" solutions is to trade the spot forex, where you can trade in a "micro" size where each pip = about $1.  With some of the volatility recently in certain forex pairs, such as EUR/JPY, the movements are equivalent to the E-mini ES daily range of 30 to 50 points or more! 

Since I try to think in % terms, I've had sleepless nights swing trading spot forex, where my absolute dollar risk was only $30, but it was considered a big % risk based on my trading plan.  Conversely, in my longer term accounts, I could be risking many dozens of times more $'s and not lose a wink of sleep since it was a small % of risk relative to portfolio size.  Having those sleepless nights was when I knew that even betting small was much more realistic than trading on SIM.

Another option is to trade the E-micro EUR/USD (M6E) futures that trade on the CME.  Each tick is only $1.25, but the prices track the same as the big contract (6E).  For charting, you can still use the big 6E where the data isn't spotty like the M6E.  But by trading the micro contract, you'll still be able to trade with a small account, not worry about pattern day trading (PDT) as with stocks, and still have the ability to scale out of your positions by trading multiple contracts.

I wish a brokerage like Stage 5 Trading existed when I first started trading
I believe one of the best opportunities now, especially if you trade futures, is to open your account and start trading at Stage 5 Trading.  The core team at Stage 5 was previously with Vankar Trading, but have now started their own brokerage firm.  Full disclosure -- I'm not currently daytrading nor am I trading futures at this time, but I feel very strongly about the people at Stage 5 based on my experience with them.  They have earned my loyalty for when I one day return back to futures.

At Stage 5, you get access to FuturesTrader71 who is a master ES E-mini trader and is also a tireless and passionate educator.  One of the primary reasons why he became a broker was so that he can work more closely with his students and to be able to monitor their actual trades.

I've always wondered why FT71 gave so much, with what doesn't seem like much in return.  Wondered when the bait and switch would finally happen where he would monetize his followers?  What's the catch?  But the more I listened to him, it finally started to make sense that he has some deeply set values and beliefs about helping others, locked in the core of his being.  I've found this type of dedication rare, especially within the trading industry.

And right now, you'll be able to watch him as he is re-learning how to trade the E-Micro EUR/USD (M6E) futures through his active chatroom as well as weekly webinars.  He's relearning the Euro after many years, so this is a great opportunity to watch and understand how a master trader approaches a new product to trade.

He realizes that for those just learning to trade, the M6E is a great step up from SIM trading.  This is primarily due to the small $ per tick size and margin requirements.  Although his trading method is primarily volume profile based, his education transcends the trading methodology used, and a great deal of his focus (and his strength) is on the psychological side of trading.

Except for you to open your account and trade through Stage 5, there are no addition costs for the chatroom and webinars.  This is probably one of the best educational deals out there to learn from a highly respected trader and educator, while also getting some of the best service in the futures brokerage industry lead by Anthony Giacomin.  It's a no brainer. 

If I had to start now, I would do my best to learn on a physical trading floor surrounded by successful traders
Who wouldn't want that kind of opportunity?  I know this is much easier said than done.  But I'm confident that learning how to trade surrounded by successful prop traders who are great and willing mentors would accelerate and increase the odds of longer term success.

I'm not familiar with anyone who has joined the SMB training program and whether it's good or not, but something similar to that would have been very interesting for me when I was first starting.  Even if it didn't end up being a good fit, understanding what a trading environment is like and seeing successful traders in action would have been a valuable experience.

Back in the days before I had a family, if I had spent those 6-18 hour work days being surrounded and learning from the best in the business, where would I be now?  I'll never know and it's not my nature to dwell much on the past.

But looking forward, we now live in a world with zillions of chat rooms, newsletters, advisory services, blogs, and Twitter where you can learn independently or with others in a virtual setting.  Although you may have to look and research hard, there are a few great traders who are also great teachers (as mentioned earlier about FuturesTrader71).

So participating in a chatroom or joining forces with other traders in the virtual world is the next best thing to being on a physical trading floor.

Trade and learn with others
Being an independent retail trader from home can be quite the lonely business.  Back during my early attempts to be a trader, telephone calls were the only way to communicate with other traders.  And this was back in the days when long distance calls were $0.20+/minute on a land line.  When I started getting rates of $0.10/minute, I thought that was a steal.  Oh how times have changed.

