Q. What does it take to become a successful trader?
A. There are six clear steps to becoming successful. There is no short cut all need to be mastered. The first is to be able to establish and maintain a macro view of the markets.
Q. What is a macro view and why is it important?
A. In simple terms a macro view is ‘the dollar is going up’, ‘the Dow Jones is going down’. It is an outlook on the future direction of the market.
Q. Do you trade on predictions?
A. No. We establish a macro view to define whether we are trading against the trend or with it. Imagine betting on football with no previous history. We would not know that Hull City away to United is a long shot, and we would not be able to adjust our profit expectation accordingly. In the markets if you trade against the current trend you have to identify that your profit potential is likely to be far less than trading with the trend. You establish and maintain a macro view by studying the markets.
Q. After learning how to maintain a macro view what’s next?
A. Risk management.
Q. I struggle with risk management. I find it a difficult discipline and I am always changing my strategy with each trade.
A. A good Risk Management strategy is easy to adhere to. It takes all the emotion out of trading and changes you from a gambler to an accumulator of profit. It keeps you in the game indefinitely. Students who have learned Risk management with IIFT find it easy to accept, there are no great swings to performance and from a psychological stand point it is much easier to live with. If you find that you are unable to maintain a Risk Management strategy then you are trading in a very high risk and dangerous manner leaving you exposed to incurring significant losses. This is a situation we would strongly caution against.
Q. Is Technical Analysis important?
A. Yes this is the third step. There is no mystery to Technical Analysis or Price Action as we call it. It shows us money moving into or out of the market. Because so many traders and computer based programmes use it ,it becomes self fulfilling. To prove this just look at price action around pivot points, the way that price moves at these levels shows us that the market is watching. Technical Analysis levels the playing field for small traders, for the first time we can compete with the big market players because we have most of the information they do.
Q. Do I need to be an expert in Technical Analysis?
A. NO. All the information you need is contained in a few simple indicators. You do not need to learn to draw lines on your chart or use complex indicators. Remember we use price action to see money flowing into and out of the markets. In other words we are looking to see what bets the market is taking and if the market is taking the same bets we are.
Q. If I have my Macro View, Risk Management and Technical Analysis sorted what’s next?
A. You need to decide what products to trade.
Q. Are there any guidelines in this regard, I have met many traders all of whom seem to trade different products?
A. What you have to understand is that each product has it’s own identity and idiosyncrasies. They all trade differently even currency pairs. EUR/USD trades in a different fashion than GBP/USD, the Dow future is totally different to the German DAX. Some of the products are much easier to trade than others and some are impossible.
Q. Is it better to just concentrate on a few products?
A. Absolutely. But you need to learn from an expert which products give you the better chance. Also you need to spend time seeing how those products react in certain market conditions and how they interact with other products in the market. (Correlation)
Q. You mentioned six steps, what is the fifth?
A. Trading tools. Remember 85% of traders/investors lose. This supports the infrastructure of the markets, which is huge. In my experience good amateur traders can break even but to move to profitability they need to have the tools professionals use to exploit the market.
Q. What are these tools?
A. As I have said price action is becoming more predictable. We use specific setups (tools) which exploit the predictability of price action. There is no great secret to these tools, the Gap play is a good example. However a good tool is useless unless you are skilled at using it.
Q. What other tools are there?
A. We have a tool for each market condition and trading strategy. Remember the market only trends for 30% of the time. So if you employ the ‘Trend Catcher’ tool you will be redundant for 70% of the time. The secret is to learn all the tools so that you can exploit the market continually. Some of the tools allow you to trade actively and some allow you to trade strategically. This way you can profit from the market on a part time basis or as a career.
Q. Do the tools cover all markets i.e. Foreign Exchange, Equities, Commodities etc.?
Q. What is the sixth step?
A. Trading strategy. By nature the human being is an appalling trader. Our natural make up makes us take small profits when they present themselves and freeze into big losses. This is evident in anyone who stock picks. They very rarely take a loss with the result of negative trades turning into long term negative investments. The maths of this approach is totally adverse to making sustainable profits. A good strategy reverses this approach and takes small losses frequently while learning to run profits. On this tactic we can be profitable on a 35% win ratio. A good trading approach tricks the human mind and makes us behave in an emotionless robotic pattern.
Q. Finally how do I learn this method and how much money do I need?
A. There is no other way than to educate yourself. A lot of stuff on the internet is misleading and in some cases just rubbish. Trading is not easy money nor is it a get rich quick exercise. Like everything in life it requires training and practice. On the money side, you do not need any money in your account to start. It is madness to practice with real money, that is like learning to swim in the deep end.
We teach students to take points from the market using a dummy account. Only when you are confident that you can do this successfully should you start to put money on your trades.
Q. What other skills do I need?
A. Successful traders show patience, discipline and self-control. If you feel that is not your make-up trading is probably not for you. Remember successful trading is not a roller coaster ride, it is an accumulation of wealth over time, like a salary.
Q. Finally how much could I expect to earn?
A. You need first to identify how much capital you have available. This is not the money on your trading account but the total you would be prepared to invest in your trading career. A realistic return would be 2%-3% profit on your capital figure per month. Professional traders can do a lot better but the secret is to make the return without risking too much of your capital. Think of yourself as a sniper, you want to get your shot at the target while not exposing to much of yourself as a target. This is how you treat your capital.
Q. Any last piece of advice?
A. Yes two things.
1. Think of yourself as a cat not a dog. Dogs chase things and get run over. Cats are patient and stalk their prey. Trading the markets is similar.
2. Look at our courses on the website, get education.
Options from Here:
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