I received a question from a reader, Cian, who asks:
… My goal is to become a career dealer. I am 30 years old and currently unemployed due to situation 19. I have a lot of free time and I really want to work for it [learning to trade]. I would love to practice on a real account while I study.
I wonder what instrument you would recommend for a beginner. I have a relatively small account … I plan on tight risk management of no more than 1% of my account per trade.
I’m damned off to make this my full time gig. At some point I want to get into options, etc. If you have any relevant advice to offer, I will greatly appreciate it.
OK, good question. So the question boils down to how the hell do I learn to trade markets and do well.
Although I have a lot of content out there and have answered this question in different ways over the years, I know it can be overwhelming to get started. So let’s look at two ways. Let’s start today with a more casual and less time consuming approach.
Option 1: the hobby path
First of all, there is nothing wrong with approaching the markets as a hobby, but you have to be realistic. A solid definition of a hobby is that it is something that will cost you money! If you want to be profitable in your trading, you may find that it is a hobby that sometimes doesn’t reward, even punish, and may ask for more commitment than some other hobbies.
However, if you approach it with the right mindset, you can have a very successful and rewarding part-time business (that is, have fun and be at least moderately profitable).
What do you need to know to make this work? Some important areas to start with:
- A basic understanding of probabilities to reinforce the idea that you don’t know what will happen in a trade. Understanding this will automatically avoid many mistakes that harm beginners. You can read some basic books on probability (these is still one of the best, but out of print), but playing other games of chance is a solid foundation too.
- A good understanding of how the markets you want to trade work in. For example, some big stocks just split (9/20: AAPL, TSLA). There are a lot of people on the trading forums asking questions like, “Since the price went down, did I make money when I was short?” There are no stupid questions, but there are definitely questions you want to answer before you act! You really need to understand the mechanics of the market that you are trading.
- Some basic ideas on how people can find an advantage in the markets. You could look at the basics, long term investing (understand why people invest in index funds), and some technical systems. This is where it gets complicated because most of the things people talk about don’t work. You have to sort the good stuff out of the trash, and it’s not that easy.
- Know a thing or two about human psychology and what happens to people’s brains when they start acting. There are many good books on the subject (here are two of my favorites: one, two), but you won’t really understand it until you experience it for yourself. As Mike Tyson famously said, “Everyone has a plan until they get punched in the face.” Part of the fun of trading is the challenge of getting slapped repeatedly in the face and still winning.
Where do you get this information from?
I know we live in a world of instant gratification from video and audio bites, but this “hobby” will challenge you to go deeper. You will likely need to read some books, watch some videos, and maybe dig deeper into blog posts.
You can use my work as a resource here on this blog and elsewhere online. For technical concepts in particular, you can usually googling the term and add my name to it to get a series of links that will at least give you a starting point. (Try “Fibonacci Adam Grimes” if you want to go down a rabbit hole!)
My first book for many dealers, The art and science of technical analysis, has become a classic that you absolutely have to read. I’ve heard from many traders that this book changed their trading results (and, as you know, changed your trading – changed your life).
Here are some excerpts from the Amazon reviews:
- “This is not a hazy book full of anecdotal stories and motivational quotes, but a book that actually teaches the reader to see a table with a deep understanding of what is actually going on. I cannot recommend this enough to any evolving trader. “
- “This is the holy grail I’ve been looking for …”
- “This is an excellent book that offers many“ aha ”moments to even experienced traders, while being written so clearly and honestly that a beginner would learn a lot from it. As mentioned at the beginning, this is an underrated book, which alongside (if not at the top) the works of revered business teachers such as Dr. Steenbarger or Ariel Kiev should stand. This book has fundamentally changed me personally, and I find myself in the chaos of the trading day whenever I go back to it. “
- “Awesome – worth every penny.”
I’ll stop there, but let me say this: just get the book! If you don’t want to study the book in detail, just flip through it and read what gets your attention. I can promise that this is a resource that you will come back to over the years when you need to dig deeper into specific topics.
Many of you know, but I have an extensive one that is completely free Trade rate here. That’s 30 hours of video and hundreds of pages of exercises, so it might be a bit much for someone looking for an easier introduction to trading.
One option is to take the course at least the first time and only see some of the videos. If you did that, you could get a good foundation in a few hours. Do these videos to get started
- Module 1: Video 2 and 5, and get a solid foundation for reading charts.
- Module 2: 1, 2, 3, 4 and 5. Yes, most of the module, but this is where you really learn to read diagrams thoroughly.
- Module 3: 4 and 6
- Module 4: 1 and 6: Learn How To Trade Pullbacks And Get Some Ideas On How To Determine If A System Is Really Working.
- Module 5: 1 and 4: Let me introduce you to the anti-pattern (one of the best and most dynamic trading patterns) and then we will go into psychology.
- Module 6: 4 & 5 (optional) This gives you a solid background in traditional technical analysis so that you can understand much of what you will encounter online. Why is this optional? Because a lot of it has no fixed edge!
- Module 7: Video 6 (optional, but background information on a variety of markets.)
- Module 8: Understanding 4 & 5 position sizes. Many of the mistakes traders make are due to poor positioning. If you get it wrong, you’ll blow yourself up with a working system!
- Module 9: 5 & 6 Psychology. Very important because you won’t keep the money you make without it!
If you’ve already taken the course, this best of list might be a good refresher.
Learn from the market
Once you have some background … in other words, you know your basics … you can learn from the market itself. The kind of depth of lessons you learn from the market will change over time, but some of the best lessons come this way.
There are many ways to do this, and at some point you will likely want to put some (potentially sizable) structure around your interaction with the market. But first of all, it’s important to just do it. Get your feet wet. Look at charts and market data every day.
(There are many resources for finding diagrams online. We’ll link some in a later post.)
A good next step could be paper trading, where ‘theoretical’ trades are made in a practice account. Paper trading is both good and bad. It’s bad because your papertrading results are unlikely to be related to what you experience once you really start trading! But it’s good because it makes you look at the market and it forces you to decide where exactly to get in and out of trades.
So this is a good overview of how to get started if you want to explore the trade and markets with a minimal investment of time. What if you want a more professional approach? What if you want to go really deep?
Stay tuned; We’ll answer that in an upcoming blog post.