Find a Trading Mentor

John, I have a question.

I am a novice trader who has been trading the emini S&P’s for the past two months. I’ve always been fairly good at self-teaching. However, I keep hearing / reading everywhere that its important for beginning traders to have a mentor. How does one go about finding a mentor (aside from paying someone for “mentoring / coaching” ). Are there successful traders out there that are looking to help newbies like me, purely out of the goodness of their heart? If so, where do I find them?

Thanks.
Janet

This came in by email a short while ago. This is a question which comes up quite a bit, and I’ve addressed it from different perspectives a few times in this blog. Here are some posts worth reading on the subject of coaches, mentors, and finding ones to work with.

• Choosing the Best Trading Coach
• Trading Coaching and Mentoring
• Trader Development: The Value of Coaching and the Difficulty of Finding One
• Does coaching of trading psychology, require a successful practitioner?

And of course Brett Steenbarger created a whole blog based on self-coaching which ties in with his book The Daily Trading Coach. Definitely something worth checking out.

Struggling with support & resistance and knowing what the key market levels are? Check out the Price Distribution Analysis methods I use.

On Elliott Wave, Implusive Trading, and Trading Plans

I’ve had a few questions come in over the last several days which don’t really require a full post to answer, so I’m going to hit them together. Here’s the first:

If you love helping people get the most out of their trading, I would like to ask you where I can find good Elliot Waves handling materials or manual.

I’m not an Elliott Wave practitioner, though I understand the concepts. At the top of the list of reference materials on the methodology has to be Elliott Wave Principle. A reader of the blog said about studying EW “I know when you first take a stab at it it is very, very daunting and down right confusing. But trading in general is hard, if the technique were easy, I would probably not have given it a shot. Keep trying its worth it. You will not be sorry.”

Like just about everything else in trading, to become effective with EW you’re going to have to put in the work and practice with it a lot.

The other emails all had a common basic theme.

For your information, i already lost my capital almost 90% from $100. i knew that i still new in this investment but from the articles related forex, i used 2 indicator;

1. MACD
2. Stochastic

But, i still made wrong prediction even i followed the graph of that indicator. More i getting know about forex, more i get confusion and made more mistake. i dont know what should i do next. should i i use autotrading? like zulutrade or any else? or do you have a better solution for me, what should i do. what the steps i should follow.

Right now, i wanna know about short term trade and long term trade, which one is better for me and how i can gain a profit for my 2nd investment?

---

 
i want to understand probability of trading. how to remove impulsive trades from my trading

---

 
I am a beginer and at this moment my first enemy is my mind.
For example: 03/03 i open long AUDUSD at 0,9030 with sl 0,8960 tp 0,9126, but 04/03 AUDUSD drop at 0,8977 i was so afraid and close my position but now AUDUSD is 0,9122. Nice!

Do you see the common thread running through these inquiries? They all come down to having a well-thought-out trading plan. If you go through the process of developing a good plan, which includes a thoroughly thought-out and tested trading system, then these questions don’t get asked. Developing your trading plan (which is really the major focus on my book and trading course) helps you gain the confidence you need to enter good trades and see them through (problem for last emailer), avoid impulsive trading (second emailer), and know which timeframe(s) and methods are going to work best for you (first emailer).

As for using a service like zulutrade (where trades are done in your account based on those done by other traders), that is generally going to be more for those who aren’t really interested in developing as a trader and/or or those who want to diversify their trading/investing.

Struggling with support & resistance and knowing what the key market levels are? Check out the Price Distribution Analysis methods I use.

Book Review: Trading From Your Gut by Curtis Faith

One of the books I put near the top of the pile in terms of practical usefulness is Way of the Turtle by Curtis Faith. Not only does is provide a view of Faith’s experience as one of the famous Turtles, but it also takes a good look at trading system design and development. In his new book, Trading from Your Gut: How to Use Right Brain Instinct & Left Brain Smarts to Become a Master Trader, Faith takes a different approach, one that would seem to contradict his earlier focus on systems. After all, instinct and gut feel would seem to be the complete opposite of system trading. It’s not really that simple, though.

At the core, Trading from Your Gut is about integrating the right-brain instincts and intuition you develop as a trader with the left-brain rational side from which systematic analysis and trading tends to flow. Faith spends a fair amount of time arguing for why that is important. In fact, the better part of the book could be said to fall into that area. The idea is that combining the two parts of your brain will make for much better results than either one on its own.

Now, having said that, Faith considers the swing trading timeframe the most optimal for trading with both sides of your brain. Real short-term trading, he contends, favors a more intuitive approach, while the timescales of long-term trade suit a more left-brain approach because there’s plenty of time to think things through rationally. It’s worth noting that an awful lot of traders seem to want to go the other way, make gut calls on long-term trades, but use mechanical systems for short-term trading.

