Learning to trade can be an expensive and frustrating endeavor. Many retail traders end up buying (and discarding) numerous training courses in the process of learning how to trade. In this article, we’ll take a look at developing a more holistic view of the market. To develop your own training curriculum, as opposed to taking a series of disjointed ‘magic bullet’ courses that have you starting at ground zero each time.

Before we jump into the details, it’s necessary to narrow down the type of trading we are discussing. There is a lot of useful generic information to be shared regarding trading education, but there’s also a lot of market/timeframe/style specific nuance too. 

Retail traders generally aspire to “trade like the pros”.  A large proportion of Proprietary Trading Firms push their traders toward spread trading. For various reasons (costs, platform availability, availability of training) very few retailers spread trade. Our focus in this article is trading outright ‘directional’ positions intraday. Buy to sell higher. Sell to buy lower.  

In order to enter and manage trades consistently, you need to believe in what you are doing. You need a firm conviction that when you buy, others will buy after you. A firm conviction in the point at which you know your trade is not working.  Not holding and hoping, just in case. 

Most traders start out looking for a “setup”, a set of mechanical rules that tell them when to get in and when to get out. They have little concern over why other traders would buy after they did or sell after they did. When it goes wrong, the setup is to blame. After a run of losses, confidence is low, and the trader is short on solutions. 

They can’t fix their setup because they have no idea why it might have worked in the first place.

Traders need a theoretical framework to work within, tenets of how the markets work that they have confidence in. This comes before they even start to think about where to get in and where to get out.

‘Why’ comes before ‘How’.

So, what is it that makes people buy and sell? There are many theoretical frameworks that explain this. I, personally, believe in value-based concepts; that markets balance around a fair price and then find another fair price, balance again, and so on. I am also a firm believer that speculation is driving the markets; that most market activity is pure speculation. This does not mean I am always right, it just means I have a reason for getting into a trade and a point at which I can say I am wrong.  Some people believe in Fibonacci. This is not something I believe in conceptually, so it follows that I could not confidently trade-off of Fibonacci levels. It’s not for me.

It is entirely possible that a strong belief in your market philosophy and the consistency in trading behavior that results is more important than the details of the philosophy itself. 

Consideration should be given to the other players in your chosen markets and their trading horizons. Do the ups and downs in index futures represent daily schizophrenic mood shifts in major long-term institutional players? Are those managing billion-dollar equity funds waking up in a cold sweat one morning, selling their positions only to buy them all back the next day? Or are these ups and downs the result of mostly short-term speculation? 

My belief is that on most days the main driver of the markets is short-term speculation. Of course, there are days when major institutional re-positioning is occurring and this is fairly evident by a major increase in volume. If short-term speculation drives a market most of the time, then intraday opportunity will come from short-term speculators jumping on a move or getting caught offside. If players are all long-term, this will not be the case; they won’t react to smaller intraday moves.

New traders usually want to know “where do I get in and where do I get out?”. They want to learn a setup, and there are plenty of unscrupulous people out there that are more than willing to sell them one. This isn’t learning how to trade. Frustration quickly sets in when these setups don’t work. 

Learning to trade is all about why other people would get in and get out and try to capitalize on that.

New traders are in awe of people that can create their own rules for trading, thinking it is something beyond their capabilities. They have not developed the foundational knowledge of the markets upon which to build their own method. 

Skill vs Setup

That brings us to another point, the skill vs setup mentality.

The final piece of a traders’ doctrine is whether or not they believe trading is a skill. If trading is a skill, then regardless of the method you learn, initial performance will be poor.  

If some traders decided to become athletes, they’d try running for a few weeks, see they weren’t much good at it, so try high jump for a few weeks, decide that wasn’t for them and give hurdles ago, and so on. Never taking time to actually develop any specific skill.

If the method fits in with a trading doctrine you believe in, you will work through your weaknesses to improve your skill. If you don’t trust the doctrine, you’ll have nagging doubts and soon give up.

For those that think trading isn’t a skill, they tend to gravitate toward mechanical setups because they believe that once someone reveals a secret setup, they will be able to make money with it forever. They won’t treat the method as a skill, and they will discard it away after a very short period if it doesn’t turn a profit. Some traders spend years in this cycle of trial and error, always thinking that their problem is that they just didn’t find the right setup yet.

There is a commonly held belief that ‘the pros’ know trading secrets that retail traders don't. If there is a secret, it is simply this - trading is really a skill. Intern prop traders will be sat doing drills over and over again so that they develop the skills they need to read the markets. They aren’t allowed to deviate, they aren’t allowed to switch styles every few days; they have to sit down and grind it out.

A good training program is the fastest way to get on track, but any program must give you a rational theoretical foundation for what the market is, who is playing it, and why. It has to tell you when conditions are good for trading and when you should stand aside. This doesn’t have to all come from one place. It doesn’t all need to be tackled in one go, either. Your market doctrine must come before you start to look at when to enter and exit the market. You will soon be creating your own niche in the market without trying to copy somebody else’s.