I’m relatively new to the trading world but in less than three years I have been able to make that leap from thinking about what I’d like to do to actually making a living from the markets. That process was much easier than I expected simply because so many people are willing to share their knowledge and help.
Trading and investment analysis is truly a business where experience is the best teacher but learning from personal experience can be a very expensive process. I decided I would try to learn from the experience of others and set out to find out what it is that others do. Each conversation has helped me to grow as a trader and to avoid the expensive lessons that experience is willing to offer.
Among the most important things I’ve learned are some lessons about life:
– This is a tough business. Failure is probably more common than success so treat the markets with respect and plan on working harder than you would in a full-time job in many other fields.
– Discipline is a really big challenge. I want to be independent and that means I have to work the hours required for success. There’s no one paying me to learn or letting me gain experience while offering me the fringe benefits packages found in the corporate world.
– Passion is seen in every successful trader I talk to. They all love what they do.
I’ve also learned a great deal about techniques that work:
– Any technique seems like it can work in the right hands.
– Success generally requires specialization. Everyone seems to have one or two favorite tools they use and although they often look at other indicators or strategies, they act based on what they know from their personal studies.
Specialized fields can include areas like Elliott Wave or point-and-figure charts or even specific indicators with entire careers being built on narrow tools like RSI or relative strength. Successful traders seem to know everything about their favored tool and I have been surprised to see how detailed the study of a single indicator can be.
There is much more I’ve learned from dozens of conversations in the past three years, but I also want to talk about how I put all of this together.
I looked at what I could realistically do considering my personal skills. Having spent a few years in military intelligence and law enforcement, I knew I could put spot patterns and act decisively in the face of uncertainty. That may sound dramatic but it really just describes the typical day of someone routing trucks through a warzone, for example, or someone using chart patterns to trade the market.
To succeed, I knew I would have to study chart patterns and learn to trade as the pattern unfolded. There is a lot to read on the subject and books from the 1940’s are just as important to understand as more recent writings. Web sites like ChartArcade.com are also valuable resources that allow you practice trading as the chart scrolls across your screen.
I also realized options were an important tool for me. They offer limited risk but more importantly options can provide leverage and allow me to increase the amount of my profits to the point where I could earn a living from a small account balance.
Right now, I am getting to ready to buy puts. SPDR S&P 500 ETF (SPY) is approaching a major resistance zone. The chart below shows that three previous bottoming patterns provide price targets between $153 and $156. I will buy puts when SPY reaches $153.
There are two important points I’d like to make about this trading strategy. First, I really don’t care what the patterns are called – they might be rounding bottoms or inverse head and shoulders or whatever you happen to see. All I look for is whether it is a bottom or top formation. Second, options are wasting assets and lose value every day they are held. That’s why I am waiting to start buying. Being early costs real dollars in terms of premiums paid and reduces profits.
For anyone looking at trading for a living, I would recommend talking to other traders. Learn something from all of them and adapt those lessons into your own philosophy. In the end, you should be able to explain why you’re taking a trade in less than 100 words relying on only one chart if you truly understand your trading strategy.