Compared to even 10 years ago, our options to work, learn, and trade with others is amazing.  Webinar and screen sharing services, chatrooms, Skype, instant messaging, etc.  We may be physically isolated, but we have never been more close to others in the virtual world.

Through this blog, Twitter, and the various services and chatrooms that I have participated in over the past couple years, I have been very fortunate to have met some amazing people from all over the world.  Many have become great friends that I communicate with on a regular basis, constantly learning and sharing ideas about the markets. 

For me, surrounded by like minded traders have made the good times even better and the bad times not quite as bad.  And as physically isolated as I may be, being a part of a community has never made me feel as if I were alone.  Trading is a tough endeavor, even tougher when going through the unavoidable slumps, so having that support network to trade, learn and just be there for others is vital for growth and survival.

Twitter is a "double edged sword"
As of this post, Twitter is "only" about 7 years old, but the impact it has had on trading and investing is enormous.  When I first learned about trading, I had to go to the library at the university to checkout books and read back issues of Commodities (now Futures) Magazine on microfiche.  I still recall the old books by Stanley Kroll wrote as some of my favorites.

Today, who needs the library (hurts me to say that) since the Internet has changed this all.  Recently, Twitter has become an amazing source of real time trading information that has truly changed the landscape of trading.  But a potential downside to Twitter is that it's like drinking from a fire hose.  It can become so overwhelming and conflicting that it becomes noise and impedes our ability to learn.

Here are some random tidbits I've learned through Twitter over the past couple years:
  1. Big # of followers ≠ a great follow.  Some of the best follows are up and coming with surprisingly few followers
  2. When someone usually active stops tweeting, they're likely losing
  3. Observed trend: Get a big Twitter following, start a subscription service, then cash in.  Get 100 (or more) subs at $100 (or more) a month and that's some decent money -- easier than trading!
  4. There are some that just can't use Twitter and trade effectively due to excessive noise 
  5. Twitter wars (arguments) prove that some of us never quite grow up.  
For those moving ahead with leveraging Twitter, if used methodically with the proper filters and context, it can be an incredible way to learn about trading.  Managing your following list often is essential to provide focus based on what you're trying to learn or monitor without going overboard.  And you should also monitor to what level of effort you are able to write tweets, without impacting your primary job as a trader.

Great talking head Great trader ≠ Great teacher

Staying along the topic of Twitter, someone who produces great tweets breaking down and analyzing the markets does not necessarily mean they are a great trader or a great teacher.  There are many who call the markets accurately, but when it comes to executing their plans, their trading leaves much to be desired. 

I have a strong suspicion that most of the elite traders don't tweet much, if at all.  And those on Twitter may not be very active or tweet only non-trading related topics, or simply don't want to be known.  Many might even be a someone who is a terrible teacher or poor communicator.  Even if you find a great trader who actively communicates and makes great returns a year, they might not even trade similar to your style.

And except for entertainment purposes (which Twitter is great for) I'm not quite sure how actionable following a great talking head (such as those that appear on CNBC regularly) are for a trader.  Many of those who sound great with an impressive pedigree and/or ivory tower vibes followed by 10's of thousands on Twitter don't ever seem to be wrong, just like economists!

Looking back on their calls, most don't seem to be that much more accurate beyond random chance.  But the bravado and confidence at which they make their predictions makes for good entertainment.  There's a lot of ego out there in Twitter-land.  So those who regularly admit to trades that ended up as losses are to be respected.

Therefore, I believe it's most important to try and find people that you can learn from -- on or off Twitter.  What matters is that they possess some knowledge that is valuable to you, and whether they are a good teacher by communicating in a way that resonates with you.

Learning is a process that should never stop
In order to remain successful, I believe it's important to establish some process that helps us to learn most effectively and then always strive to learn more.  If we ever reach the point where we truly believe we think know all we can about something (like trading), then that's when we have essentially quit -- the game is over and we will begin to fail.  By making the process of learning a regular and continuous part of our lives (not just trading), we will help put success on our side.

The next post in this series is:  LESSONS LEARNED (Part 3 of 3): THE MENTAL GAME


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