New To Trading? June 26, 2008

If you’re new to the trading world – or even if you’re not – here’s some solid advice from Dave Landry. This is just the beginning – make sure you read the whole thing:

I don’t have any medical training whatsoever but I think tomorrow I’m going to be a surgeon. I’ll pick up some knives tonight and open an office in the morning.

Obviously, no one would ever attempt this (even if there weren’t laws in place to stop you). However, in trading, this happens all the time. The barrier to entry is very low. All you need is a computer and a trading account. That’s it! Now you’re a “trader!” Well, obviously, it’s a little more complicated than that. My point is, even though it’s easy to become a “trader”, it must be approached like any other profession. You’ll need education and more importantly, you’ll need experience.

Getting started:

You’ll need a methodology

Keep it simple

In spite of numerous claims, NO ONE knows exactly what a market will do next. It’s an odds game at best. Simple methods can and do work—but NO methods work ALL of the time.

I follow a fairly simple trend following methodology. It works very well when the market is trending and not so well when it’s not. This doesn’t mean its right for you. It’s just what works best for me after years of “chasing rainbows.” This brings us to our next point.

Study It

Study methods historically. Make sure you look at them in both good times and bad. I’m often approached by those who have discovered a “new methodology.” They’ll send me countless examples of how well it would have worked based on historical charts. However, when they go to implement it in the real world, they often lose money. Why? Assuming they are disciplined and using proper money management, it’s possible that they failed to observe all the times the methodology did not work. The historical big winners tended to “jump out” at them but the multiple small losing trades went un-noticed.

Make sure you can implement it

Once you do find something, make sure you can implement it. If you have a busy career, don’t attempt to day trade.

If you’re smart, I have some bad news

If you’re an Engineer, a Lawyer, a Doctor, or any other highly educated or skilled professional, I have some bad news: It’s going to take a little longer. Your profession was likely approached with a high degree of logic. Therefore, you’ll probably assume that markets are no different. However, often there is no logic. Markets trade off the emotions of the participants.

You’ll Need To Understand Psychology

Know yourself

The battle is often from within. Finding a methodology is (fairly) easy. Having the discipline to implement it is not. Once your money is “on the line” things become much more stressful. If a trade isn’t working out right away, you might be inclined to “pull the plug.” You then watch in agony as the market takes off without you. On the flip side, you might be inclined to stay with a losing position long after your methodology would have exited. You’ll then watch in agony as your losses grow and grow.

It’s beyond the scope of this article to cover all the psychological pitfalls you’ll face as a trader. Therefore, make sure you study trader’s psychology as hard as you study your charts.

Don’t forget to check out Dave’s daily “Market In A Minute” (produced every market morning) and weekly “The Week in Charts” video presentations, the links to which can be found on his website.

More Geek Stuff June 21, 2008

Ok, like the post on the soldering station a few weeks ago, this one is just a wee bit off topic too. But heck, if Barry can do Friday Night Jazz posts, I can throw in a little electronics stuff now and then.

I’ve already got a few different multimeters, but for one reason or another, I started looking around for one that would measure capacitance as well as the standard volts-ohms-amps. Meters like this one will measure capacitance up to 200uF, and they’re pretty inexpensive – they can be had for as little as $15 shipped on eBay. Also in my shopping, I ran across the Extech EX470, which looked great – measures frequency and temperature, via both thermocouple and infrared as well as capacitance. But it retails for $130, only measures capacitance up to 100uF, and doesn’t show up on eBay often enough to give you a chance at a really good steal on the price. Harbor Freight has this meter for $19.99, which has the thermocouple temperature measurement, but it doesn’t do the frequency thing, and only measures capacitance up to 20uF, not enough to test things like A/C motor run/start caps and such.

Eventually though, my persistence paid off. I came across this meter, the Vichy VC99 (made in China, of course), which looked like it had all of the features I wanted and then some. It has the temperature measurement function (in degrees C and F), measures frequency up to 60 MHz, and measures capacitance up to 2000uF. How cool is that?

So how much is it? Well, that depends. Looking at the few merchants that carry it on eBay, you can get it for anywhere from $37.99 to $65.99 plus shipping, which ran from $10-$15. That seemed a little high to me – so I kept poking around and found it at an outfit in California called Central Computers. They have the meter for $22.95, and it cost me less than 9 bucks shipping to Texas. Grand total was under $32. Now that seemed like a pretty fair price for a meter with those specs. Done.

The meter is fairly nice. It’s obviously not the high quality of something like a Fluke, but it doesn’t carry that high a price tag either. The display is nice and big, which is great for my aging eyes. And it does what it says it’s supposed to do – temperature, frequency, capacitance. Works great. You can’t ask for more than that.

If you’re looking for a bit more than your standard volt/ohm meter at a decent price, check it out.

Update, 1/18/10:   In prototyping an infrared security beam, the frequency measurement capability of the VC99 has been coming in very handy. The IR detection module is looking for a 36 KHz signal, and the datasheet charts says that it would respond best to a duty cycle > 45%. The VC99 measures both frequency and duty cycle, and has allowed me to ‘dial in’ the transmission side of the IR beam much more precisely than I could with, say, my old analog scope. Very handy to have around. Also had some questions about some old caps I had laying around, so the capacitance measurement allowed me to check those for unknown values, as well as verify that an old electrolytic was no longer near it’s stated range.

Update, 1/2/11:   Looking for a comparison of $50 (and under) multimeters (including the VC99)? Check this out.