Finding the Right Trading Course

(and avoiding the obvious pitfalls)

If you had to enrol on a one-week trading course, you may learn some good basic trading skills. An advanced course may teach you a new technique, or new insights into the market. However, on their own, they are not the key to a career as a successful trader. If you over-estimate what the course can do for you, you are likely to do yourself harm.

A Cricket Analogy
To those readers not familiar with the game, a cricket ball is delivered at similar speeds to a baseball (up to 160 km/hour). There are two subtle differences: the bat is slightly broader; and the batsman stands on the plate!

If you had to enrol on a week's batting course, involving 3 to 4 hours of batting practice each day, you may learn some good basic batting skills, but it is not necessarily the key to a successful career as a professional batsman. Over-estimate what the course will do for you and you are likely to end up with a serious injury.

In a match you may be fortunate enough to face a few overs of gentle leg spin — even dispatching a few balls to the boundary. Everything seems to go right. But all good things come to an end.

In cricket, as in the market, changes can happen very suddenly. A new bowler is brought on. The ball moves a lot faster. You can't make up your mind quickly enough. Misjudge and you get hit. Surprise, surprise — it hurts. This is not the safe environment of the training ground. Indecision creeps in. You start doubting your own decisions. You can't apply the techniques that you learned. Your batting plan begins to unravel. Every time that you get on the front foot, the ball whistles past your chin — close enough to smell the leather. You take another hit. You forget your plan and concentrate on survival. After a few awkward fends in the interest of self-preservation you fail to protect your stumps.

You head back to the pavilion, totally cowed and fortunate not be carried off on a stretcher.

Sometimes everything just seems to go right in the market. Every trade is a success and you can't resist telling your mates how well you are doing. For their own good you just want them to know how easy it is to make money (and how clever you are). All good things come to an end. The market changes. It seems harder to find good trades. You are frequently stopped out of your positions. You incur a string of small losses. And sure-fire winners struggle to make new gains. The pressure starts to build.

This is no longer the safe environment of the training course. Indecision creeps in. You start doubting your own decisions. The techniques that you learned don't seem to work any more. Your trading plan begins to unravel. You start changing your trading rules, looking for confirmation from additional indicators. They give conflicting signals. You forget your plan and concentrate on survival.....

Many trading courses fail to prepare you for what you will face in the market place. They present you with a trading plan and some fine examples of where the plan works, explain the basic concepts and send you off to make your first million. If it was that easy do you think they would be selling training courses? They fail to prepare you for the times when the plan does not work. They fail to prepare you for the pressure and uncertainty that you will face when the market goes against you. They fail to teach you about professional traders who lure the naive into chasing prices higher or selling a stock lower. No trading course will compensate for a lack of experience. There are no short-cuts.

The Magic Formula

Many trading courses are marketed on the assumption that the average investor is greedy and lazy: they want to make a lot of money without a lot of effort. And a second assumption: that they are gullible. Normally accompanied by hefty price tags and persistent salesman, these courses are pedaled to the public "for a small investment of only a few thousand dollars".

Do not confuse price with quality. Work on the inverse principle - the MORE that you pay, the LESS you are likely to benefit. I have yet to find a course or workshop that is worth more than $1000 (not that I have been on all of them). What if they guarantee that you will make $50,000 in your first year of trading? RUN!!!

Look for the common thread that runs through all their marketing: the magic formula.

  • "The Secrets of Trading Success"
  • "How to Profit From the Market in 7 Easy Steps"
  • "all you need is a computer and the desire to create wealth"

Recognize the magic formula? All of them offer you the prospect of wealth without effort. The ability to extract a fortune from the market without moving from your chair. An appealing concept isn't it? So is the tooth fairy.

There are no magic formulas. Trading courses may help you to gain a good working knowledge of the basics and an understanding of some of the traps and pitfalls that you face in the market every day. What they (or I) cannot teach you is self-discipline and an understanding of your own human weaknesses. That comes with experience.  And loads of practice.

A Systematic Approach

  1. Start with a realistic goal in mind:
    • Do you want to learn the basics?
    • Learn a new technique?
    • Or make a million dollars?
  2. Do you have sufficient time to practice what you learn from the course?
    Work on a minimum of 2 hours a day if you want to become a good trader.
  3. Learn the basics first. Know them thoroughly. And PRACTICE!!!
    You need a strong foundation. Read charts for 1 to 2 hours a day.
    • Analyze candlesticks (or OHLC bars) and volume
    • Identify support and resistance levels
    • Identify chart patterns
    • Identify trends and trading ranges
    • Identify the various time frames
    • Study market and sector indices
    • Learn the influence that these have on individual stocks
    • And the interaction between various equity markets, bond markets, currencies and commodities
  4. Seek out a trading course that will help you to achieve this. A two-day workshop is not going to teach you all that you need to know - no matter what the salesman says. Seek out courses run by various educational institutions - the kind attended by trainee stockbrokers and analysts. The kind that take 3 to 6 months. You will not learn all the tricks of the trade but you will gain a good basic grounding.
  5. Benefit from the experience of others. Search trading forums for discussion on various training courses. Ask a few questions. Who has been on the course? When did they do the course? This is important: recent participants are normally fired with enthusiasm but how will they feel a year later? How have they benefited? What skills did they learn? Is there any ongoing support? Are there any realistic trading sessions? Would they recommend it?
  6. Don't make the mistake of believing that you are now ready to enter the market. Do so and you may be stretchered off after a few weeks, never to return. Draw up a trading plan. Back test it with historical data and then stick to it - don't keep fine tuning it. Paper trade for a month or two - until you feel that you are ready to enter the market.
  7. Take the smallest amount of capital that you can effectively trade with and cautiously enter the market. Concentrate on achieving the best possible return over a 12 month period. Make the commitment. Don't get excited after a few wins and increase your capital. That is a sure sign that you are not in control - the market is controlling you. Monitor your performance every week. Review each trade and assess whether you have stuck to your plan. Make notes for later as to how you could improve your plan - but don't make any changes now.
  8. Don't day-trade. Leave that for the professionals.
  9. After 3 months, pause for a week. Don't place any trades. Review your performance. Identify any gaps in your knowledge that need additional work (or study). If you know there is a problem but are unsure how to solve it, consult a mentor. Find an experienced (and successful) trader who is prepared to part with a few hours of his time. Set your trading plan for the next 3 months and continue. Review at regular 3 month intervals.
  10. After 12 months, review your performance and decide whether you are ready to commit more capital to the market.
    Do this again after 24 months, 36 months and so on.

Trading Books

Reading trading books is like learning how to play cricket by watching television. Trading books are useful for comparing your approach to others and identifying areas where you can improve your game but they are no substitute for actual experience. Again, most books are sold on the "magic formula" principle: "Unlock the Secrets to ......."; "How to Make Money in the Stock Market"; etc.

Paper Trading

Paper trading may help to perfect your technique but it is no substitute for live practice. You have to feel the pressure in order to learn. If you are not accustomed to the pressure, it will cloud your decisions when you can least afford it.

If you can't stand the Heat

......don't play in the kitchen.

If you do lose money in the market, don't blame your course provider, your broker, the institutions, insiders, the government, OPEC or the Fed. They are just some of the factors that you have to take into account in your preparation. You are responsible. You are on your own. No-one except you is going to shed a tear if you burn your capital. So take care ...... and PREPARE!