Introduction to Trading the Financial Markets (With Q&A)

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  1. #1
    Arthur is offline Banned
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    Default Introduction to Trading the Financial Markets (With Q&A)

    After receiving close to 50 PMs about trading the financial markets with countless questions and more I have finally decided to post up a thread in order to hopefully guide people in the right direction with this without having to spend close to 2 hours a day responding to individual PMs. Keep in mind that this is NOT a guide on how to be profitable in the financial markets; this is merely an introduction to the markets itself along with some additional information I find to be useful. If you're looking to truly get a full education on trading I would recommend you talk to Kunal about the BOWS Boot Camp.

    I will continue to update this thread when I believe something is missing or if someone asks a very good question.

    I'll start with an introduction so you get an idea of where I come from. I started trading the financial markets in high school. I did a little bit of paper trading in the equities (stocks) market and then went straight into it. I dropped a few thousand dollars into an account with a big retail broker and then lost a little over 60% of it in under a month. It was at that point that I realized I needed to actually sit down and learn. I developed a trading plan, studied thousands of charts, hundreds of strategies, and dozens of go-to setups. Today, I'm a full-time private proprietary equities day trader and swing trader. I currently manage 3 total portfolios (1 Roth, 1 intraday, 1 swing).

    Overview

    Chapter 1 | Introduction
    - The Markets

    Chapter 2 | Available Platforms
    - Online
    - Direct Access

    Chapter 3 | Traders
    - Scalper
    - Swing Trader
    - Day Trader

    Chapter 4 | Trading
    - Psychology

    Chapter 5 | Trading Plan
    - The Plan
    - The Journal
    - Employing Your Plan

    Chapter 6 | Order Types
    - Market Order
    - Limit Order
    - Stop Loss Order
    - OCO Order

    Chapter 7 | Long & Short
    - Going Long
    - Going Short
    - Additional Information

    Chapter 8 | Account Size & Margin
    - Account Size
    - Utilizing Margin

    Chapter 9 | Technical & Fundamental
    - Technical Analysis
    - Fundamental Analysis
    - Additional Information

    Chapter 10 | Chart Types
    - Introduction
    - Line Chart
    - Mountain Chart
    - Bar Chart
    - Candle Chart

    Chapter 11 | Indicators / Data
    - Market Indicators
    - Simple Data

    Chapter 12 | Level I & II
    - Level I Information
    - Level II Information
    - Additional Information

    Chapter 13 | Time & Sales
    - Introduction
    - Using The Information

    Links & Resources Section
    Questions & Answers Section

    Last edited by Arthur; 03-08-2013 at 03:23 AM.
    Lodi, Pushn'lbs, One-Time and 4 others like this.

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    Chapter 1 | Introduction

    The Markets
    - What are they?
    • The Stock Market
    • The Foreign Exchange Market
    • The Futures/CFD Market
    • The Commodities Market


    - What is involved with each one?
    The Stock Market (Equities Trading)
    • Trade individual company stocks
    • Market contains thousands of different companies which can be traded
    • Heavily regulated (*Pattern Day Trade Rule*)
    • Recommended to trade with over $25,000.00 (Exceptions To This)


    The Foreign Exchange Market (Forex Trading)
    • One of the most popular markets
    • Trade currencies from all over the world
    • Market is based on fluctuations in exchange rates


    The Futures/CFD Market (Futures Trading)
    • Trade the broad stock market
    • Market tracks the movements of the major market indices that we see on the news


    The Commodities Market (Commodities Trading)
    • Trade a wide variety of goods
    • Commodities range from corn to gold
    • Market is based on changes in commodity prices


    *Pattern Day Trader Rule
    • This rule states that an equities (stocks) trader cannot open and close more than 3 positions intraday throughout any 5 rolling trading days if they have an account balance of less than $25,000.00.
    • This restrictive rule is in place in an attempt to protect new traders from blowing out their accounts.


    • A substitute route is to trade in the stock market but make only a handful of trades each week which results in a potentially very restrictive learning process.
    • Another substitute is to open a trading account with a proprietary trading firm.



    Chapter 2 | Available Platforms

    Online
    - What is it?
    Internet based platforms are the platforms where you access your trading panel through a web browser and it takes you to a page where you can make trades. These types of platforms are generally used by investors or people who do not trade actively.

