Many traders come and go. Some go more quickly than others, while the ones that stay on are the ones who are doing it right. You know what they say, the cream rises to the top.
Now, for someone who is just starting out in the world of trading, being the “cream” so to speak requires much dedication and passion. When I first started out with a bunch of my friends, there were 5 of us, we all had the same passion. However, after a while, I was the only one left. All of them gave up, not being able to cope with the demands and stresses of being a trader.
Now, I don’t blame them for quitting. After all, I myself was on the verge of quitting many times during my first few years. And yet, here I am. You are probably thinking what my secret for longevity is. Well, I consider it the most important tool in my arsenal. That is, I follow trading blogs all the time. Some are not available anymore, while some are still going strong. One of the newer blogs however that I am following is the system trading blog. It’s relatively new, yet it is packed with information any budding trader needs.
The importance, or advantage of following trading blogs is that you are kept up to date with all the trend changes and news in the world of trading which you probably wouldn’t know about if it weren’t for the blogs. This alone gives it an appeal that is priceless to traders.
From Dow reports to the status of the crude oil market, you will find many, if not all, things trading in the blogs. So for all you budding traders out there, bookmark those blogs today. And learn and absorb all you can from the masters.
Want to find out more about ? Then visit for your trading needs.
Nicolas Darvas is the brains behind what he coined the “Darvas Method.” Darvas disagreed with old the Wall Street adage “buy low, sell high.” These words of wisdom are based on buying stocks because of their valuation. A stock with a low price and a high valuation is, theoretically, supposed to rise to what it is valued at. However Darvas believed that in order to make a profit, a trader had to “buy high, sell higher.” This concept went strongly against most traders’ view of choosing stocks, which is often done by judging stocks on their value. Unfortunately the valuation method is very difficult and complex, and is often incorrect.
A trader who is using the valuation method is essentially to pick a stock that looks more valuable than it actually is. Traders who use this method are often highly educated individuals who have lots of time in which to analyze stocks and their indicators. Darvas’ method, on the other hand, requires minimal knowledge and a minimal time commitment.
The primary objective of the Darvas box method is to buy high and sell higher. This does not mean it is a strategy of buying new highs. Simply buying new highs is sure way to lose an investment. The Darvas method first confirms that each new high is part of a bullish trend, and not simply part of an unsupported, short lived rally. The volatility range that is createdby each box helps to indicate the stock’s strength or weakness.
When a stock is strong, it will break out of the top of the box. When the stock is weak, it will fall out of the bottom.
The most popular criticism of Darvas’ box method is that he designed it for the market that existed in the 1950s. But today’s market still operates on the same principles as it did in the past. Traders still buy and sell with the same herd mentality no matter what year it is. The biggest difference between the markets of today and the markets of Darvas’ time is the technology that drives trading.
In Darvas’ time, all trading was done with paper orders or on the telephone. Stockbrokers were the only ones who could trade stock on the market. Today trading is done almost entirely electronically, and anyone with an Internet connection can place an order with an online broker. That same order can be executed almost instantly. Now thousands more trades can take place in day than could happen in Darvas’ time. With more trades taking place, the market has become more volatile. In addition, technology has made the stock market open to more people, resulting in even more trades than in Darvas’ time.
Mark McRae, interviewed by the trader David Jenyns outlines how he thinks a beginner should start his professional trading career.
Mark: My first market was a Forex market, and I was taught how to trade a five-minute chart. And I think that was totally wrong. Now, and also with indicators — and I think that, number one, I don’t think anybody should trade very small time frames, unless they are very experienced, or they are that way inclined, because if you trade — and I am thinking of myself now, and I am thinking of virtually every single person I know of who has sat down at a screen — the Forex market during the week is 24 hours, so you can sit there as a five-minute trader and be there 24 hours.
And almost — it becomes ridiculous — you can be there for 24 hours solid, or just roll it over, — you begin to see things in a five-minute chart that aren’t actually there, because you’re so close to the market. And also because you are on the hard-right edge, you have to be able to step away from it. So my advice for beginners is to start with much larger time frames — daily charts, weekly charts. I don’t think monthly charts are practical, but nothing lower than a four-hour chart, because it gives you time.
