Eat Like A Whale…My Thoughts On Trader Training
It’s
been an ambition of mine to become a short-term trader. I have
enjoyed a modicum of success as an intermediate-term trader, so I really didn’t
think that I’d have much trouble shortening my trading time frame. I was wrong.
Last fall, I put my carefully crafted plan into action. I was trading small, but
I was getting beaten up, and my fear of the markets was rising. I was eating
like a snail and shitting like a whale. Something had to be done: This old dog
had to learn some new tricks.
There’s a strong belief among many traders that the only way to learn is
to trade in real time with real capital. I believe that it does have its place,
but often times you need to develop skills away from the market. Noting that in
almost all endeavors in life there is a strong correlation between practice and
performance — those that practice most tend to perform the best. So, I spent
Christmas going over my past trades and developing a practice program.
Many years ago, I’d been trained as an officer in the British Merchant Navy. Our
training was based upon the way airline pilots were trained, which in turn was
based upon the way fighter pilots were trained. So I took that as my starting
point; and then a number of things happened just as I needed them most: Brett
Steenbarger wrote a great article in Active Trader magazine about
training traders using ideas from the military, TradingMarkets brought a few
more Training Modules, and eSignal introduced the Replay Tool in their latest
update. I was set.
My own training program is based upon some simple principles: know your
intention, find out what tools you need, and then use them to achieve your
intention. I believe that regular and consistent practice away from the markets
and your associated emotions is the right place to develop technical analysis
skills and rules to make decision-making more efficient — and that was my
intention. Once I’d developed those skills (to a reasonable level at least) and
rules, I could go back into the markets, trade small and monitor myself knowing
how my decisions and thus my performance were being affected by my emotions.
Practice program steps:
-
Components
for trading, organised into bite-sized skills -
Simulated setting
-
Skills practice in
crawl-walk-run sequence -
Real-life rehearsal
-
Full application
1) Components of trading:
-
Daily planning and time
management -
Market analysis: overall
market, sectors, tier 1 markets, individual markets -
Software and services
-
Setups
-
Money management and risk
control -
Trade preparation
-
Chart
interpretation/technical analysis -
Mental preparation and
self-management -
Entries: continuation,
reversal, and gap entries -
Level 2 and T&S
-
Market Maker and Specialists’
manipulations -
Order execution and Bullets
-
Trade management and
monitoring: stop placement, abort, profit exits, scaling-in/out, additional
positions -
Trade recording and
evaluation -
Record-keeping and periodic
reviews -
Emergencies or worse case
scenario
2) Simulation. For this
particular practice program, I really wanted to concentrate on technical
charting skills, which I considered to be my greatest weakness. See later for a
further explanation of these exercises:
-
Training Module exercises
-
Simulated trading
-
Practice bar by bar in
variable time -
Strategy simulation trading
-
Random entry exercise
-
Discretionary entry exercise
-
Simulation trading in
real-time during market hours
3) Skills practice in
crawl-walk-run sequence
-
Each component analyzed,
streamlined, timed -
Simulation trading:
-
One trade at a time in real
time -
Two or more trades at a time
in real time
4) Real time trading with 100
shares
-
Return to simulation trading
or Training Module if any rules broken
5) Full Application
-
Build-up risk and position
sizing -
Any problems return to
trading 100 shares, simulation trading, or Training Module
I have four different methods
to simulate trading. The first is using a Training Module available from
TradingMarkets. For the other three I use the Replay Tool in eSignal which is
meant for backtesting strategies, but is particularly well suited of my
purposes. The Replay Tool allows you to step back in time, removing the bars on
a chart and then to replay the action automatically bar by bar at a rate that
you can adjust. I like to set the rate so that I see a new 5-minute bar appear
every 7 seconds, but this can be set at half a second to 30 seconds or more, and
can be paused at any time.
To simulate a particular strategy, I’ll choose a stock, and set up and
coordinate three or four charts — the daily, 30-minute and 5-minute stock
charts, and a 5-minute market chart. I’ll plan the trade with entry triggers,
stop placement, price targets, risk-to-reward potential, and position sizing. I
then “trade” the plan and record the outcome, looking for lessons to learn.
For the Random Entry Exercise, I’ll just pick any liquid stock and keep moving
back with the Replay Tool and literally stop at anytime, anywhere on a 5-minute
chart (but, of course, you can use any time frame). At that point I will decide
whether I am long or short and where I should have my stop. I then replay the
action to monitor and manage the “trade”. The Discretionary Entry Exercise is
similar, but having stopped at random, I’ll replay the action and decide when I
want to take the trade, usually at the first perceived opportunity.
This program has made a huge difference to my trading. It’s still early days,
but I’m back in the black and I’m eating more like a whale and shitting like a
snail.
If you have any comments
or questions, please contact:
alan.brooke@wanadoo.fr
References:
1) Training Modules
https://www.tradersgalleria.com/galleria.site/main/main/tradingmodules/?src=tm_site_menu
2) Brett SteenBarger in
Active Trader Magazine February 2003, and also
https://www.greatspeculations.com/brett.htm
Alan Brooke trades full time from
his home half way up a mountain in the French Alps. He traded a for a few years
in the mid 80s and then returned to trading just in time for the last great
bubble of the 20th century. He finally discovered what he was supposed to be
doing when he became a Trading Markets member last year. He does not play golf
or trade in his underpants.