    - Advantages & Disadvantages?
    • Level I Access (occasional Level II access but no opportunity to “employ” the information)
    • Latency in trade processing
    • Trade order is not sent directly to the market but to a trade desk at the brokerage firm first
    • Potential slippage


    Direct Access
    - What is it?
    Direct access platforms are used by traders who make multiple trades everyday. These platforms allow the trader to directly access the markets and gain streaming market data. This is the best route for someone who will be trading very often and or at a professional level.

    - Advantages & Disadvantages?
    • Level I & II Access
    • No latency in trade processing
    • No middle man; orders are sent straight to the market once submitted
    • Ability to see the depth of the market and see real-time accurate quotes



    Chapter 3 | Traders

    Scalper
    A scalper is a form of a day-trader who enters and exits dozens of positions a day in hopes of catching extremely quick market moves. Scalpers are in positions anywhere from a few seconds to a few minutes.

    Swing Trader
    A swing trader is a trader who tries to catch a slightly longer term market swing. Swing traders typically hold positions anywhere from a day to a few weeks. Swing traders expose themselves to the risk of overnight and weekend market moves.

    Day Trader
    A day trader is a trader who usually makes a handful of trades everyday but holds for a longer period than a scalper. Day traders hold positions from a few minutes to a few hours. A true day trader never holds positions overnight.

    There are other types of traders including position traders and others but I decided to cover these three specifically. You can always do your research on other types of traders.


    Chapter 4 | Trading

    Psychology
    - The #1 Rule
    • Absolutely NO ONE has your best interest at heart. The market is a harsh world but no matter what, YOU should be in control of your money, your fate, and your destiny.
    • Only YOU have your best interest at heart.


    - The #2 Rule
    • Trading is understanding the psychology of others (your competition).
    • H-O-P-E is just a four letter word to a trader. We do NOT hope.
    • We calculate, we analyze, and we execute.
    • If at any point in your trading career you are ever “hoping”, close the trade.


    The majority of professional traders will agree that trading is a 70/30 mix between understanding the psychology of yourself and others (70%) and actually analyzing/executing decisions (30%).

    - Professionals & The Herd
    • There are two groups of people in the market today; there are professionals and the herd.
    • Understanding the psychology behind the two groups is the key to our success. We, as professionals, must be EXPERTS at understanding the herd mentality.
    • Why is that? Our profits are their losses, we, as traders, relish competition and they are our method of capitalizing on their mistakes.


    • People individually are talented, unique, and intelligent but when you put them in a large group, particularly Americans, they all become sheep. What one does, everyone does.
    • You see this in the market when someone, on CNBC for example, states something along the lines of “AAA is the new big thing, we are moving it to a strong buy”.
    • What does the herd do? They all pile into the stock without any sort of thought process involved. They listen and they believe.


    - The Mentality
    • Let’s ask ourselves this: if we are being told by someone to buy a stock, what does that surely signify about that person?
    • They are a seller. They are telling you to buy it because they already own it.
    • Once again, only you have your best interest in mind.


    - Profiting From The Herd
    So we have established that the herd mentality involves simply listening and then acting with little to no analyzing involved before the execution.
    We as traders need to be able to determine
    1. What direction the herd is going
    2. How fast they are going
    3. How long they will be going that way


    • Understanding where and what the herd is going/doing presents us with many different opportunities that we can and should take advantage of.


    - Our Psychology
    Its obvious that the herd psychology is extremely important to understand however certain aspects of our mentality is as well.

    • Tonight, when you are completely done with your day, go into the bathroom, turn on the lights, close the door and be completely quiet. Look straight into your eyes in the mirror and ask yourself: do I lie to myself?
    • If you say no the first time, do it again, because you do, even if it is very little.
    • You need to be aware of your level of self-deception.


    • If there is one thing that is true about trading, you must be brutally honest with yourself 100% of the time.
    • You will fool yourself at times and mind games will take control of you.
    • “Oh I know this is a good company, I’ll hold it just a little bit longer, it’ll come back!”


    That’s hope… and WE, as traders, do not ______.


