Let's take it as a given that you have researched the easy stuff -- brokerages, charting software, required hardware, et cetera. Now what?
1) First you need exposure to determine what kind of trading interests you. As you will soon find out, there are many ways to earn a living in the market. Do you want to trade hundreds of times a day, exchanging thousands of shares, chasing pennies? Or would you prefer to become a swing or position trader based on daily and weekly chart patterns? Maybe possibly just a day trader looking for intraday gap break-outs? Or somewhere in between, like us, trading off of daily but mostly for day holds, on average trading 1-3 times a day. How do you get this exposure? Read different books, check out websites and blogs of active traders.
2) Find a system that you feel suits your personality. For example, we are methodological traders who like the calmness of trading from a pre-defined list every day. On average there might be only 10 stocks on our Main list to trade from, and those only at exact prices. If these prices are not reached, then no trade. Other traders, for example, live for the chase and the thrill and may only trade stocks which have released news or earnings.
3) Alright now you have honed in on an area of trading that interests you. For the sake of argument, you, like us, prefer to trade only a few times a day, based on daily charts. So now what? Now you read some books related to this type of trading, find specific websites that practice the type of trading you are interested in, and if possible, come into contact with actual traders who practice the type of trading that interests you. What books did we read and do we recommend? Well, they're a mixed bunch but we think that all of them should be read:
How to Make Money in Stocks by William O'Neill
How I made $2,000,000 in the Stock Market by Nicolas Darvas
High Probability Trading by Marcel Link
Encyclopedia of Chart Patterns by Thomas Bulkowski
4) Now you need to get your feet wet. You can start out by paper-trading but probably the best way to really gain experience is to actually jump into the market with real money. However, start small. For example, you have decided to become a break-out trader and have noticed that stock HCPG is close to breaking the downtrend line at 50. The next day HCPG breaks through 50 and you buy it. Start with 100 share trades but treat it as if it were a 1000 share lot. Now write down, be it in a written journal, or an Excel Program, every possible relevant factor. For example some categories are:
Ideal entry price, real entry price, ideal stop, where you actually were filled at for the stop, what your exit strategy is in terms of profit-taking, how far the stock pulled back before returning to the trend (great way to find out if your stop is too tight), what the maximum potential profit of the trade would have been, what time did you enter, what time did you exit, the average volume (use 30 day or 90 day), the relative volume at the time your stock triggered your buy price, et cetera.
Next either with your charting software or simply your OS, take snapshots of the following:
a) the daily chart
b) the intraday chart at time of entry
c) the intraday chart at time of exit -- be it stop or profit
d) the intraday chart at the end of the day
e) the intraday chart at the end of the day in one different time frame (for example if you use 3 minute, take a snapshot of the intraday at 5 minute also)
f) the intraday chart at the end of the day of the market in which the stock trades (so for us, it would be taking a snapshot of the intraday moves of the Nasdaq).
This last part is very important and something that a lot of traders do not do. As the cliche runs, a picture is worth a thousand words, and this could not be more true when it comes to trading. After as few as a dozen trades you will see patterns emerge. For example, you will see that you are correct in finding the trend of a stock but keep getting shaken out because your stops are too tight. Maybe you will realize that the stocks you want to trade have the same intraday pattern as the greater general market, and you realize that it would be more profitable to find a pattern with greater relative strength (or weakness if short) than the general pattern. Most likely you will realize that in the long run it would be more profitable if you were more patient. The review of actual snapshots of your trades coupled with written statistics of the trades offer endless lessons.
Most likely at this point you will feel that the kind of trading that you have chosen might not be the best one for you and you want to experiment with other systems. Repeat steps 1-4.
Don't try to reinvent the wheel. Step on the shoulders of the giants, but do find your own system. Learn from the professionals, tweak their systems, let it evolve, until you find your own way. If you work hard enough, study your mistakes, are constantly self-reflexive and in pursuit of evolving, you too will be able to become a successful, professional trader.
MIB: Science Writer James Gleick
2 hours ago