Beginners Guide to Trading Futures - Part 3 of 3
Wednesday, October 31, 2018
In this, the final part of our Beginner's series on trading futures, we will address the following:
- Where can I learn more about technical analysis?
- Where can I find more general trading insights?
- What are the best books to begin with for trader psychology improvement?
- How do I choose my first trading strategy?
This is a great opportunity for the TraderDock Team to gather a list of resources that we think will be very useful to your futures trading endeavours. It is important to reiterate that the only substitute for practice, is practice with accountability. With the TraderDock Challenge, we offer you a goal that is certainly worth aiming for, a list of risk rules that provide a framework that you will trade within and statistical feedback relevant to your progress that will help your trading to develop over time.
Like any other career, it takes intentional effort in your practice to be successful. The true beauty of professional trading is that the metric of that success is crystal clear - your trading P&L over time will develop as you make progress. From being very inconsistent and losing money, to becoming a scratch trader (someone that ends each day at $0), to finally becoming consistently profitable, it is important to admit that traders must move through this journey. Therefore, it is critical to simulate in a safe environment like the TraderDock Challenge in the beginning, so that your initial learning where you will inevitably have heart-breaking losses, will not cost you thousands in real-money trading losses.
To practice with intention, there must be a plan. You need to know your why in each trade. A why for trade entry, a why for trade exit. And overall, you must realise that even when you execute your trade perfectly within the parameters of your entry and exit strategy, the market will tell you whether you are right or wrong. But trading is a game of probabilities. Like a poker player must never risk everything on one hand, a professional trader should apportion an appropriate level of trading power (lot size) across a series of trades and trading sessions depending on the probability of success. To determine the probability of success for a strategy over time, a trader will back-test that strategy and then journal their experiences with that strategy so that they can tweak it’s setting and execution based on feedback from the market.
Accepting and interpreting the lessons and feedback from the market is essential and even though it may sound like an obvious requirement, consider the trading experiences of someone like Jesse Livermore whose exhilarating highs and perilous lows in trading make for a super story but must have made for an incredibly difficult and stressful life. The following books will shed light on the over-arching philosophy that a professional trader should have in their approach to making a career in the markets.
Resources for general trading insights:
Reminiscences of a Stock Operator - Edwin Lefevre, 2006
One Good Trade: Inside the Highly Competitive World of Proprietary Trading - Mike Bellafiore, 2010
Being Right or Making Money - Ned Davis, 2014
New Market Wizards - Jack Schwager, 1993
In Part 2, we provided a sample trading plan from one of our junior traders for a single trading session (early morning). Please note the reason for trade entry/exit states: "Buy at tech support on 5min and sell at resistance around yesterday’s high. Note: VWAP is close".
There's a lot going on in this statement. The trader believes there may be a range trade in play between an area of support (where buyers are strong) and an area of resistance (where sellers are strong) which coincides with yesterday's high. These execution strategies didn't come out of thin air. The trader needed to determine these support and resistance levels both by watching the price and volume action during the trading day and by studying the charts before the trading session - most likely in this case, the evening before. The trader also notes that a technical indicator that she thinks is important to her strategy is close to the price action and therefore she needs to watch for its influence during the trading session. As time moves on and this trader develops, her strategy will become much more layered with other indicators. So where can a beginner trader learn the skills of technical analysis used in this trader’s strategy and more?
Resources for learning Technical Analysis:
Technical Analysis of the Financial Markets - John J. Murphy, 1999
Japanese Candlesticks Charting Techniques - Steve Nison, 2001
Elliott Wave Principle: Key to Market Behaviour - Robert R. Prechter, 2005
Technical Analysis for the Trading Professional - Constance Brown, 2012
Furthermore, regardless of our trading plan and our interpretation of the results, the truly successful traders have extensive self-awareness and self-control. If a trader must act like a performance athlete, then it is worth reading the advice of those that have applied their learning in psychology and performance psychology in particular to the discipline of trading.
Resources Focused on Self-Discipline in Trading and Trading Psychology:
High Performance Trading - Steve Ward, 2009
Mind Over Markets - Dalton, Jones, Dalton, 1993
The Disciplined Trader - Mark Douglas, 1990
The Trading Athlete - Murphy, Hirschhorn, 2001
And so, you’ve signed up for the TraderDock demo, you’ve read or are in the midst of reading the pre-eminent writings on the discipline of trading as noted above and you ask the question… How do I choose my first trading strategy?
I believe that if you have read the above and understood the risk parameters of the TraderDock Challenge, you will already know which trading strategy you want to use. This is because your why must be YOUR why. There is no point in trading a strategy that you yourself do not believe in. And there are an infinite number of trading strategies so the important thing is to pick one that resonates and develop it over time. Some tips are: choose 2 to 3 indicators that you will use together to re-enforce your trading idea. Choose a chart time-frame or combination of time-frames that you believe will give you the greatest level of finesse in execution while allowing you to be conscious of the overall trend.
The TraderDock Team