And also, it’s amazing, you are trading five-minute charts. You sit there for hours on end, waiting for a setup or whatever, and then when it happens, you feel rushed. All of a sudden, the elastic band has hit. I think it is very practical and good for your traders, especially when they are beginning their professional trading, to be able to move away from the market and make a decision, make a trade, and then step back without any pressure of time.
Also they must allow the market to tell them what is happening, because nothing will beat your eyes. There is no indicator, if you are going to be in the technical side of the market and not the fundamental side, is price-driven, so the price will determine, and tell you everything you need to know about the market. The indicators follow — or every system you do will follow that, so it’s all supply and demand. You have to keep it as simple as possible, particularly when you start.
David: I love hearing these common themes. It really echoes a lot of what I talk about, those core themes that you have. Keeping it simple, the time frames.
Mark: I figure also in terms of price, if you think of price actions for professional trading, it takes a while to become familiar to recognize a good setup.
Mark McRae was asked by trader David Jenyns what the things are that he likes to see to make him want to get into the perfect trade.
David: I’d like to find out what are some buy triggers that you look for, I mean obviously there are hundreds of different ways to get into a trade. What are some of the things that you like to see for you to want to get into a trade?
Mark: Well, you know, I’m much more comfortable in longer time periods, and one of my students, a chap I’ve been talking to lately, is a very good trader, but he trades five-minute — he trades very small time frames and he’s burning out. I think it’s very hard to trade a live account on a small time frame for more than six months. Maybe even three months without a break. But at some stage, you go crazy.
It wasn’t until later on that I became successful in the smaller time frames, but I sort of went from five minutes to thirty minutes, to an hour, to four hours, and I became very comfortable at four hours, and then recently over the last year or two, I’ve become very comfortable with daily charts. And I think also because now I’m more comfortable with much larger stocks. But what gets me into a trade? And also that evolution is I don’t rely so much on indicators anymore.
There’s a lot more in price action. So, if, for example, there is a two-bar reversal or a reversal of a particular formation of bars, a particular juncture in that trend, then that gets me into a trade. I keep a record of every time a particular formation – how successful it was, and also I’m very choosy. I mean, one of the other problems I see with new traders is they feel a compulsion to trade every day, and the market just doesn’t always give you a trade. There might be something happening, the market’s dead, there’s no volume in the market. There is often a reason you can’t trade. It’s more important that you wait for the perfect trade.
So, I’m over the compulsion now of my trading. If I only trade once a week, or once a month, or however often, but that one trade is perfect. One of the things I found that helped me and I think would help everybody who trades, is when you see that perfect trade or you have that perfect trade, print it out.
I used to have a library of trades, so whenever I was taking a particular formation, lets say it was a double bottom for example, a breakout of a double bottom, or a re-test would be better as a much higher probability of a trade, I would flip through ten or fifteen previous ones I’ve printed out just to remind myself what that should look at.
At the hard right edge, it doesn’t look like it does a week later. Because you can’t always see it so and that’s saved me many times because I’d say okay, that doesn’t look quite good, and so number one, it has to have a particular formation, it has to lineup just the right way, just the right time, and it must look a certain way for a high probability and that gets me into the perfect trade.
A successful trader in his own right, David Jenyns interviews long-term trader and friend Stuart McPhee about the need to learn stock trading if your time is limited, and how to start out as a trader.
Stuart: A questioner has asked what is the best to trade if you are time poor. There are methodologies you can use that really don’t demand a huge amount of your time and the obvious one is trading stocks using medium-term trends.
In fact you don’t even have to check things every single day. You don’t need to scan every day. My medium term funds I scan once a week. Admittedly when I’m in a trade, I’ll monitor during the week. So far as scanning and identifying new opportunities, it’s a once a week thing. I think a lot of people scoff at oh, only a few hours a week or one hour per day or less than an hour per day.
Absolutely you can trade using a specific style that doesn’t demand a huge amount of your time. Trading stocks medium term trends is certainly one of those and is the most obvious and common one for people who are time poor.
David: I think a number of people are facing this. The next question is: I’m a beginner in trading and I started trading the forex about six months ago. In one of your videos, you recommended for beginners not to start with short term trading such as intra day trading. For a person like me who has a full-time very demanding managerial job with the aim to trade on a part-time basis as a starting point, what type of trade would you recommend: forex, futures, stocks etc? What type of trading, swing trading position trading and can you specify timeframes, medium term or longer term?
