Sunday, November 1, 2009

Ask EP: How did you learn to trade?

Hi e-mini long time without an update. One question i have. How did you learn to trade? on your own, or you did take a course or something you could recommend?

Thanks a lot man

Daniel From Spain

Hey Daniel,

I'm busy with work and school these days so don't really have much to post to the Blog. I post charts on Twitter, so if you're interested in how I'm viewing the market these days, follow me on Twitter. I still follow the markets actively and post my analysis on Twitter.

Now on to your main question; I discovered trading and the markets in early 2003, and based on a recommendation from a friend of mine, I began by purchasing a software program that essentially gave buy/sell signals. I funded a stock trading account with Ameritrade and began trading in 500-1000 share lots. It was the absolute worst way to get into the markets. I was basing my trades off a "system" that I didn't understand. I won't mention the software program because it's just embarrassing to admit that I spent thousands of dollars on this piece of junk. On the bright side, after a few months and small losses, I realized the program was junk and tossed it in the garbage.

I then started reading up on Technical Analysis and candlestick charts, and switched to using TCNet for charting. I also found a chat-room that taught stock trading using technical analysis. In hindsight, I didn't really benefit much from the chat room and it turned out to be a hindrance since they used technical indicators, which always looked amazing in hindsight, but didn't work so well in real-time. That's true for most chat room gurus; they look like rock stars after the fact, but don't provide any edge in real-time trading.

I discovered futures towards the end of summer, 2003, and that's when I ditched stock trading and the chat room. I funded an account with Interactive Brokers, ordered eSignal for charting and began trading the YM, ES, NQ, Dax, and Eurostoxx50. Since I was working full-time, I would wake up in the middle of the night to trade the Europe open (Eurostoxx50/Dax), then go back to bed; wake up again in a couple of hours and get ready for work, and trade the U.S. open (ES/YM/NQ) for an hour and then head into work. My office was 5 minutes from my home, so on some days I would come home for lunch and try to scalp over lunch as well. I went through thousands of Live/Real$ trades (I think Simulators weren't as good back in 03'-04'). It was pure trial and error. I started a trading journal on Elite Trader (link to trading journal if you'd like to see the train wreck). I also read books on technical analysis and trading psychology. By February, 2004 I had completely burned myself out and decided to close my trading accounts.

I then got back into trading in the summer of 2008. This time around, I began by reading books on technical analysis, and spending hundreds of hours analyzing charts in Trade Station. I also read a lot of information on the various forums and Blogs. Thanks to Blogging, there is so much more information available for free online regarding trading now as compared to 2003-2004. I also joined the Trade Pilot Pro trading education chat room. I took the ideas they provided and then modified them to suit my personality and style of trading. Joining the Trade Pilot Pro room with was definitely helpful but my focus was trading education. I would ask a lot of questions in the room, and even try to get some one-on-one time with the head traders/mentors after market-close to really understand the concepts. Joe Baker uses a few indicators, but is also very good at reading pure price action. David Dube used to trade for a large financial institution and is also an excellent trader and mentor. Both of them spent a considerable amount of time helping me get up to speed. On top of this, I spent a lot of time analyzing the charts in the evenings on my own, and still do that. It's a great exercise to enhance your pattern recognition skills. I spent a few months in the chat room and then left the room to educate myself. It's important that you not get tied into a trading room. Taking time away and personalizing and internalizing what you've learned is important. This time around I also switched on/off between using my live/real$ account and the Simulator. I think the Simulators these days provide a very realistic field to practice your trading skills. You don't need to risk real capital until you're ready, and I strongly encourage newer traders to fully utilize the Simulator. Just make sure you use the Simulator properly. Focus on POINTS; not the dollar amount since it doesn't matter if you make 2 pts on a 1-lot or a 100-lot on Sim, so forget the dollar amounts and focus on how many points per contract you can capture during the day. Utilize realistic stops/targets on Sim. Take every setup that meets your trading plan and don't be afraid to lose on the Sim. Losses are actually great since you learn more from them, so while you're on Sim, go full-tilt and take every setup. The next step is maintaining a journal. You must keep track of your performance; otherwise it's a waste of time. The other benefit you get is screen time. Screen time is KEY! Whether Sim or Real$; you're gaining screen time and that will improve your intuition and "market feel" over time. If you'd like feedback on your trading, start your journal online via a Blog (that's what I did). Read, read, and read some more! BUT question everything you read. Don't take the information as Fact. For example, 90-95% of the content posted on my Blog is my Opinion and Analysis. You can't accept it as fact. You must question any idea you come across and only accept it once you've performed your own testing/analysis, and internalized it based on your own personality. Really try to understand the concepts at their core. For example, if someone says "stay out of the market during the first 5-10 minutes of market open"; question yourself on WHY you should stay out of the market during that time? Formulate your own Logical answer that makes sense to YOU. If you decide to use a particular indicator, dig deep and understand how that indicator works (mathematically). A simple example is moving averages; if you're going to use moving averages, dig in and really understand what the moving average represents. Keep an open mind and never give your opinion so much weight that you can't change it. There's a fine line between having conviction in your trade idea, and being stubborn. If the market proves you wrong, you must be able to change your idea. Timing is critical in trading; you may think we're over bought/over sold, but if the market doesn't come to that conclusion at the same time as you, you must be willing to put that idea on hold, and trade what's in front of you.

