Most people are enticed by the get-rich-quick promises touted by trading course providers. Trading is not a gateway to millionaire status for everyone. Like any field or profession, only the best will earn a lot of money. Attending courses and trading part time would not get you there. We want to manage your expectations and share with you down-to-earth advice about trading.
In fact, Is Trading Suitable for You in the first place?
Finding Your Trading Edge in the Market
The most important thing about trading is figuring out an edge. We define edge as an advantage you have over your competing traders, which result in profits for you. The edge comes in the form of a profitable strategy which you can execute in the market. Note that there are two parts to it. First, the strategy works. Second, you are able to execute it.
How to Deal With Trading Losses?
Like it or not, you are bound to have trading losses, no matter how good your edge is. Even if you are consistently executing your trading plan, you will still have losses. Hence, money management, which includes cutting losses and position sizing, will ensure your survival and preserve your trading capital. Money management should be well defined and implemented with discipline.
Besides having a money management plan, you need to manage your psychology. Nobody likes to have losses. You have to learn how to manage your emotions and continue to trade rationally. Mark Douglas wrote a good book on this – Trading in the Zone.
How to Become a Profitable Trader?
The path to a profitable trader is treacherous. How do you know you are in the right direction to profits? Mike McMahon stated the milestones of a trader which you can track your progress with – The Evolution of a Trader
Brent Penfold wrote a good book to describe The Universal Principles of Successful Trading.
In general, there are two main types of trading strategies. Regardless of the time frame and the assets you trade, there are only two ways to trade – trend following or counter-trend. One of the good descriptions of how prices move is in Benoit Mandelbrot’s book:
Trend Following Strategy
A trend following strategy is usually a buy or sell upon a price breakout, or a retracement of a main trend. Trend followers subscribe to the “the trend is my friend” mantra.
Alvin interviewed Andrew Abraham, who is a trend following trader, Trend Following Mentor reveals the Hard Truths about Trading – Interview with Andrew Abraham of Abraham Investment Management. Andrew also wrote a book – The Trend Following Bible
The turtle traders were the most famous trend followers. Richard Dennis and William Eckhardt bet against each other if traders are born or made. They started the experiment by hiring traders from all walks of life and taught them how to trade. Although they did not conclude who won the bet, Richard Dennis should be the winner in most people’s opinion, since there were quite a number of successful turtle traders.
Counter-Trend or Mean Reversion Strategy
The opposite of trend following strategy is the mean reversion strategy. Such counter-trend strategy attempts to identify price weaknesses and enter trades in the opposite directions. Mean reversion traders follow the mantra, “what goes up must come down”, and “what goes down must come up”. Or in other words, prices should revert to the mean from time to time.
One of the most prominent proponent of mean reversion trading is Dr Alexander Elder. Alvin attended Elder’s seminar in 2012 – Invest Wisely in 2012 with Dr Alexander Elder
Interviews With Traders
Inspired by Mark Schwager’s interviews with traders, Alvin did interviews with Singapore traders and document them in Secrets of Singapore Trading Gurus (Enter “bfp15″ during purchase to get 15% discount!). He has kindly put up the interview videos on BFP:
- Keane Lee – Stocks
- Yeo Keong Hee – Forex
- Binni Ong – Forex
- Nicholas Tan – Forex
- Clarence Chee – Forex
- Tom Yuen – Futures
- Patrick Lee – Futures
Alvin has also picked out quotes from trader interview books in these posts:
How to Choose the Right CFD Broker?
Contracts for Difference (CFD) has gained popularity over the years. This is because it enables retail traders to short stocks easily. In addition, it provides many asset classes in one account and with leverage, traders only need to put up a fraction of their capital to trade the market. Not all CFD brokers are created equal but we hope to give you some reviews of those we have used before.