Written by DeWayne Reeves of CFRN.net. Burton Schlichter is a partner and featured broker at CFRN.net.
- If you think training is expensive, wait until you see the tab for ignorance.
- Find a broker who is willing to invest both time and money towards your success.
- Write a business plan just as you would for any other business.
- Develop a written trading plan with the help of your mentor.
- Learn to identify and execute three high probability trade setups.
- Do not trade real money until you have proven your setups in the simulator.
- When you begin to trade real money, start with only one contract.
- Never trade without a hard stop loss in place.
- Never increase your risk once you have entered a trade.
- Journal every trade and stay in constant contact with your broker and your mentor.
Education — Proper training is not cheap. On the other hand, just because it is expensive does not mean it is better than a less expensive course. Typical pricing is $5k-$10k for a 1 week course. Look for a course that offers a minimum 80 hours of training. Make sure that at least half of the training is done in live markets with live data and real money.
Opening An Account — Choosing the right firm where you plan to trade is as important as your education. Spend time talking to the broker before you make a decision to open an account. How easy is it to reach the broker? Does he or she have actual experience trading the markets or have they only worked in the capacity of broker. Make sure that the margins and commissions are competitive, but also remember that you get what you pay for. Most “discount brokers” provide very little training and no “one on one” personal support. As you interview brokers, be sure to ask for a demo and free trial of the software you will be using to chart and execute your trades. The broker should be willing to spend time with you, helping you set up your charts and understand exactly how the platform works. If this service is not readily available, it is a huge red flag, and you need to move on and continue interviewing.
Business Plan — The business plan is different from the trading plan. The business plan has nothing to do with trade setups or indicators — this is where you define every aspect of your new business. From start up costs, to ongoing monthly costs, and details regarding how much capital you will require to fund your account. It also includes what your realistic earning potential is, how you will manage risk, drawdowns, windfalls and catastrophic events. Your business plan should tell a compelling story about your business – explaining who, what, when, where, how and why. Your plan should be focused and clear. The plan should define specific financial objectives and goals with general parameters to guide you through your day to day operation. As you write your business plan, it will force logic and discipline into your ideas. Remember, a good business plan is a living document and should be reviewed regularly. Ask your mentor or trainer to assist you and perhaps provide a template.
Trading Plan — Your trading plan is to your trading business what a menu and recipes are to a restaurant. Your business plan defines what you plan to do; your trading plan explains how you will get it done. Again, turn to your mentor, trainer and broker for help developing and writing your plan.
High Probability Set Ups — These are the meat and potatoes of your menu. Without high probability set ups, your business plan and trading plan have little chance for success. With the proper training and adequate screen time, you will eventually be able to develop your own setups. Initially, it is best not to try and re-invent the wheel. Turn to your mentor and broker for advice. Also, the educational course you purchase should teach you solid, time tested setups. If it doesn’t, perhaps you need to look for a course and a trainer who will.
Using The Simulator — Any setup that you plan to trade, whether it was learned during your training or one you’ve developed on your own, should always be tested in the simulator in live markets for an extended period of time under varying market conditions. Until you can prove a setup or strategy is valid in the simulator, you should never put real money at risk.
Going Live — When the time comes to go live, after you have completed your training and proven your profitability in the simulator, you should begin trading one E-mini contract. It doesn’t matter if you have $5k or $50k in your account, start with one contract. Once you are trading real money, you will encounter emotions that you never knew existed. You will struggle with discipline. You will find yourself becoming elated or angry at the drop of a hat. Work through it all with one contract. Once you have added $500 – $1,000.00 to your initial opening balance (based on your written business plan), you will then add an additional contract. Based on your business plan, you may have to return to one contract after (n) losing trades, and at some point, you might even need to return to the simulator for a few days. There is no shame in this. It is a smart business decision and the parameters that direct your action should be well documented in your business plan before you ever place your first trade.
Stop Loss — You must never be in the market without having a hard stop loss order in place. Make sure that the broker you choose offers a platform that allows you to place a bracket order. What this means is the moment your entry order is triggered, the platform automatically enters a predetermined stop loss order. As long as you have a hard stop in place on every trade, you will never suffer from the syndrome of holding onto losers too long. Remove the emotion by following your trading plan, using bracket orders with a hard stop, and experience peace of mind instead of perpetual pain. A large percentage of traders struggle greatly with this issue. You do not have to be one of them. Write it into the plan and stick with it.
STOP ORDERS DO NOT NECESSARILY LIMIT YOUR LOSS TO THE STOP PRICE BECAUSE STOP ORDERS, IF THE PRICE IS HIT, BECOME MARKET ORDERS AND, DEPENDING ON MARKET CONDITIONS, THE ACTUAL FILL PRICE CAN BE DIFFERENT FROM THE STOP PRICE. IF A MARKET REACHED ITS DAILY PRICE FLUCTUATION LIMIT, A "LIMIT MOVE", IT MAY BE IMPOSSIBLE TO EXECUTE A STOP LOSS ORDER.
Risk Management — Never increase your risk once you have entered a trade. Nothing can ever happen during a live trade that warrants you to increase your risk. Hope is an admirable trait to have, but it is a poor trading strategy. Once you enter a trade, conditions can change in such a manner that you decide to reduce your risk and as your trade moves into profitable territory you may choose to tighten your stop loss and/or remove all risk from the trade. However, this is not a decision to be made on the fly, it should be clearly detailed beforehand in your written trading plan.
Journaling — Keeping a written record of every trade is critical. Your platform will create a numerical record of each trade you take; what you need to do is keep a different kind of record. Write everything down. Why you entered the trade. How you felt once you were in the trade. Did you adjust your stop? Did you adjust your target? Were you focused? What emotions did you experience? What did the market do before, during, and after your trade? Did you follow your trading plan? If not, why? While it is cathartic simply to get this stuff out of your head and onto paper, the true benefit comes at the end of the day or end of the week when you are able to walk back through every trade and begin to see patterns emerge. You’ll start to understand what you did right, what you did wrong, and what needs to be changed. Sharing this journal with your mentor will allow him or her to point out things from their years of experience that you yourself might not even notice. It is important to write it all down as it happens and is still fresh in your mind. Later there will be plenty of time to reflect and review.
You have probably noticed a recurring theme throughout this article. Each of the Top 10 Trading Tips is dependent upon having both a broker and a mentor that you can really trust. At CFRN we strive to provide exactly that. We offer a 1 Week Free Trial complete with Charts, Real-Time Data, and unlimited use of our Proprietary Indicator Set. Our classes are led by seasoned traders in live markets. By the end of the course, you will be taught to spot your own high probability setups. Success in trading is not about magical indicators, mystical time frames, or self-appointed gurus. Success in trading is the result of discipline and hard work. Are you prepared to put forth the effort? Are you ready to call your own trades with clarity and confidence? Let the journey begin...
Trading’s not easy, but with hard work, determination, and patience, it can get easier.
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