So, you want to trade?

Trader's Mindset

Aug 28

I am writing this for the complete new trader who wants to get into trading. While I am not a professional, the following may be valuable for your consideration.

The first lesson for a trader is to preserve capital. If you only have a tiny amount of risk capital then you need to be careful against spending too much on software, courses, etc.

While the value proposition for my tape reading software, AlphaReveal, and BeyondBot are very high– it won’t be necessary if your niche is elsewhere. I am considering offer the Quantitative Advantage, with fully disclosed source code, edges, etc. for a yearly subscription. This could be an incredible value for any trader. It depends on how much capital you have and where you will focus.

Here are the do’s:

  1. Do get platform that allows you to build strategies and test them. The easiest way to get started is with Tradestation’s Easylanguage. NinjaTrader 8’s free platform offers incredible value too. You will need a serious platform to make progress. If you cannot afford the data then you can look at other platforms like MetaTrader– which have backtesting and programming ability.
  2. Do experiment with many trading methods on the simulator. You want to get as much exposure to a wide variety of trading methods to find where you can do well.
  3. Do experiment with many holding time frames too. You do not want to be a “scalper” or a “swing trader” or any limitations. You need to flow and go where the opportunity is. The best way to do that is to discover how you can be profitable holding for 5 minutes or 2 days and then specialize as it makes sense and according to the available opportunity set.
  4. Do invest in your education to be able to earn a high income. It does not matter how good you are if you do not have risk capital.
  5. Do invest in tools and trading education once you can identify the value proposition. Try to avoid re-inventing the wheel.
  6. Do seek out lots of different types of information for ideas. Read, read research, read trading forums, read journals, review trading strategies used by professionals. It will help you to develop a wide map for categorizing information and linking it.
  7. Do engage in original thinking. Ask what’s new, what’s changed, and whether the market is pricing events or news correctly. Try to test yourself and your predictions and deconstruct the cognition that produces value. For example, the U.S./China trade scenario is both (1) already known and (2) likely controlled outcome because it was manufactured. Think about how that might be different from an event that was not foreseen and cannot be easily dealt with. Think about what-if scenarios.
  8. Do even build a framework for dealing with uncertainty. Too many traders get caught up in narrow regime thinking.
  9. Do seek to understand the different types of participants and ways they view the market.
  10. Do have realistic expectations. Based on my research, the very best futures traders can only return 50% to 400% in any given and over the longer time it is difficult to beat 1:1 risk/reward meaning to make 50% most will have to risk 50%. While spectacular performance is always possible, the only real returns are those that build over time. Make 100% one week and lose it the next and your net is zero.
  11. Do always seek high return activities over low return activities. One reason that some retail traders do not do better is they spent too much time on low return activities vs. high return activities. Low return activities might be trying trading to take a tiny $500 account to $50,000. If you are a good trader, you would do better to find investors. But, you need to think what investors want. Most prefer a more systematic approach with a lower but more predictable return.

Here are the don’ts:

  1. Do not put all your eggs in the trading basket. Make some long term investments. Buy some investments for the long haul or whatever asset you think can really grow and has the risk tolerance that makes sense to you (such as MSFT, TTD, GLD, Bitcoin, real-estate, land, etc.)
  2. Do not read books trying to find minutiae of trading detail. Most books have outdated, plain wrong, or general information that won’t help you make money. The best way to read books is to get a vague impression of what is going on and try to make it your own. It is often easier to make a trading method work when you don’t have preconceived notions. Get inspired but do not expect to find a pot of gold. Learn from the market.
  3. Do not go immediately into real money trading to “prove yourself”. It is pointless. Markets don’t care. Nobody cares whether you do a great job trading or lose it all.
  4. Do not stay in the simulator too long. It is better once you have “enough” sim trading or a system to get into the live even with a small amount of capital. Live trading can help refine the focus. Start small and build up. Cheapest information can often be discovered from live trading.
  5. Do not go with shady Forex or non reputable brokers. Try to stick to the major regulated brokers. I do not recommend Forex, actually because I believe the rates are manipulated by banks or simply difficult to predict– or retail access is compromised because the published returns for FX traders are lower. Instead, I do like the CME e-micros, options on futures, and stocks– and believe those those may be best place to start. As well, you may have CFDS or other products available for trading the major markets and that makes sense to me.
  6. Do not pay for trading tryouts.
  7. Do not read too much trading psychology. Read a little. Apply a lot.

As per how you will make money, the following methodologies make some sense to me and may for you too:

  1. Low frequency synthesis discretionary trading. You will conduct a lot of analysis, integrate different types of technical, fundamental, and quantitative data. You will want to seek a trading frequency around events or dominant cycles. Your holding period is likely going to be 1-5 days. You will really focus in on the 1-2 day trades.
  2. Fully systematic trading. You will build and test trading systems that are completely rule-based. You should start with daily bar based systems because they are easier to build.
  3. Discretionary day trading. Difficult! You will develop intuition and learn to identify and weigh and introspect your internal confidence to find good trades. Your optimal trading frequency is likely from 1 to 15 trades per day.
  4. Hybrid trading. Because discretionary day trading is too hard and because it is very difficult to make long-term winning algos, a blend may give you a unique advantage and make it easier to be profitable with less rigor. You will combine discretionary skills in reading tape or other analysis with automated pattern recognition software and expert training. The algos will help you to rank your best ideas providing additional edge.

There are certainly other styles including spread trading and trying to trade events. But, I think the aforementioned are the easiest to get started with. With that said, enjoy the journey!

About the Author

The author is passionate about markets. He has developed top ranked futures strategies. His core focus is (1) applying machine learning and developing systematic strategies, and (2) solving the toughest problems of discretionary trading by applying quantitative tools, machine learning, and performance discipline. You can contact the author at