Hmm.. I find this to be one of the most interesting questions at this forum thus far.
First let me say that all the posted answers thus far were generally right on the button to one degree or another. But, if you will be kind enough to bear with me, I would like to diverge just a wee bit from the opinions expressed here and say that I believe that education is
absolutely essential to successful trading.
Now, before the rest of you posters and readers here lodge huge storms of protest, let me qualify my remarks just a bit.
The education I am speaking of is not normally to be gained at a college or university of higher learning, at least not from most of the formalized courses available. Does that mean that I am suggesting that simple "streetsmarts" is the better way to go? Well, let me give that a qualfied yes and no.
Streetsmarts is far from simple and usually only comes after many years of a rough and tumble life where you are forced by necessity to learn through live daily interaction with people (both pleasant and unpleasant) in both personal and work situations. The challenge to gaining streetsmarts is in remaining vigilant enough to discern the lessons being taught. Most people simply get caught up too heavily in the emotions of the moment and miss the valuable lessons, thus seldom ever really learning how to adjust their own behaviors in order to excel in similar situations that befall them further down the road.
I am saying you need
intense education in at least three areas:
1)
Knowledge of the structure of the market(s) you wish to trade (which includes what the instrument is, in what increments it moves, how far the price might move in points or ticks during an average day, what times of day or week or month it exhibits certain repetitive performance, etc., what level of volume can normally be found there on good moves versus moves that have no follow-through, etc.;
2)
Knowledge of yourself (your tolerance for risk, how you react to both winning and losing, your willingness to pull the trigger based upon the confidence or lack thereof that you have in your method or trading plan, review of the areas where you make repetitive mistakes and plans to either avoid similar situations or change your response to get a different result, and most of all, an honest and deep understanding of why you are really involved in trading in the first place and whether that reason is truly serious and meaningful enough to put your hard earned capital at serious risk and also to keep you working through the tough times until you reach your goal; and
3)
Knowledge of price action (this only comes from lots and lots and yes, even lots more screen time, watching those monitors and getting an internal feel for what happens as price moves across your screen toward, above and below key lines of value, support and resistance, observance of the reactions of the multitudes of traders at those key points of decision where price suddenly leaves its consolidating chop and runs for a new goal on your screen.
As regards "screen time", don't just sit there like a couch potato watching a table tennis match on television. You must really focus on what is happening on the screen by asking yourself questions like "Hmm. .why did price break out of that consolidation and all of a sudden come right back to the break out point again once or twice before it actually took off?" Ask yourself "Gee, how often does that happen at break-out points and how can I take advantage of it?" Ask yourself why price moves the way it does. Is it really random as so many claim or is it manipulated by the big money players whose actions leave clues right on your price charts if you just pay enough attention?
Hint: if you believe it is the former, you still are in need of a great deal more screen time and you need to ask yourself a lot more questions.
You may see price moving up slowly yet it suddenly accelerates. Ask yourself "Hey, who poured gasoline on this fire?" Was it that the stops of the retail traders were clustered at a certain expected point and got hit? Was there yet another acceleration upward after a short pause in price because those who missed the initial move have jumped in at the first or second retracement in the action as they were hoping the move has further to go?
When you see these things, constantly ask yourself "What are the pros doing to take advantage of this move?" Surely you realize that if the retail traders are all buying in a frenzy, somebody out there must be selling? Whom do you think that might be? Might it be the pros who accumulated positions in that instrument during the last sell off just 10 or 20 minutes prior when the retail traders were literally almost jumping out of their shorts (pun intended) to get out of the move against them? What about program trading? Surely you have at least heard of it? But what is it? How much of the total trading volume of an average day comes from program trades and if it is truly meaningful (yes, it actually is!) then how can you track it and take advantage of it? During price declines, perhaps you might look for those tipping points or price points in the market where the retail traders realize they are caught in their long positions and suddenly are on the wrong side of the move. Please don't forget that whatever personal preference you might have for playing longs or shorts, price more often than not still moves
up via the stairs and comes
down via the elevator.
Become a life-long student of people. Yes, you can learn some of what you need to know from fine trading psychology books like "Trading In The Zone. " You might even genuinely learn something useful in a class or two on human behavior. But don't fail to pay attention to the almost daily tales of woe from family, friends and work associates as well. If you pay careful attention to what is being said, you will find much useful information about how people react daily toward risk and reward. You will find those same exact reactions played out on your trading charts each day.
Lastly, some of you may disagree with the points I have set forth above. That is probably normal for any group of 2 or more people getting together to discuss an idea, but let me say this - for those who feel some other type of education is far better than what has been suggested, I am sure that if you just tell some of the more seasoned traders here at this forum what instruments you trade and at what times of day you will be trading, they will be happy to relieve you of any more of that pesky old stress of trading by quickly depositiing your trading capital into their own bank accounts as you continue to experience that painful string of losses, despite your continuing to do what all the "gurus" told you would work.
Happy Trading
