Nat's tips for newbies
Things to know before you start trading
The first thing to know is: what time frame or time frames am I trading?
Some institutional traders enter or exit the market based on yearly and monthly signals. They think a long term position means holding for months or years; a short term position may last a week.
Position traders enter or exit on daily or weekly signals; they hold a long term position for 2-3 weeks or a month and a short-term position for a few days or a week.
Our chat room is for day traders, and for us a long-term intraday position lasts 30 to 120 minutes, and a short term scalping position lasts five to 25 minutes (two to five bars on a five-minute chart). Sometimes only 1 bar.
It is important to know which kind of trade you’re making because often Nat's calls are different depending on the time frame.
For example, the call may be short for a long term position but long for a short-term bounce within that position. If you don’t know what time frame you are trading, the calls will confuse you and you will make mistakes.
Usually longer term trades require wider stops, with higher risk, but also have larger profit targets. Shorter term trades have tighter stops, and smaller profit targets.
Nat's intraday position trades usually have a profit target of 4 to 10 points; my scalping trades usually have a profit target of 1 to 4 points.
Be careful about trying to change the trades after they are started, e.g. trying to turn a scalping trade into a position trade. Sometimes it works, but usually it doesn’t.
You also need to remember that you are not trading with the market, you are trading with other traders. You need to know who you are trading against, and who is trading against you.
Usually short term traders try to take advantage of the next longer time frame. The next shorter time frame is trying to take advantage of you.
We constantly watch what longer term traders are doing so we can jump ahead of them and take a small bite out of the longer trend they are trading. They are your food source.
Your competitors are professionals; floor traders, market makers, specialists, institutional traders and other day traders. They are trying to eat you, by running your stops, and by making short-term faking movements that put you into losing positions or take you out of winners.
Here are three things you should do to protect yourself.
1. Analyze yourself first and decide what kind of trader you are and what time frame you want to trade.
You have to be very honest to yourself. How do you answer these questions:
- How much patience do I have? Can I wait for a trade to reach my price or am I always jumping too soon?
- Can I react quickly when the market situation changes? Can I make good decisions quickly?
- How much emotional pain can I stand when the price moves against me? Can I stick to my plan, or do I panic and move just to relieve the tension? Can I watch market swing for -3 points to get 9 points gain?
Your answers will help you know what your trading style should be.
2. Educate yourself before you use real money
There is no hurry. The market won’t go away. Take the time to study, so you understand the market you are trading, the contracts, the technical analysis methods. Get trading knowledge before you invest in any trading system.
Then use a real time demo account to do paper trading, so you can get some experience in trading and the trading platform without losing your money. It is not the same as real money trading, and lots of people are successful at paper trading but lose when it is real money. But it will help you identify your mistakes, and show you what can go wrong.
3. Manage your capital carefully.
Track your trading account carefully. Know how much is available for trading and how many contracts you can trade. Calculate the maximum you can afford to lose on any trade. Final step is to set up your trading goal. Figure out your personal risk/reward ratio. Then start small. For beginners, accumulating small profits every day is your first goal.
You probably won’t get rich quick by trading. So teach yourself how to get rich slowly.