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Resident trader
Essential tips for beginner traders
Will Kraa, October 29, 2007
The last two days I have been helping out at the CompareShares stand at the Sydney Traders and Investors’ Expo. I enjoyed speaking to those who stopped to enquire at the stand, and also met people who regularly visit the site and read my articles.
One thing that I noticed was the number of people who were anxious to find out how to trade but do not know where to start. Seeing you are now reading this article, I feel you have made a good start since the aim of this site is to provide you with unbiased help in your education. When I first started, I thought I knew what I was doing since I had been successful in making good progress towards financial independence through hard work and investment in property. I could not have been more mistaken as trading the market took away a very large slice of what I had accumulated. This taught me that I should find out what to do and so I started studying and reading and as a result turned things around. Now I have recovered much more than the money I previously lost.
As a result of spending time at the Expo and also spending time with my grandchildren and other relatives in Sydney, I don’t have time this week to do justice to the ‘How to profit from volatility’ series of articles. For the next instalment, you will have to wait until next week.
For those who are not experienced traders I strongly urge you not to trade until you have a thorough understanding of risk management. Even if you have done some buying and selling and have made some profit, I can assure you that you will lose it and more sooner or later unless you understand this subject very well. Some of my earlier articles have touched on this subject but that is only a start.
If you are wondering about seminars to attend and expensive software to buy, which are promoted as the way to get rich trading, I can say a few things that may help. Software does not need to be expensive and even if it were to give you the most excellent signals of when to buy and when to sell, this by itself will not ensure that you profit in the market. There is good quality software available at very modest prices, so you do not need to part with large sums.
Before forking out money on expensive seminars, ask the promoter if you can see recent audited trading statements showing that the teacher is able to trade profitably and can do so even at times when the market was not trending up strongly. Especially ask how they performed in 2002. It seems reasonable to me that if you are asked to part with many thousands of dollars that they should be able to supply that information.
Find out whether risk management is an important part of the curriculum. Will they assist you in formulating a trading plan? In the present market, is the prospective teacher able to outperform the market by a considerable margin? If it is suggested that you should do ‘paper trading’ to prepare for real trading please be aware that this has little value as real trading is very, very different to paper trading.
If the software you are prompted to purchase does not reveal how the buy and sell signals are generated it is what’s commonly called a ‘black box’ - and you cannot tell how good it really is. Ask if you can backtest it over the 2002 market and see how it performs. I would steer well clear of ‘black boxes’. If the software is able to make you rich, why is the promoter spending his time trying to get your money? He should be rich by now and not need your money!
Whatever you do, take some time to consider carefully the decisions you are asked to make. If you expect to make money trading, it is like anything else in life, you need to put in effort to learn and gain experience. It is also unlike anything else in life in that we are hardwired to lose money in trading the market and there will be considerable psychological hurdles to overcome to enable you to become profitable. People who have been very successful in other areas of life will most likely find that trading is something else altogether.
There are some good books to read that will teach you much of what you need to know and I plan to review some of those soon so you can be better prepared to face trading and investing. If you are new to the site I welcome you and hope to be able give you some help to be successful. Trading has been very rewarding to me and I would like to put something back in helping others to have a rewarding experience.
More articles from this week's CompareShares newsletter:
Forex: Forex markets attract headlines & traders
Shares: Going global: investing in international shares
Stocks: Stock picks for the long haul: GWA International Ltd (GWT) and Tabcorp Holdings Ltd (TAH)
Markets: Measuring the strength of the Australian sharemarket
Smart investing: How hot performance can deliver bad results
Forex: US dollar collapse to catapult Australian dollar
Stocks: Media stocks to watch
Stock of the week: TFS Corporation
Resident trader: Essential tips for beginner traders
Commodities: An underperforming silver has ramifications for gold
Expert panel (CFDs): Market neutral (pairs trading) explained
Expert panel (forex): a popular short-term strategy for traders
Whatever your views, you can discuss this article - or any of Will's articles - on our message board Your 2 Cents.
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