Stuart: There may be people out there who can start trading foreign exchange straightaway and make a killing. I just know that’s going to be the exception rather than the rule, and it’s going to be a very rare exception. I really believe in laying the foundations. The groundwork for me is to learn stock trading for a period of time and just concentrate on trading stocks. They are the easiest, you won’t get hurt if things don’t go your way. You’re not trading with leverage, you can’t lose more than you physically have, where with some of the other products you can.
It’s just the easiest way to start, it’s a great grounding and then if you can’t trade stocks profitably consistently, then you’re certainly not going to be successful trading the others. That’s why I believe in starting with the basics.
When you have a demanding job time wise and trading such a short term instrument as forex, it’s difficult. The beauty today is you can place conditional orders and place our stops physically as soon as we get in so we don’t have to watching the screen but I think so far as analysis is concerned and doing other things it can be demanding of our time.
David: He also asked regarding swing trading and position trading or a particular method of trading. If you were to put a label on it so he’s got somewhere to start.
Stuart: Yes I just say learn stock trading using medium term trends. Analyze peaks and troughs. Identify those and those stocks achieving higher peaks, higher troughs, that’s the sort of thing I’m interested in. Good solid conservative, medium term steady sort of movement stocks.
Because it’s a fundamental principle of money management, one cannot neglect to define one’s trading float as well as one’s maximum trade loss. By defining our maximum trade loss prior to actually trading, we can ensure we keep losses at an absolute minimum. Likewise, our maximum trade loss should only account for a tiny portion of our trading float in order to safeguard ourselves in the event of multiple losses.
Unacceptably high risks are the primary reason for so many traders failing. Remember, the objective here is to keep losses at a minimum while at the same time allowing ourselves enough room for profits.
A very famous cricket captain once said that the most important aspect of the game, is not to make runs, but to stay in the game. I mention this because it’s so true with regards to trading as well. Your primary goal should be for you to protect your trading float just as that captain sought to protect his wickets. If you loose your float, you’re out of the game.
Always being aware of the maximum loss I’m willing to accept, doesn’t mean I’m negative. Instead, because I employ a meaningful trading psychology, I’ve learnt to be on the defensive at all times. After all, it’s all about survival.
Being a firm believer in keeping trading losses to a minimum, a top trader by the name of Ed Seykota once defined the 3 elements of trading. He said,”Follow these three rules and you just have a chance”, 1) Cut your losses, 2) Cut your losses and 3) Cut your losses.
Whether you like to believe it or not, you will experience losses along the way and there is nothing you or I can do to avoid them. However, the trick is to accept them and then to move on. Whatever you do, never allow losses to obscure your better judgment because in trading, keeping a clear head is vital.
What is the ideal maximum trade loss? According to many studies, the ideal figure seems to be 2% of your trade float, hence the well known 2% rule in trading. Of course there are also scores of professionals who refuse to risk more than 1% of their float on any one trade. Remember though, while this certainly minimizes the effect of any losses, it also means your profits won’t be very big.
Perhaps a better way of putting the 2% rule into perspective would be for me to use an example. So, let’s say we start out with a float of $20,000 to which we apply the 2% rule. In this case our maximum loss on any given trade would be $400. As you can see, with your losses kept this low, it would take many losses to erode your float completely.
In fact, we would need to experience no less than fifty consecutive losses before loosing our entire float. Of course, you don’t need me to tell you just how unlikely it is that you’ll experience 50 losses in a row. Furthermore, because the 2% rule actually uses the current float amount rather than the initial float amount, you would need even more than fifty losses before being broke.
Let’s see how the 2% rule is applied:
Starting with a $20K float we have our first loss based on the 2% rule. As we know, this would me we loose $400 which in turn leaves us with $19,600. Once again, we apply the 2% rule on our next trade, thus meaning the maximum loss we expect would be $392. Now let’s see what happens when life treats us really bad and we experience a string of six losses:
Float amount: $20,000
Float after 1st loss: $19,600
Float after 2nd loss: $19,208
Float after 3rd loss: $18,824
Float after 4th loss: $18,447
Float after 5th loss: $18,079
Float after 6th loss: $17,717
Even after six consecutive losses, we’re still left with $17,717 in our float. If you ask me, this is what I call, “Risk Management
Build Killer You Dream About! Learn how by visiting .
