Friday, July 23, 2010

Learning to Trade

Last weekend a new trader wrote on the blog asking how much time he needs to dedicate to learning the components of trading. It seemed to me that he was gently expressing a little frustration over what seems to be the daunting amount of knowledge needed. Often in such circumstances (though not apparent in the blogger's contribution) there is an element of impatience and desire to move forward and make money. The problem, of course, is that jumping in also exposes the traders to the quite real risk of losing money.

First, I really want to congratulate the blogger for accepting that the learning needs to come first. Far too many neophytes just enter the fray with a ready, fire, aim approach and then learn some very expensive lessons. Those who continue on already may have paid a heavy price in losses for their education and still need to get personal coaching or attend seminars or watch DVDs or read books. One way or the other the education can be time consuming and expensive. It is even more expensive if the trader begins his career without education. No one would think they could be a surgeon or a truck driver or a baseball player without first learning to operate or learning to drive or learning in which direction to run the bases yet every day people begin trading without any trading education.

In any event, part of my response to the blogger was as follows: "It is impossible for me to answer how much time you need to dedicate to learning about the markets other than to say something like: as much as it takes. When we begin learning trading, the information can seem overwhelming. Part of the difficulty comes from learning a new language. Options, futures, puts, calls, FX along with a myriad of other words are foreign at first, but as we gain knowledge they become second nature. I would suggest you learn at the pace that is comfortable for you understanding that you may become a little impatient to put some money on the line. There is no need to yield to the impatience. Learn first, then paper trade, and if successful with your paper trades, gradually put money at risk in small positions. I would suggest you first study trading stock or ETFs (Exchange Traded Funds) and then perhaps add some knowledge about options like covered calls and protective puts. You may never trade futures so that might come later in your study. When you write that you want to engage in short term trading, I would add a caution that it might be better to let the stock decide when you get in and when you get out rather than trying to pre-determine how long you will be in a given position."

As I wrote to the blogger, the first hurdle, and it is a big one, is new vocabulary. Just what is a call and what can you do with it? How can puts help my trading? What is a butterfly (not the one that flies around the garden) or an iron condor or a vertical spread? I remember the first several weeks studying the Russian language in college and later had similar feelings when I began to study trading. In both cases I felt like I'd just never get it but with study and repetition I began to grasp and retain the meaning of words and concepts. I believe that one must learn and understand the basics before moving to the next level in trading or almost anything else. The basics provide the foundation without which the more complex cannot be truly grasped and understood.

Trading a stock is one of the most basic things we do in the market, but it can also be one of the riskiest things we do. If we buy a stock, we risk the total cost of the stock. If we sell a stock short, we have theoretically unlimited risk. We may never trade an option and not care anything about them if we just trade stock so the new trader may have no interest in learning about options. However, once that new trader learns that there is a way to "insure" a stock position with options or that he may use options on stock he owns to create a regular income stream, he may decide that it is worthwhile to learn at least something about options. After that, he may find that he wants to use options to buy stock he likes at wholesale or he may want to set up limited risk trades with relatively high potential returns using options. All of these things may come in time and I have written at length in "Trade Your Way to Wealth" about a number of these strategies as well as including the definitions.

Last weekend I wrote about the pace of trading. Here we are talking about the pace of learning and each of us learns at our own pace and in our own way. My advice is to study at a pace that is within your personal comfort zone and in a way that is most efficient for you. That may be by reading or by hiring a successful trader as a coach or, perhaps, by watching DVDs. I recommend you choose the method that is most enjoyable for you and incorporate the learning in a regular time slot that permits you to devote as much concentrated, uninterrupted, and focused energy as your personal schedule permits.

For those who are visual learners, I do have available a 5 DVD set of a complete professionally recorded two day basic trading seminar I put on entitled SWAT (Stockmarket Weapons and Tactics). If interested the price is $199 and you can contact me through The DVDs start with basics and build from there to include about 13 strategies including both stock and option trading.

by Bill Kraft, Editor
Copyright 2010, Makin' Hay, Inc.
All Rights Reserved

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~ Nona said...

I have your SWAT set of DVDs. I consider them to be a terrific value.

Indeed, I plan to watch them again. I know there will be lessons that somehow escaped my notice in the first listening.

BTW, I recommend that one watch and listen exactly as if one were in a classroom (which one really is, after all) using pen and paper for notetaking. I found that an important advantage of having the DVDs is that I could stop at any point and go back to make sure the information was properly captured in my notes -- and in my brain.

Even so I've made blunders, two of them real rookie mistakes.

But we won't go there right now!! It's just a reminder: it's time to review the DVDs.

~ Nona

Bill Kraft, said...

Thanks, Nona. I'm really glad that you liked the DVDs. I agree that it is a good idea to watch with notebook and writing utensil in hand. I hope you continue to find the information useful and valuable.
Bill Kraft

Anonymous said...

Hi Bill

This Blog really hits home . I lost alot of money about 10 years ago and gave up trading for 6 years because of it.
I guess I wanted to make big money without doing any work.
In other professions you will not get job & wages untill you have completed your training or schooling.
With trading you don't need a degree, you can open a account and start trading immediately.
I think it's human nature for people to take the easy route first, but your just throwing your money away.
I wonder why there is not a mandatory course one must take before he / she can start trading.


Bill Kraft, said...

Hi Morris and thanks for writing. I do agree with most of what you wrote, but I'm not so sure that a mandatory course for would-be traders is the right way to go. After all, it is the person's own money and I believe they should be permitted to do with it as they choose. The fact that many do not make intelligent decisions may be sad, but I think people have every right to be stupid if they choose.
Bill Kraft

Anonymous said...

Can you provide specific info on the DVDs? How to order? Where to order? What is the length of the DVDs? Are these fairly recent? Thanks.

Bill Kraft, said...

Thank you for your interest in the DVDs. Please contact Earleen at MarketFN at 1-866-756-2656, ext. 1 and she will be happy to help you.
Bill Kraft

Anonymous said...

I've been a receipient of your Newsletters for a few years.
During the middle 90's I dealt in the options market.
Fortunes smiled as my trades helped to a large degree to assist three grand children with financial help while they pursued degrees at various universities.
Since then I've been introduced to playing casino craps.
Call it luck, skill or whatever the fact is in my case I do so much better and am able to sleep all night through.
My profits after losses average eight to ten thousand per month and the best part, profits are tax free and no commissions to pay except for what the house has built into the vig.
I rely on the information at hand on the very moment then choose my "Plays" accordingly.
Dice are very unpredictable, yet like you stated in your latest letter if one understands the ups and downs are all part of the overall picture one will not only survive but flourish.
All the best.

Bill Kraft, said...

John, what a great story. Congratulations on your successes. Knowledge and experience can sure do wonders and it sounds like you have the voice of experience. I wish you continued success in your professional casino craps career.
Bill Kraft