The education of a trader- part 2

I want to continue this posting series by getting into what I started learning, after I realized that there were so many options open to me. In addition to working on understanding the basics of charting (because it felt right, as compared to economic analysis, or fundamental analysis), I started to also understand that there was a psychological side of trading. This is expanded on by Van Tharp, as well as Brett Steenbarger and Mark Douglas. A comment by Alan Farley finally became clear to me after much puzzling- he stated that you can't make money with TA (technical analysis).

This one really confused me, because Farley trades price and volume patterns, and is often unaware of a company's fundamentals. What I gradually came to understand is that analysis is not trading. The issue that I had been struggling with was not a poor level of TA understanding, but trading skill sets. By this, I mean mental skill sets. Over time, I had shown myself that I could scan for and find solid candidates- great patterns that went on to do exactly what I thought they would (although not all picks are winners, of course), but there enough profitable trades to show myself that I had a very profitable strategy.

Here was the issue- I was either not taking the trades (either through not placing the orders, or by not reviewing my watchlists enough to catch the entries until they were too late). In both cases, I was showing signs of self-sabotage. The key was to master trading, not try and master TA. The best way that I found for this- trade so small, that the money did not matter. This way, the trader is so focused on good trade management, that he or she can stay in the flow of trading, and not start to worry about profits or losses. Each loss had to become a form of feedback, and not a threat.

This where I am now- trading small lots, and focusing on staying in the moment, managing the trade, and becoming the best trader that I can, and not the best analysist.

The education of a trader- part 1

I started trading during what was probably the worst time a new trader could possibly start learning this craft- the summer of 1999. Knowing only that I wanted to open a brokerage account, and start learning how to make money at this, I bought a copy of the latest Motley Fools book, reading their website, and buying stocks through a newly opened Schwab account.

The problem was- I did great! By the end of the year, I was up more than 80%. This was by buying the types of stocks that the Fools said to- those great companies that you know about. So I bought Gap, Microsoft, Cisco, and Coke. Then came 2000. By this time, I was also subscribing to a tech newsletter, and bought when it said to, and never sold- why would anyone want to ever sell?

Making a long story short- I bought the dips as the newsletter said and never knew when to sell. This was in part due to my lack of understanding, but also because the analysis and newsletter writers all screamed about the tremendous buying opportunities on these "dips". "Back up the trucks!". By the time the bleeding stopped, I was down by more than 75%, and closed out the account.

After the pain had subsided, I started again, but began reading more about charts and technical analysis. I started reading IBD, and learning about CANSLIM, about swing trading, position trading, day trading, beating the DOW, mutual fund trading, on and on. Then I learned about the psychological aspect- how one trades their beliefs about the markets, about self sabotage, then about business plans, worst case contingency planning, and having multiple systems for varying market conditions.

Needless to say, my head was spinning. What I really learned was- there are many many ways to trade the markets, scads of time frames, entry methods, exit methods, and trade management methods. This freedom allows for unlimited ways of making, or losing money. I needed to develop a trading method that worked for me, and to create a set of guidelines that I could test, and then follow.

More to come....

Starting off- goals and objectives for the blog

I thought that I should start by detailing a little about why I am writing this blog, and what I am hoping to accomplish. One point that I need to make clear, is that I am going to speak only from my direct experiences. It would be easy to write about topics that other traders or coaches have written on, but to do so without internalizing it myself would just set myself up as being a poser.

When I reference work from another trader or author, I will give credit where credit is due, proving a web link whenever appropriate or possible.

My main objective is to relate the learning experiences that I have gone through- my education as a trader, if you will. The market allows for so much freedom, and it seems that many of us go through the same cycles of learning, trying, and learning again.

Above all, please be patient- I am not a professional writer, so if I appear to be cryptic and Zen master-like, it is probably me just being unclear.