    Chapter 5 | Trading Plan

    The Plan
    - One of the first steps to becoming a successful trader or investor is to develop a plan.
    - As a trader or investor you must think about and develop your plan the same way entrepreneurs develop their plans for their businesses.

    - The plan should include the following as a minimum:
    1. Which market you plan to trade (refer back to Chapter 1)
    2. What are/will be your trading strengths and weaknesses
    3. What type of trader will you be (refer back to Chapter 3)
    4. What will you look for when you enter and exit a trade
    5. How will your profit targets and stop losses work
    6. What is your money management strategy and rules
    7. What will your Risk:Reward ratio be


    The Journal
    - Equally as important as the plan is your trading journal.
    - Your journal is what you will use to track all of your trades as they occur.

    - Your journal should include the following as a minimum
    • The date and time you took the trade
    • Why you took this trade and what you felt throughout the trade
    • Total profit/loss of the trade
    • Did you follow your plan throughout the trade?


    - Your trading plan should be updated daily. This can be done throughout the trading day or at the end of the day.

    - We develop trading journals in order to address our strengths and weaknesses as well as identify what we did right or wrong in any specific trade.
    - This is a critical step to developing as a trader or investor.

    Employing Your Plan
    - Writing your trading plan, rules, journal, etc. is a time consuming process.
    - While it can be modified as you develop as a trader or investor, it acts as the backbone of every decision you make in the financial markets.
    - Take your time when researching different strategies. Modify them to fit your overall strategy and goals. There are thousands of variants to different strategies.
    - Note that what works for one trader or investor does not necessarily work for all.


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    Chapter 6 | Order Types

    Market Order
    - This is the most common order type available.
    - It can be used to buy or sell positions.
    - Unique to this type of order is the fact that you will always get filled.

    - Once the buy order is clicked you will be filled at or near the ask price.
    - Once of the sell order is clicked you will be filled at or near the bid price.

    Disadvantages
    • Lack of control
    • You don’t know your buy/sell price until you are actually in/out of the position


    Example: The price of a stock is moving up rapidly, you submit your market buy order at what would appear to be 100.05 but you end up being filled at 100.15. This lack of control is the reason why many traders prefer to use limit orders.

    In addition to certain disadvantages outlined in the previous slide, another more prominent disadvantage is the fee incurred when using this order type. Direct access brokers/firms will charge you for removing market liquidity. These fees can add up fairly quickly.

    Limit Order
    - This is the order of choice for many traders.
    - Unlike the market order, the limit order does not always get filled as it is dependent on certain variables.
    - With a limit order you set the buy/sell price of the order for the position.

    - When you place a limit buy order, you will not be filled until the ask price has met or beat your order price set
    - When you place a limit sell order, you will not be filled until the bid price has met or beat your order price set

    Advantages
    • Total control over your enter/exit price
    • Much more versatile


    Example: The current bid for a stock is $100.00 and the current ask is $100.01 and you place a limit buy order at $99.95. Your order will not be filled until the ask has either reached or passed your set price.

    You now know that if your position was filled your entry was at $99.95 or better unlike with a market order.

    As a whole, limit orders are ideal because we no longer need to worry about slippage and or bad fills however it is also not guaranteed that we get filled.

    In addition to all of that, the last benefit of this order type is the credit you get when adding liquidity to the market or the opposite of a market order. Ultimately this can help you balance out the commission costs of each trade.

    Stop Loss Order
    - This is comparable to a limit order but functions in the opposite manner.
    - This order is specifically used to close a position (typically a losing position).
    - With a stop loss, a sell (if you are long) order will be executed if the price of the stock hits or falls below your specific stop loss price.
    - It works the same way if you are short (covered in Chapter 7) a stock, it will buy-to-cover.

    - Similar to a market order though, this kind of order can be filled at different prices.

    Example: If we have a long position and we place our stop loss at support at $99.99, if the price breaks below this with some momentum our stop loss might not get filled immediately meaning we may not be out of our position until $99.95 or less.

    - There is also a variant of a stop loss order called the trailing stop loss.
    - This allows a trader to set a stop loss that will move with the current price of a stock based on a variable (percent or specific dollar amount).
    - This is useful because your stop loss can stay right under your current profits so that in the case the stock has a reversal your stop loss will trigger potentially right under your current level of profits.

