Trade The Journey

Trade The Journey

Stepping Up!

Greetings to All.

I am eager to share some of the challenges I faced during the week. As some of you may know, last month, I begin trading professionally.

At first, I was a little unclear on how to begin trading. A book I am reading called the “Traders Pendelum by Jody Samuels” suggested forming a trading business plan. I thought to develop a business plan to be a little excessive for trading, but I built one anyway.

In the book, she describes two traders entering the trading arena with the same skillset and level of intelligence but vastly different perspectives. One trader developed a plan and stuck to the plan to the best of her abilities when trading. The other trader developed a trading plan but thought it best to use his logic when trading.

 

The results couldn’t be farther apart.

The first trader used her plan as her basis and guideline for entering and exiting trades in a very systematic manner. Her plan also guided her research and preparation.

The second trader loosely followed his plan and experienced wide fluctuations in his profitability. He was continually searching for the next system or guru to assist him in his decision making. He also researched and prepared but found himself in losing trades and often was scared to enter the market.

Sad to say, I more resembled the second trader who constantly searched for a new system. I would spend hours actively searching for new gurus to validate my perspective on trading.

 

This can prove to be an endless search.

Although I can speak from a vantage point that recognizes this search as futile, each trader must go through this search to find their way.

Another difference highlighted in the book is the time commitment. The first trader had a dedicated time that was allocated towards her trading and research.

The second trader always seemed to be researching and adjusting his system. He never got a chance to truly check the validity of his trading system because he always saw a new system that promised better results. He also spent a large amount of time completing “Busy Work”.

Again, I can admit that I mirrored the second trader. With each new book, I believed a new level of understanding would be achieved.

My initial vision: I’d enter the market with enough knowledge to trade intuitively, and almost instantly, I’d be profitable.

 

Not true.

Developing my trading plan forced me to reformulate my personal budget and form a trading journal to track my progress. With a designated amount of time allotted towards trading and research, I am managing my time better.

However, I genuinely enjoy learning about economics and the financial markets function, so I am never completely separated.

Sticking to your system for trading is harder than I pictured it to be because it must be implemented each day. Its easier to variate what you do daily to avoid the pain of discipline and the repetitiveness of practice.

 

Here is a portion of my system:

  • Review the trade the night before if day trading and the weekend if swing trading.
  • Set a maximum risk amount, which includes establishing a stop.
  • Research the sector and industry.
  • Study the fundamentals and valuation metrics to get a sense of where the stock might be headed.
  • Read the market overview for all markets.
  • Review the higher time frames for the highs, lows, and turning points, especially the day before.

 

One aspect of trading I am beginning to understand is the importance of commitment.

 

Trading is a profession that requires a real commitment of your time and attention.

For the moment, I am paper trading, and I am glad that the absence of trading capital has allowed me the opportunity to practice. If I had the capital, I probably wouldn’t have practiced.

I didn’t think I needed to practice. I was completely confident in my skills and abilities.

This couldn’t be further from the truth. I needed to practice because I needed to make mistakes.


Mistakes and Learning points:

When you are trading, make sure that is the only activity you are focused on.

While paper trading, I thought I could watch the game and trade simultaneously.

I’d take a quick break every 15 minutes to keep track of the score and take a break from trading. I thought I was fully focused on the trade until I heard the announcer’s excitement as he narrated the fast-break so I turned my attention toward the game. How much could happen in a split-second?

Lebron James was on a fast break and caught the alley-oop to put the Lakers up by two. When I refocused my attention back on my trade, the stock had already dropped and was moving lower. Yikes!

 

Trading in the wrong time frame was another costly error.

 

Never Predict, just observe.

I was attempting to predict where the stock was headed when trading, and it never worked. A couple of minutes later I was down over $400. I thought it would be good practice to earn the money back.

At one point while trading, I don’t recall making any predictions about where the stock was going ultimately. I focused on what was happening in the stocks’ move before me, and where I have decided to position myself.

I earned the money back and ended the session with a profit. Earning the money-back required a lot of concentration and attention.

 

If the stock moves against me in the amount I am willing to lose, I exit the position.

The hardest part of trading so far has been deciding where to take profits. I never thought that deciding where to take profits would require more confidence than exiting a losing position.

 

Document each trade.

For some reason, I learn better when writing things down. When reviewing my trading journal, I noticed that in the previous day’s trade, there was a trend for the day. So the next day, I looked at the higher time frame and found the trend.

 

These are some of the lessons I have learned while trading.

 

*The picture is a chart of JD.com and on the chart are trendlines I created. The price traded within these ranges and then dropped.

Questions? Concerns? Dilemmas?

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