Another great resource is Twitter and StockTwits.

It's getting really late here (past 3 AM now) so I'm going to wrap this up for now, but hope this post was useful to you. If you have any other questions or need clarification on something I wrote above, please post it in the comments. I'm writing this pretty late and hope the post makes sense (I'll review it in the morning).


  1. Thanks a lot E-mini, pretty helpful your reply i really appreciate it....i am very thankfull for your blog it has help me a lot your comments, ym's and ziad's are pretty helpful i hope you guys can keep it up.....thanks a lot buddy !!!!

    I have one more question? do you have any mechanical guides to halp you trade in the correct way? just the mid point? or do you have any other technical indicator that could help you. I have seen that trendlines and a 20 MA could do the job but sometimes i have the most trouble with the breakouts, i just can trade them well.


  2. Nice reply. Question everything you read (or hear) is something I would definitely second. Good advice.

  3. Thx Anon.

    Daniel, I don't have a mechanical trading system. For me, it's all about context; being aware of the overall trend, various support/resistance levels, how price approaches those levels, behavior of the other indexes and sectors, etc.

    Some of the levels I watch include: Prev Day's Close, Today's Open, Mid-Point, First Hour High/Low (Initial Balance), S/R Levels from 60 min. Chart and significant trend lines. I also have a couple of MAs on the chart because a lot of people watch those and trade around those. Some of the stuff I watch is not necessarily for my own trade placement but to know where others are placing trades. For example, I may throw some Fib measurements on the chart because I know Fib traders will be buying/selling the 50-61.8% retracement and it helps to know what other players in the market are doing.

    Regarding your problem with break-outs, keep in mind that a lot of breakouts fail, and that in itself is a signal. If you want to play it safe, draw a horizontal line to mark resistance; do not buy the first break-out. Wait for price to return to the initial break-out level, and then if it holds the level, enter Long on the double-bottom. It's a safer entry. Hope that helps.

  4. Thanks a lot for the help e-mini i really appreciate it. Do you believe it is worth it to pay for education like trader pilot or should i just keep looking chart after chart of the ES? i try to analyze what the market is doing but sometimes it is difficult i set a target, get one point in favor and sometimes reverser taking out my stop.


    By the way did you stop altogether anything related to trading during those 4 years?

  5. Daniel, Trade Pilot Pro offers a free 1-2 week trial. I think it'd be worth your while to at least take the trial; since it's no cost to you. If you like what they have to teach, then stick with them; otherwise, continue on your own. I think it's always good to have access to other traders to bounce ideas off of, and the Trade Pilot Pro room will provide that. I'll warn you, they do use a few indicators but that doesn't mean you have to. They also discuss pure price action a lot, so you will certainly benefit.

    And yes, I was completely away from the markets during those 4 years. Just focused on my other work/business during that time.

  6. Thanks e-mini as always i appreciate your help



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