    Example: You are long a stock at $15.00 and the price is climbing. You set a trailing stop loss to follow the current market price by $0.15. The current price of the stock is now $15.75 therefore your stop loss has followed you to $15.60. If at any point the stock were to reverse the stop loss will activate and then trigger if the price target is met.

    - Ultimately, a trailing stop loss aids a trader in locking in profits rather than potentially giving back their gains due to a reversal.

    OCO Order
    - Stands for “One Cancels Other” order.
    - This order consists of either a limit order and a stop loss order or a buy limit order and a sell limit order.
    - In short, this order will cancel the other order once either order is triggered.
    - This order is useful for positions you do not want to have to monitor during the day.

    Example: We are long on a stock, we can put in a stop loss at $99.99 and also put a limit sell order at $100.99 so this way if the price breaks above or below our parameters the position will be closed.

    There are many more orders available but these are the primary orders you will use every single day when trading.


    Chapter 7 | Long & Short

    Going Long
    - Being long in any stock means that you purchased a stake in that company from a seller.
    - You now on this position and can sell it when the time comes to close out of the position.
    - Your profits or losses can be calculated by defining the difference between the price you bought shares at and the price you sold them.

    - In order to be profitable in a LONG position, the price must go UP.

    Going Short
    - Being short in any stock means you are selling stock to a buyer that you do not actually have.
    - In order to sell stock that you do not have, your broker or clearing firm must have this stock available.
    - In short, what is occurring here is that you are borrowing this stock from someone else who is currently long and are then selling this stock on your own account.
    - Your profits or losses can once again be calculated by defining the difference between the price you shorted the shares at and the price you covered them.

    - In order to be profitable in a SHORT position, the price must go DOWN.

    Additional Information
    - Terms Association
    • Being long
    • Being short
    • Buying
    • Selling
    • Shorting
    • Covering

    - Buying is when you are going long in a stock and you are initially opening your position.
    - Selling is when you are closing out your long position in a stock.
    - Shorting is when you are selling stock to go short and you are opening your position.
    - Covering is when you are buying stock to end your short position.

    - Most people, especially investors, have a negative feeling towards shorting.
    - In September 2008 during the market crash, shorting of stocks was outlawed by the SEC.
    - In early 2009, the SEC voted to possibly re-instate the "uptick rule".

    - Uptick Rule States that you cannot short a stock unless the last stock sale was on an "up tick" or higher than the previous sale. This rule existed for decades but was recently abolished.

    - When shorting stocks, different brokers also have different regulations.
    - Some brokers do not allow stocks under $5.00 to be shorted.
    - Some have different margin requirements for shorting of different stocks.
    - It is also important before you try to short a stock to ask your broker if they have a list of stocks available to be shorted.
    - Most direct access platforms will have a symbol on the level 1 or level 2 screen which indicates whether or not a stock can be shorted.


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    Chapter 8 | Account Size & Margin

    Account Size
    - The first thing to keep in mind about account size is for a typical day trading account you must have at least $25,000 (exceptions to this) in your account at all times.
    - Most people getting involved in trading struggle to pull together this kind of money and then still have money to risk with their trades.
    - This causes many new traders to become fearful of trading, which is an awful psychological state that is difficult to break.

    - New traders opening a day trading account really should have at least $30,000 in their new account and fully expect to lose some of that money at first.
    - The reality of trading is that most new traders if not all new trades lose money at some point in their trading.
    - Most people have a difficult time grasping this concept that they will lose money.
    - Think of this money as your education for learning about how the markets work.

    Margin
    - Something to heavily consider when day trading is margin.
    - With a typical margin account, most brokers offer 2:1 margin, meaning for every $1 deposited you will have $2 in buying power.
    - With a pattern day-trading account, however, most brokers offer 4:1 margin, meaning for every $1 deposited you will have $4 in buying power. Some brokers even offer up to 10:1 margin.
    - One major thing to remember when utilizing margin, especially 4:1 margin or greater, is that small price moves could greatly affect your account.

    Example: If the price of a stock moves 1% but you are using all of your 4:1 margin, then that 1% price move would actually have a 4% effect on your account.

