Trading with Toli: Starting Out

Ever since I learned about markets, I have been enamored with them as an expression of mass psychology. 

The idea that at a specific point in time, the price of commodities, government debt, shares of a company and even magic internet money, is represented by the temporary consensus between people’s differing bets on their value… boggles the mind.

Markets represent a game where the rules change every second. There is no magic formula or all-knowing, ever-profitable guru. That is fascinating to me and I think, to many of you. Which is why I am writing this column. 

Every week, I will be giving out updates on my trading journey. Join me as I navigate the ebbs and flows of markets, in the hopes of becoming a consistently profitable trader. I welcome  you all to  join me in this journey. We can all stand to benefit from each other’s knowledge and experience.

This column will start from the beginning of one’s journey to learn how-to trade. I have already developed some good foundational intuitions from a couple of months of trading price action but my process lacks discipline and structure and so, I think it is beneficial for both the reader and I to start from scratch.

Throughout the course of this column, I will be referencing sources and books that I am studying. Essentially, this column will be aggregating information I draw from great speculators and the results of my attempts at leveraging their intuitions in the markets.

As I’ve mentioned in my fool’s guide to DYOR–in the face of randomness, proper investing or speculating requires some serious skill. Developing trading skills is more challenging than investing skills because it requires us to make more decisions in the market. As candles go green or red, profits are made and lost, we are more prone to making emotionally-driven decisions that quite frankly, often rely on luck.

And so I will leave you with seven psychological tips I took from the book I am currently reading, Dr. Alexander Elder’s (The New) Trading For a Living.

• Decide that you are in the market for the long haul–that is, you want to be a trader even years from now.

• Learn as much as you can. Read and listen to experts, but keep a degree of healthy skepticism about everything. Ask questions, and do not accept experts at their word.

• Do not get greedy and rush to trade–take your time to learn. The markets will be there, offering more good opportunities in the months and years ahead.

• Develop a method for analyzing the market–that is, “If A happens, then B is likely to happen.” Markets have many dimensions–use several analytical methods to confirm trades.

• Test everything on historical data and then in the markets, using real money. Markets keep changing–you need different tools for trading bull and bear markets as well as  transitional periods. You also need a method for telling the difference.

• Develop a money management plan. Your first goal must be long-term survival; your second goal, a steady growth of capital; and your third goal, making high profits. Most traders put the third goal first and are unaware that goals 1 and 2 exist.

• Winners think, feel, and act differently than losers. You must look within yourself, strip away your illusions, and change your old ways of being, thinking, and acting. Change is hard, but if you want to be a professional trader, you have to work on changing and developing your personality.

I think Dr. Elder, a former professor of psychiatry at Columbia University, has a pretty good understanding of the illusions our brains create and so I printed these “commandments’ out and posted them right above my monitor to serve as a reminder. (lol)

See you next week.