If you’re looking for short-cuts to develop intuition, though, you’re out of luck. Faith tells you what you should already know – that you can only really do that by trading. That said, he does provide some tips for making the process more efficient and effective. There is, of course, a lot of trading psychology discussion in the book, which given the subject matter shouldn’t come as a surprise. In fact, Van Tharp wrote the foreword.

As much as I do believe this is a worthwhile subject, I think Faith had to do a lot of stretching to get it to be a book. There is clearly a lot of filler at the end to get close to the 200 page count, including a discussion of the forex book he has in the works. I think when you boil down to the meat of what he’s trying to get across you really only have a couple chapters. My personal feeling is that this material, at least as it is currently developed, would have been better off as a section on a more expansive book on trader development, or even trading systems.

My bottom line is that overall I came away a bit disappointed in a kind of “does not fulfill its potential” sort of way. I don’t think this was Faith’s best effort. It doesn’t disuade me from wanting to see what is next book offers, though.

Be sure to check out my full list of trading book reviews.

Struggling with support & resistance and knowing what the key market levels are? Check out the Price Distribution Analysis methods I use.

Currensee Now Open to Oanda Traders

Word has come out from Currensee that Oanda traders can now become members of the forex social network. This is big news because it opens the network up to customers of one of the biggest brokers around, one a lot of small and newer traders use because of its flexibility in terms of account and trade size. That means there could be a really big ramp up in membership.

If you trade forex and haven’t already done so, you should check out Currensee, which is a network for active forex traders. This isn’t a forum, but something closer to Facebook or LinkedIn in that you can connect with others around the world directly. There’s a major twist, though.

Members of the Currensee network can see the trades and positions of others in their group of connections (though not sizes). That means no one can hide what they are doing and how they are performing. If you put on a USD/JPY position all of your connections will know it and be able to see how the trade goes for you. True transparency!

There are also a lot of useful tools built into the Currensee online platform, and more in development. I’ve been advising the people behind the project for almost two years now and think this has the potential to be something really special. You should definitely give it a look if you’re a forex trader.

Struggling with support & resistance and knowing what the key market levels are? Check out the Price Distribution Analysis methods I use.

Is Trading for a Living Worthwhile?

Here is a very good inquiry I received from a trader named Yvan in Bern over the weekend regarding a post I did about trading for a living.

I’ve just read the article What’s the secret to making a living from internet based Forex? where you mentioned that if you want to make 2500 per month you need 100,000.

In that case i think it isn’t worthwhile, i live in Switzerland and my cleaner earns more than that net salary, she doesn’t even risk 1k and definitely not 100K, and probably spends a lot less time working than a trader to make this kind of return.

So my question is, can someone who is not a professional trader can really make a good living from trading, and i don’t mean 2500 but more like 10k/month? I read a lot that new traders aren’t realistic. Is that because if they were it wouldn’t be worth their time? Maybe that could explain why so many people sell stuff related to trading because that how they make their money and not from trading. Could it be like the gold rush in America where just a few guys became rich from finding gold but the ones selling pics and shovels were the ones becoming quickly rich.

I’ve spent the last few months trying to make money from trading Forex, but is it a really a good business to get in?

Trading for a living is something a great many new traders have as their objective (myself included once upon a time), but only a very small fraction ever accomplish. This is partly a reflection of difficulty, of course, as just being a long-term profitable trader is a challenge. It is also partly a reflection of financial needs and changing personal situations.

I do firmly believe that to have a realistic chance to successfully trade for a living over the long-term you need to be very well capitalized. You don’t want to have to make 20% per month (for example) just to cover your living expenses, never mind to grow your account over time.

Trading for a living is a lot like starting a business. It requires a high degree of knowledge and experience in the chosen field, sufficient capital to be able to produce reasonable income and some cushion against difficult times, and a bit of luck and perserverance as well. There are a lot of reasons why new businesses fail at a very high rate, just as there are a lot of reasons why new traders fail at a very high rate. And even beyond that, those that succeed don’t guarantee massive financial benefit.

Yvan asks the very legitimate question whether purusing trading for a living is worth it? In the end each trader has to make their own decision, but for the vast majority of folks the answer is likely going to be not. In my case the answer is definitely negative. For me trading and investing is about growing wealth. While I may reach a point some day where my market activities produce sufficient income to suit my needs, I do not have any plans to shift to specifically focusing on trading as my profession. Consider it my personal diversification plan – which is also why I will never hold any meaningful portion of my capital in my employer’s stock.

As to Yvan’s point about trading educators, etc. being like the pick sellers during the California gold rush, there is some truth to that. Not that we need to view it in a negative light. People need to learn about trading and the markets just like prospectors needed tools. Many trading educators use income from their work to diversify their income, which is not an unreasonable thing to do given the fickleness of the markets.

Struggling with support & resistance and knowing what the key market levels are? Check out the Price Distribution Analysis methods I use.

Understanding Currency Moves Requires Looking Deeper

Reader Rod is a good one for sending me questions, and generally interesting ones at that. Here’s his lastest inquiry.

