Saturday, December 05, 2009

What We Wish We Had Known When We First Started Trading

I recently began a series of posts for developing traders, outlining what I wish I had been taught when I first began following markets and trading.

I'm pleased to see that Bill Luby from Vix and More has picked up the theme and offered the three things he wishes he had been taught at the outset of his trading career. (See also Bill's worthwhile post on stages of a trader's development).

I will be resuming my series this weekend, but for now just want to add one item to Bill's excellent list:

I wish I had been taught the importance of order flow in determining market movements over short time periods: that the participants that move markets on longer time frames are different from those who move markets on short time frames. One important key to profitable trading is knowing who is participating at *your* time frame and understanding how they are positioned.

Much faulty trading occurs because trades are conceptualized at a time frame different from the ones in which they are actually managed. For example, a trader might be bullish because of economic news, but will trade off of minute-by-minute data and fail to read the volume flow data occurring at that shorter time frame. They end up being right in their view, but wrong in their timing--and losing money as a result.

More on this topic in my series.

If other bloggers wish to expand on the theme and share their experience of "what I wish I had been taught" with developing traders, I will gladly link to their posts. Just send the URL to the email address listed in the "About Me" section of the blog.