    - Margin becomes extremely dangerous when newer traders have positions going against them, so instead of following their trading plan they decide to utilize more margin and "average down" their position.
    - This is one of the most common ways newer traders blow out their accounts.
    - Another thing to remember with margin is different brokers have different regulations on how you can use your margin.
    - Some brokers will not let you trade stocks under $5.00 or under $1.00 and utilize margin.
    - For these trades they will only let you utilize your cash balance in your account.

    - One of the great advantages of a margin account in general over a cash account is that margin accounts do not have any wait time for trades to settle.
    - On a cash account, you must wait 3 days for your funds to settle from a trade.
    - What this means is if we have a $2,500 account balance and take a $2,500 dollar position that is opened and closed on Monday, we will not be able to make any more trades until Thursday.
    - With a margin account, we still are technically waiting for our funds to settle, however the broker will spot us the money while our funds settle.
    - This is a huge advantage to having a margin account for any type of trading.


    Chapter 9 | Technical & Fundamental

    Technical Analysis
    Defined: Refers to analyzing a financial instrument utilizing market data, market indicators, and charts.

    - Not all traders rely on all of these tools for technical analysis.
    - Technical analysis typically utilizes different chart patterns, chart setups, and price movement to derive good entry and exit points.

    Fundamental Analysis
    Defined: Refers to analyzing a financial instrument utilizing news stories, earnings, economic events, and any other similar source of information.
    - This information is generally public information and easily accessed.
    - Traders who trade strictly based on fundamental analysis rely on speedy and reliable news platforms to deliver this type of information to them so they can place their trades accordingly.

    Additional Information
    - In general, investors or long term traders focus more on fundamental analysis while shorter term traders focus more on technical analysis.
    - This is because company fundamentals are not always portrayed in day to day price movements, however technical setups exist everyday.

    - A lot of day traders are technical analysts that look for patterns in price, volume or other indicators and place trades accordingly.
    - Another thing to keep in mind when trading in the short term is that it can be extremely difficult to trade strictly on fundamental analysis.

    - I recommend finding a balance between the two to mate with your strategy.


    Chapter 10 | Chart Types

    Introduction
    - The first thing to keep in mind throughout this lesson is that different chart types are for different people and different types of traders.
    - Different chart types also convey different information.
    - Typically, active traders use a Candle Chart.

    Line Chart

    - Typically what is found on most trading websites and online browser based trading platforms.
    - On this chart, the average price is drawn in a basic line.
    - It is not as easy to see support/resistance and not easy to see the highs and lows of a low time frame period.
    - This chart type does not convey the same amount of information as candle charts.

    Mountain Chart

    - We can see this is the same as a line chart however the bottom is shaded in.
    - This is simply an aesthetic change from the line chart.

    Bar Chart

    - This looks like a chunk of volume bars, though they represent price instead of volume.
    - This chart is not very useful in trading. I don’t recommend using it for any reason.
    - The only useful information this chart conveys is up and down trends, which we can see on the previous charts.

    Candle Chart

    - The most popular chart among traders.
    - As mentioned previously, this is the type of chart I typically use while trading.
    - Looking at a green or upward candle, we can see that the bottom horizontal line is where the price opened and the top horizontal line is where the price closed.
    - Looking at a red or downward candle, we can see that the top horizontal line is where price opened and the bottom horizontal line is where price closed.
    - The green or red shaded/un-shaded area of the candle is known as the body.
    - We then can look at wicks which are the thin lines which extend from the candle on the top and bottom. Wicks indicate price movements during the specified time interval that are above or below the open and close price of the candle.



    Chapter 11 | Indicators / Data

    Market Indicators
    Defined: Market indicators manipulate market data to derive a separate chart which is unique to that specific indicator.

    Example: Bollinger bands, which are a common indicator, utilize standard deviations and manipulate price to form these bands.

    - There are literally thousands of indicators available which are simply different mathematical approaches to price action.
    - The problem with indicators is they can create a mess of a chart. Remember that indicators are systems to help you and not to make analyzing harder.
    - I maintain a very simplistic setup consisting of moving average indicators and also, optionally, the MACD indicator.


