Learning To Trade - Step I
This is part I of a multi-part series on how to become a successful trader/investor.
Step One: Create a Structured Learning Environment
Whether you’re just starting out and know nothing about the market or have been trading/investing for a couple years and can’t seem to get over the hump, this series is meant to take you through the steps necessary to become consistently profitable.
Before you consider the details of trading, you must first create a structured learning environment. In school, this is done for you. On the first day of class you are handed a syllabus which tells you exactly what material will be covered every week, when reading assignments needed to be completed, when homework is due and when quizzes and exams will take place. On the first day of class you get a view from 10,000 feet. Your learning was structured. You knew what to do and when to do it for the entire semester.
A coach will do this for a basketball team during preseason. He breaks the game into offense and defense and then subdivides each of those into smaller categories such as playing man-to-man full court/half court and playing different zone defenses. Then he starts with the basics (have you seen the movie Hoosiers) and once the team is competent in one skill, they move on to the next. The coach creates a structured learning environment. Practice is everyday at the same time. He knows what he wants to work on each day. He has expectations on how the team will progress day by day and week to week. He knows how the team will be rewarded; he knows what punishments will administered. There's flexibility within the structure, but there is structure.
Learning to trade requires the same structure. Even if you work very hard, if you study randomly, you could still make it but you'll waste a lot of time along the way. If you're lucky enough to join a trading group that will help and guide you, milk it for everything it's worth. For the rest of us, we need to form our own structured environment. A dedicated office is nice - something that is quiet and void of distractions. A time during the day you will "go to work" is needed. A syllabus - what will you study, research, calculate each and day and week - should be written. Benchmarks or milestones you plan to hit along the way are established. You're back in school. Put yourself on a structured path to accomplishing your goals by certain dates.
If you don't do this, you'll read 10 books only to realize 8 of them were terrible, useless and a waste of your time. You'll work extremely hard for several days - possibly up well past your bed time - and then do nothing for a couple days. You'll trick yourself into thinking you're working hard and on the path to success but you're actually wasting a lot of time, not building on previous learning and not being very productive.
When my brother took his first job at the Merc, he was thrust into a structured learning environment. When the market closed, he got a break but then he was in class for several hours. If he wanted to graduate from being a $25,000 per year runner to being a trader who could make hundreds of thousands of dollars and more, he needed experience and proficiency in all the workings of the markets and products his company was trading. It took many hours a day for many months to learn what he needed to know. There were tests. He knew what he needed to know every day. It was structured; it was not random.
Create a structured learning environment. Most traders don't do this, they randomly attack the market. They read books, but there's no rhyme or reason as to what books they're reading. They read blogs, but they're just reading to read and they aren't progressing. They put in the time, but time doesn't equate to progress.
- Set aside time every day you will focus on the markets and trading
- Be dedicated and disciplined
- Pretend you are back in school and give yourself homework assignments
- Make a big spreadsheet/checklist of everything you plan to do each day and week, and check things off as you do them
- Have structure
- Have purpose
This is step one; It's what you do before you read a single book, before you study a single strategy, before you do anything. You are going to school. Schools have structure; teachers have lesson plans. You need to do the same before you even get started because attacking this endeavor randomly will greatly prolong the learning process.