Find trading ideas and educate yourself

Find good trading Ideas
Find good trading Ideas
This is article six of the getting started trading series. I have hopefully introduced you enough in the subject of trading and investing, that you can start to make some choices on how you would like to go about trading based upon what fits you, your personality and lifestyle. I could jump in right now and start explaining how I trade, but instead I will first give you some pointers ad to where I got my trading ideas and how I educate my self. I hope it will inspire you to find your own way and hopefully my future articles / lessons will help you educate yourself and give you plenty of ideas.



Ideas

So what are places to look for trading ideas? And what is a trading idea? A trading idea is not a suggestion to buy stock xyz, because someone tells you how good the company of that stock is. No, a trading idea for me is a process, a method by which you can identify and act upon trading opportunities. The method used can be fundamental, news based or technical in nature. A trading idea should define some sort of edge in the market, that will make a trader profitable as it plays out in the long run. One place I look for ideas is in financial scientific research. Just go to scholar.google.com or www.freefullpdf.com for full free 'scientific' papers and search for for instance "mean reversion", "value investing" or "forex". There are also peer review archives where scientists upload their research before officially publishing it to have their peers review their work. One of these archive sites is http://arxiv.org. You will find references to papers that usually go for beyond (my) comprehension, but that is OK. These paper (or usually there excerpts and summaries) will tell you about some market principle that has been researched. We do not need to know all the scientific prove. As we are interested in the practical application of the principle described, we will test it our self to figure out if we can let the edge play out in real life. There are different ways we can test the idea. I mostly use following process:

  • Manual testing by going through charts of prices applying the principle. This is to familiarize my self with the idea and get "feel" for it.
  • Then sometimes I apply an event profiler on the idea. An event profiler takes events that trigger an action (buy, sell, exit) described in the idea. I takes the events from many different securities and over many different price / time series. It will result in a plot of the average price movement before and after the event. So if the idea describes an event that should happen before prices go higher, the plot should show this nicely.
  • And finally I do a back test; manually or automated.

Also there are many blogs that share great ideas. I also share some here, here and here. I always test all ideas. I never just trade them. In fact I have not yet come around to trading all the ideas that I have tested, but the testing has given me a wider perspective on the markets and by testing them my self I have incorporated the underlying principle so that they have become second nature in my trading mind. So even if you do not intent to literally trade the trading ideas, testing them will help you become a better trader.

Education

Educate yourself
Educate yourself
Before you can get to exploring trading ideas effectively, you need to have a basic understanding of the trading principles / fundamental, like money management, probability, risk-reward ratios, order flow, market structure, market types, etc.. There are many ways to educate yourself. I have read many (e-) books on trading and did many (online) courses. I link to most of them on my resources page. Here are the ones I think that will help you best getting started:

Book - Trade your way to financial freedom
This book will let you trade the bigger picture by explaining hwo and why proper money management, risk-reward ratios and knowing probability is needed to be a successful

Online courses - 2ndskiesforex
This site offers excellent courses that explains basic and more advanced trading concepts. The courses are by trader Chris Capre. I am have been a student in his Price Action and Ichimoku Cloud courses. Price action trading is trading of of what price it self communicates about the market. Even if you intent to trade more on fundamentals, news or other technicals like indicators, this course is a perfect basis. The courses are not free, but the freely accessible site offers plenty of information including videos and a free beginners course to get you started. I highly recommend this site!

Udacity: Intro to statistics: making decisions based on data
Trading is all about statistics and probability. This course teaches you the basics of statistical probability in a fun way.

And if you feel like programming:
Udacity: Intro to computer science: build a search engine and social network
Even if you do not intent to be a programmer, this course will introduce you to a way of thinking that will help you understand how computer can solve problems and change our world and the markets.

This book and these courses should get you up to a level that you can understand the basic ideas in financial scientific papers and finance blogs and they will give you a good level of knowledge to start trading with a very small live account to get your feet wet.

Mindset

Your mind is your greatest asset and your greatest enemy in trading
Your mind is your greatest asset and your greatest enemy in trading
I would not advise you to go around looking at trading forums hoping to find good trading ideas and education. You will find some good advise. But it is difficult to separate the good from the bad and it will cost you lots of time. So if trading is a hobby, fine, but I approach trading as a business and I think so should you. This brings me to a final but very important point and that is: Mindset. If you want to become successful as a trader, or anything else for that matter, you need to develop a proper mindset. The longer I trade the more I realize how important this is. If you first get started with a very small live account, you will find out about the importance of mindset without risking to much. Even if you trade algos fully automated you still need to turn the algo on and off or make changes to it. And whether you are loosing or making money, your mind will undermine your decision making. It is important to be aware of this and take proper counter measures. This is what trading psychology and mindset is all about. It is also why I believe trading with a practice account for a long time, is a waist of time, because it does not teach you anything about mindset. Only if you start taking real risks, however small, your mind will start to influence your decisions and you will learn how to deal with this. Ok, last time, I cannot stress how important this is.

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