    This chart features minimal indicators and is well organized and readable.


    This chart features too many indicators and is very difficult to read.

    Simple Data
    Defined: Market data is data that is supplied from the market, with the two biggest pieces of market data being price and volume.

    - This information is raw data that is displayed on a chart.


    - Some traders prefer to just use raw data in order to avoid the clutter of indicators.

    Over-Analysis Paralysis
    Defined: Occurs when our charts are so bogged down with indicators that we miss our trades.
    - When we have too many indicators on our charts, our minds are processing all of this information and we become overwhelmed by everything.
    - This causes us to miss trades that we should enter because we are busy analyzing all our different indicators instead of focusing on making a trade.
    - When you minimize the amount of indicators you use patterns become more clear to the eye and your reaction time and awareness of these patterns will decrease significantly.


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    Chapter 12 | Level I & II



    Level I Information
    - Level I screens provide information such as volume, high and low of the day, percent change, price change, last sale price, open/close price, current bid, current ask, and current spread.
    - Traders can typically customize their platform to display only the information they find most useful.

    Level II Information
    - This screen displays inside market data that can only be accessed on a direct access platform.
    - Level II screens show the bids (the people willing to purchase this stock and the prices they are willing to pay for this stock) and the asks (the people wanting to sell this stock and the prices they are willing to sell this stock for).

    Additional Information
    - Now you might be asking yourself how you can use this for your trading.

    - The information on Level I is helpful because it is important to know the highs, lows, and volume in a stock.
    - The information on Level II is helpful because it enables you to really see where the market is, something a chart can’t necessarily do.

    - The Level II screen is often referred to as a "game" because traders can use large size orders to make a stock look stronger or weaker than it really is.

    - Another important thing to remember about the Level II screen is that not all bids and offers appear on Level II. When inputting an order one can choose how many shares of their order will be visible.
    - A trader can technically place a limit buy order for 1000 shares of a stock but choose to only make 100 of them visible.

    - This can ultimately manipulate the way the price moves on a specific stock.


    Chapter 13 | Time & Sales

    Introduction
    Defined: The Time & Sales column is a section that transmits every order that has been processed of a particular stock. Information transmitted includes the date, time, amount of shares and ECN used.



    - You might be wondering what the difference between Level II and Time & Sales is.
    - They seem pretty similar and are usually talked about together.
    - Remember that Level II is always changing. Bids and asks can be modified or removed at any point in time.
    - With Time & Sales, the information you are seeing is processed and complete.

    Using The Information
    - Knowing that all information presented on your Time & Sales screen is final, how can we use the information to our benefit?
    - I use Time & Sales is to look at the price and size of recent sales as well as the momentum behind the price move.

    Example: Large trade sizes on the Time & Sales window can be an indication of institutional trading that is occurring which in turn can help in understanding volume and price movements at key price levels.

    - Time & Sales is also color coded to help give traders a feel for whether the bids are being hit or the offers are being taken.


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    Questions & Answers

    How long did it take for you to eventually start consistently making money?

    A: Quite a few months, almost a year for straight consistency. I'm a 90s kid so I grew up in the "now" world. I started trading with very little patience and self-control because I wanted everything to work on the spot. This was very detrimental to my learning curve and greatly increased the amount of time it took me to become consistent.

    Would there be any reason you would recommend jumping right into day trading?

    A: No.

    I have a sum of money that I would like to put to work, what do you recommend?

    A: If you want to manage it yourself, I would recommend you review the information here as well as invest into a trader education curriculum (look into the BOWS Boot Camp). Obviously there is a lot more to it but that is for you to experience and learn over time. If you don't want to manage it yourself, I recommend you talk to a financial planner or adviser who can take your money and manage it for you. No matter what though, take 4-5 thousand and start a Roth IRA with it for your future. This you will manage yourself.

    What is your opinion on penny stocks?

    A: Be very careful. I know you hear of people like Tim Sykes who essentially became a millionaire shorting penny stock pump and dumps but this is a very manipulated market. Penny stocks can go all over the place in a very short period of time. They may also not move at all, literally. It all depends. If you are looking at starting positions in penny stocks because they're "cheaper", DEFINITELY DO NOT do it. People who trade penny stocks successfully do not have that mindset and, though I'm not sure, I sincerely believe it’s for that exact reason that they're good at it.

