I received a question from a reader, Cian, who asks:
… My goal is to become a career trader. I am 30 years old and I am currently unemployed due to the covid 19 situation. I have a lot of free time on my hands and I want to really dedicate it to [learning to trade]. I’d like to practise on a real account while I learn.
I’m wondering what instrument you would recommend for a complete beginner. I have a relatively small account… I plan to use tight risk management of no more than 1% of my account per trade.
I am hell bent on making this my full time gig. Eventually I would like to get into options etc. If you have any relevant advice to offer I will greatly appreciate it.
Ok, good question. So, the question boils down to “how the heck do I learn to trade markets and do it well?”
While I have a lot of content out there and have answered this question different ways over the years, I know it can be overwhelming to get started, so let’s look at two paths. Today, let’s start with a slightly more casual and less time-intensive approach.
Option 1: The hobby path
First of all, there’s nothing wrong with approaching markets as a hobby, but you have to be realistic. A solid definition of a hobby is that it’s something that costs you money! If you want to be profitable in your trading, you may find it’s a hobby that can be unrewarding at times, punishing even, and might ask you for more dedication than some other hobbies.
However, if you approach it with the right mindset, you can have a very successful and rewarding part-time endeavor (which is to say: have a lot of fun and be at least moderately profitable).
What do you need to know to make this work? A few important areas to start:
- A basic understanding of probabilities, to reinforce the idea that you don’t know what will happen on any one trade. If you grasp this, you’ll automatically avoid a lot of the mistakes that hurt beginners. You can read some basic books on probability (this is still one of the best, but out of print), but playing other games of chance is also a solid foundation.
- A good understanding of how the markets you want to trade work. For instance, some big stocks just split (9/20: AAPL, TSLA). Trading forums are filled with people asking questions like “since the price went down, if I was short did I make money?” There aren’t stupid questions, but there are definitely questions you want answered before you trade! You really do need to understand the mechanics of the market you trade.
- Some basic ideas of how people find an edge in the markets. You might look at fundamentals, long-term investing (understand why people invest in index funds), and some technical systems. Here’s where things get complicated, because most of the things people talk about don’t work. You’re going to have to sort out the good stuff from the garbage, and that’s not so easy to do.
- Know a thing or two about human psychology and what happens to peoples’ brains when they start trading. There are plenty of good books on the subject (here are two of my favorites: one, two), but you won’t really understand this until you experience it yourself. As Mike Tyson famously said, “everyone has a plan until he gets punched in the face.” Part of the fun of trading is the challenge of getting punched in the face, sometimes repeatedly, and still winning.
Where to get this information?
I know we live in an instant gratification world of video and sound bites, but this “hobby” is going to challenge you to go deeper. You’re probably going to need to read some books, watch some videos, and maybe dive deeper with blog posts.
You can use my work, here on this blog and elsewhere online, as a resource. Especially with technical concepts, you can usually google the term and add my name and end up with a set of links that will at least give you a place to start. (Try “Fibonacci Adam Grimes” if you want to go down a rabbit hole!)
For many traders, my first book, The Art and Science of Technical Analysis, has become a must-read classic. I have heard from many traders that this book changed their trading results (and, as you know, change your trading–change your life.)
Here are some snippets from the Amazon reviews:
- “This is not a fuzzy book full of anecdotal stories and motivational quotes, but rather a book that actually teaches the reader to see a chart with a deep understanding of what is actually going on. I cannot recommend this highly enough to any developing trader.”
- “this is the holy grail that i was looking for..”
- “This is an excellent book that provides even the experienced traders with plenty of “aha” moments while being written with such clarity and honesty that a beginner trader would learn a great deal from it. As mentioned at the start, it is an underrated book and should stand alongside (if not at the very top) the works of revered trading teachers such as Dr. Steenbarger or Ariel Kiev. This book was personally a game changer for me and I find myself constantly referencing back to it amidst the chaos of the trading day.”
- “Brilliant – worth EVERY penny.”
I’ll stop there, but let me say this: just go get the book! If you don’t want to study the book in detail, just flip through it and read what grabs your attention. I can promise this is a resource you will return to over the years as your need to drill down into specific topics deepens.
Many of you are aware, but I offer an extensive, completely free trading course here. Now, this is 30 hours of video and hundreds of pages of exercises, so it’s maybe a bit much for someone looking for an easier introduction to trading.
One possibility is to do the course, at least the first time through, hitting only some of the videos. If you were going to do that, you can get a good foundation in a few hours. Do these videos to start
- Module 1: Video 2 and 5, and get a solid foundation in reading charts.
- Module 2: 1, 2, 3, 4 and 5. Yes, almost all of this module, but this is where you really learn to read charts in depth.
- Module 3: 4 and 6
- Module 4: 1 and 6: Learn how to trade pullbacks, and get some ideas about how to see if a system really works.
- Module 5: 1 and 4: Let me introduce you to the Anti pattern (one of the best and most dynamic patterns to trade) and then we will dig into some psychology.
- Module 6: 4 &5 (optional) This will give you a solid background in traditional technical analysis, so you can understand much of what you’ll run into online. Why is this optional? Because much of it doesn’t have a solid edge!
- Module 7: Video 6 (optional, but background info on a wide range of markets.)
- Module 8: 4 & 5 Understand position sizing. Many of the mistakes traders make come from poor position sizing. Do it wrong, and you’ll blow up, even with a system that works!
- Module 9: 5 & 6 Psychology. Very important, because you won’t keep the money you make without it!
If you’ve already done the course, this “best of” list might be a good refresher.
Learn from the Market
Once you have a certain amount of background knowledge… in other words, you know your basics… you’ll be in a position to learn from the market itself. The types of depth of lessons you learn from the market will change over time, but some of the best lessons come this way.
There are many ways to do this, and you’ll probably eventually want to put some (possibly considerable) structure around your interaction with the market. At first, though, the important thing is just to do it. Get your feet wet. Start looking at charts and market data every day.
(There are many resources for finding charts online. We’ll link some in a later post.)
A good next step might be papertrading, which involves making ‘theoretical’ trades in a practice account. Papertrading is both good and bad. It’s bad because your papertrading results will likely have no connection to what you experience when you really start trading! But it’s good because it will make you look at the market and force you to decide where, exactly, you will get into and out of trades.
So, this is a good outline for how you might get started if you want to explore trading and markets with minimal time commitment. What if you want a more professional approach? What if you really want to go deep?
Stay tuned; we’ll answer that in an upcoming blog post.