Trading the Markets

Trading the markets for speculation purposes is a challenging task that numerous amounts of people have embarked on. Do you know anyone who successfully makes money trading? The answer is most likely no. If you do I recommend you become as friendly as possible with the person and learn everything you can from him, unless he is charging for his services. That usually means he is not a successful trader.

With the type of leverage that is offered in the futures, options and forex markets, I personally find it hard to believe that anyone who has a successful system that is right for them will be too eager to teach it. Why should they teach if they can be trading the daylights out of it and be making millions with the 400:1 leverage that some forex platforms offer.

On the other hand numerous people have made millions trading. Look at the list of CTAs on IASG.com, look at John W. Henry, Max Ansbacher, Warren Buffet, Peter Lynch and all the Market Wizards. I recommend reading the market wizards book for some inspiration.

The problem is that most traders go into trading with the wrong attitude. Have you ever heard this phrase I am tired of working I need to trade to get rich. It takes 7 years to complete medical school and there is no green arrow red arrow system for performing heart surgery. Trading will pay you much more than doctors make so you should expect to have to do more work than doctors do for a longer period of time to get wealthy and become a market wizard. While you start and practice it is imperative that you do so at a low cost, meaning you dont blow out your account on bad trades due to poor risk management.

It has been hypothesized that, with proper risk management, a simple system like flipping a coin to buy or sell could be successful. However having the slightest edge should enhance the traders chances a great deal. By edge, I mean something that will make the trader make more money than he looses. An edge can be discretional or algorithmic as long as the trader makes money in the long run.

A perfect example of this is the game of blackjack. The house has a very slight edge less than not more than 2%. But by repetitive play they consistently end up profitable. This is because they have a set approach, and edge, and they dont get emotional when a player goes on a winning streak. Good traders put themselves in the position of a casino.

Traders can make money discretionally by following support and resistance levels, watching the volume, size and market action. Or, traders can create a trading system by back-testing a certain edge. Calculate the systems expectancy, develop trading and risk management rules, and follow those rules religiously to generate profits. Numerous people will try to sell systems.

It is very important that with any system traders create a reevaluation point. By reevaluation point I mean a point where the trader starts to question the systems effectiveness and begins to look for other systems that he expects to fair profitable over time. The reevaluation point should be decided upon before trading begins. It should be based on the back tested data, and you must take into account concepts that we will discuss such as a drawdown, consecutive loosing sessions, reward risk ratio.

Want to learn more about systematic trading? The key is to develop and utilize a system that fits your trading style and personality. We can help you with finding profitable trading systems, backtesting them, and our programmers will even code your system into your trading software for you!