People are interesting.
On the one hand, you get people like me who find out just enough to be dangerous and promptly leap into the fray, arms flailing and whooping like an Indian.
People like me are idiots, really.
And on the other hand, you get other people who sit down in a very calm manner and proceed to read everything they can get their hands on, ask questions, take notes, and get everything in order before cautiously moving forward.
These people are wise.
People who don’t rush in avoid making stupid mistakes. I once tried to wax my own eyebrows – wise people wouldn’t try that, because they know that trying to apply hot wax to a vertical surface will result in a) hot wax dripping in your eye, b) nasty burns to the eyebrow and c) men at the hardware store wondering if you’ve had an accident with a nail-gun.
I learnt this the hard way, the same as I learnt about the markets the hard way.
But what happens when you’re not like me? Sometimes, the theory reading types are so carefully organised and so well prepared for any eventuality, but when push comes to shove they can’t quite bring themselves to leave the safety of the shore and kick off into deeper waters.
Right! Who’s ready to feed the ducks?
Trading is kind of like swimming – you can read about it, learn about how to form the perfect stroke but once you’re in the water you realise all the theory in the world has not taught you how to swim. You can’t learn to swim without getting wet, and you can’t learn to trade without being in the market.
But that is not to say all the theory is wasted, because it’s not. Once you adjust to the water and get the feel for being wet, all that theory will come in very handy.
Yesterday I got an email from a trader named Archana, who stood out to me because she has done a lot of homework but has not yet placed a trade. I have so much respect for that because she won’t go through the learning process (aka ‘torture’) that I did.
She has read loads of books and studied charts and has gotten to a place where she’s ready to trade but doesn’t know how to start.
“All this to say, I am at a point where I want to put into practice what I have been reading and charting, to some extent. The objective really isn’t to make mega $ right now, but I feel like I’m…ready to practice and find my own way.
Problem is, I have no idea how to start practicing.
So….may I ask what advice/suggestion do you have for me to start getting my feet wet?”
I definitely do have suggestions for how to get started, and funnily enough it still doesn’t involve placing a trade straight away. I know, not what you’d expect coming from Impulse-Girl. Here are my top tips for taking the plunge in a controlled, no arms flailing manner.
Write a Plan.
The very first thing any new trader in Archana’s situation has to do is to gather all the knowledge they’ve acquired, and filter it. Regardless of how much information you have about trading, you need to filter it into something that makes sense. That is – you need to make a plan.
I’ve put together a basic one that will get you started which you can download at the end of the post.
If you don’t have a clear method to follow, all the knowledge in the world will disappear when you have a position in the market and you’re asking yourself 1.5 million questions. If you have a plan, you don’t need to ask questions because you have the answers right at your fingertips.
Open a Demo Account
This is a bone of contention for many people because they argue that it’s not real trading, but people who love to plan, love to be organised and don’t like surprises will get heaps out of a demo account because it allows them to get used to their chosen platform and test their strategy with no money at risk.
Personally, I like to recommend demo accounts because it is a real test of discipline.
In some respects demo trading is way harder than real trading because it’s boring, there is no monetary reward and people like me just want to do it already!!
But demo trading gives you real insight into any internal flaws you might have. For example, if you can’t follow your new plan to the letter in a demo account for 20 trades, log all your results, conduct your analysis and trade reviews just as you would in a real trading environment, you’re fooling yourself if you think you’ll be disciplined enough in a real trading environment where you’re dealing with raging emotions to boot.
Use a Baby Account
Any time I’m working out a new strategy I use a tiny little account to do it. It’s money I can lose – although clearly that’s not the plan – but it’s there with the explicit knowledge that it’s testing money.
Once you can see a consistently rising equity curve, you can start adding funds gradually – I suggest gradually because when you’re used to seeing a loss of $20 per trade, suddenly upping your risk to $1000 can be a bit of a nasty shock. It’s much better for the heart to get used to a higher risk level in increments.
Get Your Spreadsheets Ready
Trading is not a hobby, and if you treat it as such it will cost you money the same as every other hobby does. If you want to be profitable you need to treat it like a business, and track your results. You need to know at a glance how many trades you’ve taken, how many wins, losses and breakeven, your transaction costs, your profit and loss and your expectancy.
You need to document your risk so you can see how your Risk/Return graph is looking. The more records you keep, the better placed you will be to find any anomalies and fix them quickly.
And with that, you’re pretty much ready! My only other suggestion would be to take it easy, go slow, and keep your arms firmly by your side.
Click here for your free Trading Plan!
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