Stop Losing, Start Winning! Part 1: Education and a Trading Plan

Trading is a business and must be approached and run as a business. In my opinion, there is only one way to succeed as a trader but many ways to fail. There is much more to trading than just learning a strategy. Of course you need to have a strategy that puts the odds in your favor, but the strategy alone will not make you a successful trader. What you need is a framework and a step- by-step process in which you can develop as a trader.

Before the process can begin, you need to get the right education. That education should be made up of 2 parts:

1. How to read the market
2. The trading process

It is important to know how to read the market correctly because once you learn how to do this you will be able to identify where the best odds are in any market. Once you know where the best odds are you can then and only then develop a strategy to take advantage of those odds. If you just learn a strategy alone you are limited. It is much like learning to play a musical instrument by just learning to play one piece of music. Without learning how to read music you will always be limited.

The first trading education I received was wrong. Let me explain. I started trading almost 10 years ago for a prop trading firm, trading the firm's capital. I had to take the Series 7 exam and was taught an in-house method of trading. Once I passed the Series 7 and completed the in-house training, I was given an account to trade with a buying power of $500,000. The method we were taught was based on reading the tape and the NYSE Openbook. The main flaw in the approach was that it did not stand the test of time. It worked well until the NYSE went hybrid – part of the specialist’s job was now computerized. This is why it is so important to learn a method that is timeless. I had to start over again.

Another element that needs to be in place is a well-written trading plan. Without a trading plan it is better not to trade. If you cannot keep to your trading plan it is better not to trade - this is called discipline. Without a trading plan it is impossible to have discipline as discipline is defined as the ability to follow a plan. I have coached many traders and the first question I ask them is – “Do you have a trading plan?” If the answer is yes, which it rarely is, the second question I ask them is – “Are you following your trading plan?” The answer to both of these questions is usually “no”. This is where the coaching usually begins. Without a trading plan it is almost impossible to succeed, so why trade without one?