    What is your opinion on paper trading?

    A: Paper trading is a love hate relationship with me. Paper trading offers you an amazing opportunity to test your trading plan, rules, and strategies to see if they are profitable. Here is the reason why I say love hate: Just because your strategy is successful in paper trading doesn't mean YOU, trading your strategy in the live markets, will be equally successful. Why? Because in paper trading there are no emotions, period. In the live markets, without self-control, you will be ripping your hair out, losing sleep, etc. over losing positions. Your rules may say "I will not risk more than 3% of my portfolio value in one trade, if I hit 3% I will close the position" or something along those lines. In paper trading it’s easy to say, "well there's 3%, closing the position". In the live markets I PROMISE you that when you are first starting, it will be VERY difficult for you to close out losing positions.

    It’s an amazing feeling to make money clicking a few buttons but it’s an experience like nothing else to be losing money doing the same thing. Initially you will probably feel like you're being robbed. This will eventually fade away as you become unemotional to money and the markets (6 months for me) but I promise you that at first, you will learn A LOT about yourself. I won't pretend to say I've never lost money. I've lost thousands of dollars. I even lost over five thousand dollars in under half an hour. Sometimes times are tough and you need to learn to become unemotional and unfortunately paper trading simply won't do that for you.

    How much capital do I need to start?

    A: That's a good question. In equities, to dabble and learn, I would recommend anything from 3-5 thousand dollars. Less will make it difficult to capitalize on good positions and more will give you the feeling that it’s okay to lose money. However, you only NEED as little as one thousand dollars with most retail brokers to start.

    What do you recommend I use to find stocks?

    A: I use a scanner called Finviz to look for setups that may fall into my strategy. Keep in mind this isn't a tool to tell you what "the next big thing" is going to be. What it enables you to do is set very specific or broad parameters and scan a large list of stocks (over 1800 I believe). This is a very useful tool to quickly find stocks that may be exactly what you’re looking for. You can then organize the results to display charts, financial information, etc. You can make an account for free and save your scans for future use.

    You said there is an exception to the 25K PDT rule, what is it?

    A: I'm sure you've already heard of it before if you've even just gave it a Google search. Proprietary trading firms are the solution to this. These firms will leverage your account up anywhere from 6:1 to 10:1 so for every dollar you deposit, you will get 6 up to 10 dollars. These firms are generally not suitable for newbie traders as the platforms are typically much more advanced when compared to what you might see with E-Trade or TD Ameritrade for example. The advantages are numerous though: one being the leverage as stated, two being the direct access platforms, three being the very inexpensive commissions, and four being the speed of your trading. Don't get me wrong, there are downsides but if you partner with the right firm, you can truly take advantage of MANY things you wouldn't normally get to do with a big house broker. You can message me if you're interested in this and I can refer you to the firm I trade with.

    Post questions and I will answer as many as possible! Also remember that you can add me on Facebook, follow me on Twitter, PM me on L4P, etc. and I will be more than happy to help you when time slots open up for me.
    Last edited by Arthur; 02-18-2013 at 07:30 PM.
    Pushn'lbs, Old Sport and VR1 like this.

  9. #8
    Old Sport is offline Banned
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    Thank you very much. Thank You.

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    Bigd41190 is offline Member
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    Big time post bro. Kudos
    "Got the heart of a soldier, with the brain to teach a whole nation"


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    Trevorrow is offline Senior Member
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    Nice post, this is going to help a lot of people out.

    Two things:

    1. I would revise your post on how much capital is needed to trade. I think that should be narrowed down to the markets/style you are trading. I don't want people getting the wrong idea thinking they can take the 1k they have and jump into trading, because thats all that is "needed" to open an account with a broker. For example, in futures, I would not advise trading with anything less than $5k.

    2. I would definitely touch on the futures market some more. There are a lot of benefits to trading futures, specifically since a number of commodities, indexes, and the euro can be traded in that market.

    edit- I just skimmed the post, so if you did cover things in more detail my apologies.
    -
    "There's a lot of people who want to play the game, but you can't cry when the game plays youHidden Content "

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