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September 6th, 2005 by eyal | Filed under Personal development. |
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A certain individual has approached me with the following request: “I would like to learn to trade!”.
Why this request was made to myself rather than someone else more qualified or whether I should encourage/discourage this person is outside the scope of this question. So given that I need and would like to provide: advice, a starting point and share whatever trading knowledge and experience I have (limited as it may be) I’m not quite sure where to start!
The person in question has zero knowledge of trading, never read a trading book, never touched a stock or other financial instrument at all. Clean slate. This then poses challenges but also an interesting opportunity. If anyone has some words of wisdom on this then I would love to hear from you.
I get that question from time to time as well. I usually tell people to read everything they can get their hands on, starting with ‘How to Make Money in Stocks’ and ‘Trader Vic: Methods of a Wall Street Master”. Then I’ll give them a list of my top 10 trading books to read.
I think it’d be a great idea to “sit at the feet” of a good trader if possible.
Thanks Mike. I thought about the books route, my reservations on this were that even the good ones have some over-simplifications and misconceptions and a lot of fluff.
The other thing that sprung to mind is that in retrospect, when I was just starting out and reading those books I think I only understood and could relate to 10% of the material (while recently I doubled my understanding – to at least 20% ;-))
I think “sitting at the feet” of a good trader making a living off the market is probably the best method although I don’t know anyone in NZ (or even somewhere else) who takes on apprentices.
I would suggest reading some select books, too. This person will need to be familiar with many trading subjects (even if they don’t fully understand anything) before they’ll get anything out of trading with a mentor. In my mind, that means a little self-study (not unlike doing your homework before class).
There are tons of books to recommend, but you gotta start somewhere. As a starting point, I would suggest:
1. Come into my Trading Room – Elder
2. A Beginner’s Guide to Short-term Trading – Turner
3. Trading in the Zone – Douglas
At the same time, have them read a few blogs to start getting a feel for what other people do (not too many, it can get overwhelming, some blogs are of limited value, and you won’t have time for anything else). Trader Mike’s site has some good introductory stuff (I’m biased because a lot of the stuff on his site is in sync with my trading style — before he turned into a daytrader, that is ). Maoxian has a nice series of “Dummy” articles and trade examples. Although these examples show one specific technique (which one may or may not end up using), this will help reinforce the “process” of trading, how to think about trading, as much as the technique of trading.
Thanks for the comment Scott. Except for Turner’s one I have the other 2 books and would add them to the list together with Van Tharp’s first book and probably Vadym Graifer on Techniques of Tape Reading.
Hey Eyal,
Just got back,hope you had a good vacation yourself.
I agree with Mike,start off reading some books(not too many),just some basic ones on how markets work,how trends work,how execution works,money-management, and last but not least psychology of trading.
Suggestions:
The Visual Investor , by Murphy
Direct Access Executions, by Patel ( a little outdated but good for basic understanding)
Trade Your way To Financial Freedom, by Tharp
The Disciplined Trader, by Douglas
If you are leaning towards a mentor you will have to find one that is willing to take on a new trader, which in some cases can be a better situation because the trader will have no pre-concieved notions of how things work and can basically be molded much easier,if they have the desire.Also ask to see their P&L upfront,any good mentor should have no problem with this.Good Luck
Welcome back, had a good vacation? Caught lots of fish? :)
Thanks for the recommended reading list. I’ll get that person on a few books to start off with although I expect she will want to start pulling the trigger fairly early on.
Ah, yes. I forgot “The Visual Investor.” This summary at the end of the book opened my eyes when I read it:
Keep it simple. Concentrate on price trends. Learn to spot significant support and resistance levels. Look for important breakouts and breakdowns. Understand the role volume plays in confirming price action. Draw trendlines and keep an eye on them after you’ve drawn them. Use moving averages to help keep track of trends. Follow one or two of the popular oscillator systems. Learn to tell the difference between markets that are trending and those that are not. Learn to recognize a couple of the more obvious price patterns. Watch relative strength. Before investing, determine whether the market you are about to trade is going up or down, then trade in that direction.