Dear John,

What was the source of Yen strength from April to December 2009?

The carry trade was back, so “unwinding of the carry trade” doesn’t seem right.

“Safe haven currency” would be odd as well, as there was a global “risk on” investment theme during the year.

Their trade surplus was contracting, and so was economic activity. Budget deficits as a % of GDP the highest in the industrialized world.

Expectations of an Inflation differential (and interest rate differential) were not biased to the upside.

“Potential for capital appreciation” (stock market expectations), not really.

Thank you.

Rod

Unfortunately for Rod, I’m going to have to give him some stick here – in a nice way, of course.

First, let’s look at a USD/JPY chart of the timeframe in question. The line is a linear regression to highlight the general trend of that period, not that it really needs much highlighting.

Now let’s take a look at a chart of the Dollar Index for the same period.

Notice the same downtrend pattern. In other words, USD/JPY was falling on dollar weakness rather than yen strength.

Just to reinforce that view, here’s EUR/JPY for the same timeframe.

As the regression line shows, if anything there was a slight upside bias to the cross, meaning a weaker yen, though I’d call it basically neutral.

The moral of the story is that in the forex market (and others as well) one needs to look beyond just one pair to get the real story. After all, a pair represents only the relationship between two currencies. It may or may not be reflective of general strength or weakness in one of the components.

Had Rod looked beyond USD/JPY to determine the real position of the yen he would not have realized that it really didn’t rally during the April to December timeframe, putting his mind at rest.

Struggling with support & resistance and knowing what the key market levels are? Check out the Price Distribution Analysis methods I use.

Why You Shouldn’t Fixate on Winning Percentage in Your Trading

I’ve been reading Curtis Faith’s new book Trading From Your Gut, a review of which will follow shortly when I finish. The part I was going through this morning on my commute into work, though, inspired me to address the subject of win rate and good trading. Faith hits hard on the subject, which is one I’ve addressed on a few occasions myself.

Here’s the deal. Traders, especially newer ones, get way too hung up on being right and having a high win %. This comes from two underlying causes. One is the fear of being wrong. The other is the belief that one needs to have more winning trades than losing ones to be successful in the markets. Both are problematic and will cause trouble.

The need to be right is something which kills traders. As Faith puts it, the whole being right thing is for forecasters and prognosticators. Traders who get fixated on being right make very, very bad decisions sometimes – ones that potentially can blow up their account. They are the traders who hold on to losing positions way too long in hopes they come back because they can’t handle the idea that they were wrong and will have to take a loss. Of course that often leads them to eventually panic at some point and bail on a trade at exactly the worst possible time (as many stock traders did in March 2009).

The need to have a high win rate also encourages such silly trading behavior as “hedging” in the forex market. I’ve heard many a trader justify their taking an opposing position in the pair that is trading against them as letting them stay in the trade so it can eventually turn back in their favor. They seem to be ignoring the fact that all they’ve done when putting on a “hedge” like that is to lock in their loss. Like I said, poor decisions – ones based on emotion.

Then there are those who think that in order be a profitable trader you must have more winners than losers. Of course this is true if your winning trades are the same size as your losers. If, for example, each trade will either be a $100 gain or a $100 loss, then you need to win more than 50% of the time to expect to come out ahead in the long run. It’s a straight forward mathematical relationship. If you win 51% of the time then the expectancy for your trades is $2 ($100 x .51 – $100 x .49), meaning that on average you would expect to make $2 for each trade you do.

We can use the same math to demonstrate how you can also be profitable in the long run with a much lower win rate. Let’s use 25% as an example.

Keeping the same $100 gain/loss as above, we come up with a -$75 expectancy ($100 x .25 – $100 x .75). Not good. No big surprise there.

What if we change from a 1:1 winner-to-loser ratio to a 5:1 ratio, though? Let’s call that $500 for the winning trades and $100 for the losers. Running the figures we get an expectancy of $50 ($500 x .25 – $100 x .75). Not bad at all.

In general terms trend trading methodologies are the ones that tend of have low win % but high winner/loser ratios because they have a lot of small losses thanks to whippy, trendless markets but relatively large winners. Other systems go the other way, with lots of small winners and only occasionally a loser, but a big one.

Even for those with no real issue with being “wrong”, low win rate systems can be a challenge. They tend to be subject to lots of big equity swings because the high number of losers creates lengthy drawdowns. Those can be very hard to ride out, especially for someone who hasn’t developed confidence in their system.

The bottom line is that you should be focusing on making good trades not on making winning trades. Good trades sometimes lose money, but if you keep making them within the scope of a positive expectancy system or methodology you’ll end up ahead in the long run. Getting caught up in trying to make winning trades will almost certainly end up leading to disaster.

Struggling with support & resistance and knowing what the key market levels are? Check out the Price Distribution Analysis methods I use.

Next Page »