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Question 1: Hi Sir
My names Jake, and I've been very interested in trading but don't know where to start. Stuff like the tools required, what am i suppose to look for in the market, how much should I buy, what should I buy? etc
What I'm simply saying is that, as an individual who has a bit of money (from parents) and has an interest in trading but hasn't started, how do I begin? since I'm not a pro, what's are some good starters tool and resources. The problem is I don't want to spend a lot of money on programs and internet that'll probably show me how stocks are doing in real time every second.
Could you please advise me all on the resources and tools and strategy a beginner requires.
Thanks a lot.
Sincerely Jake
Answer 1: Hi Jake,
Welcome to trading. It's a fascinating journey ahead. Very challenging, but very rewarding.
What I would recommend initially is limiting your expense while getting some exposure to the trading industry, to confirm that this is something of interest.
Perhaps the best place to start is simply with some books. Alexander Elder has three books which I highly recommend, "Trading for a Living", "Come into my Trading Room" and "Entries and Exits". You can see them all at my site here, http://astore.amazon.com/ytcamazon-20, or through probably any major bookstore. These will provide a good all-round education in the basics, and give you an introduction into a valid strategy for trading stocks.
While these books are focussed on the stock market, the concepts are applicable across any market you may wish to trade.
For other resources such as a trading platform and broker, these will largely depend on the market you wish to trade. The suggested books will hopefully give you enough information to determine the future path. Until then, just read up on the basics.
Best of luck,
Question 2:
Hi Lance,
Thanks a lot for the suggested books, already bought "Trading for a Living".
Recently I've downloaded an e-book teaching technical analysis for forex about patterns, trends and momentum using candles.
But the problem is, depending on the chart, e.g. a 5 min chart showing an hr to a day, or a 1 hr showing 1 day to month. The candlestick patterns are different regarding which ever chart I use. Eg. a 5 min, 1 day chart might show a downtrend where as a 1 hr, 1 month chart might show the middle of a bullish engulfing.
Could you please shed some light on this. Am I supposed to choose the chart to look at depending on my position (long/short term)?. Is there 1 reliable chart? Am I supposed to look at all charts?, If so, how do I see a reversal signal if charts are inconclusive since they might contradict each other?.
Thanks a lot once again
Jake Answer 2: Hi Jake,
Great to hear from you again. Great question too - I'll have to share this through the newsletter.
Firstly, I don't know what ebook you've got hold of, but be sceptical about anything you read online or offline. There's a lot of bad material out there in ebooks. I don't mean to say that it's all bad - just test any concept and prove it's value before risking significant money. (The same goes for my material - question everything I say as well, and test it for validity. What works for me may not fit your beliefs about market movement)
Ok, to your question:
Trends on different timeframes will conflict. You might have for example, a 5 min chart uptrend, occurring within a 1 hourly downtrend, occurring within a daily chart sideways trading range, occurring within a monthly uptrend. Every timeframe shows a unique chart.
So which one is the real chart? The answer is they are all valid. They're just measuring something different. They all represent price movement over a different period of time.
Think of the water level at the beach - while you might have a rising tide occurring over a six hourly period, that doesn't mean the water level only rises. Drop down to a smaller timeframe, such as an individual wave, and you'll see the water rise and fall within a second or two. So, at any one time you might observe a very short timeframe falling trend, within a much longer timeframe rising trend. And vice versa. Both are correct. You can make a general statement - 'the water level is rising' or 'the water level is falling', and in both cases you could be correct because it depends on your period of observation.
I can go long on a stock at the same time someone else goes short, and we can both profit. How can that be? It depends on our timeframe. I might be long on a 2 min chart timeframe, looking to take a small piece out of an intraday swing. The other trader might be short based on a daily chart downtrend, and not concerned about the small fluctuations intraday, up or down. Who's right - well we both are (actually you can also say neither of us is right about market direction - there is no right or wrong, just what makes profit and what doesn't).
Which timeframe is best?
Well, it depends on what you're trying to achieve. A monthly chart is no use for me trading small moves anywhere from a couple of seconds to a few minutes in duration. A 2 minute chart is not much use for a trader looking to establish a position in AAPL to hold for the next 6-12 months.
What are you trying to achieve? How are you looking to profit from the markets? This will determine the right timeframe for you.
Since you have Alexander Elder's "Trading for a Living", refer to the bottom of page 85 for another explanation of conflicting timeframes. And refer to his Triple Screen trading system commencing on page 235 for a great example of how to make use of multiple timeframes.
You also mentioned reversal patterns - be aware that if a reversal pattern occurs on a particular timeframe, the resultant move is generally traded on that same timeframe. A reversal on a five minute chart won't necessarily have an impact on a daily chart.
Notice as well that if you get a candlestick reversal pattern on one timeframe, if you then change timeframe it won't necessarily be there any more. Does that mean there's no reversal? No, you don't need one of the candlestick textbook definitions to make a reversal. The tick by tick price movement is the same. It just shows up differently on the two longer term charts, and one may show a textbook candlestick pattern while the other doesn't. But it's the same movement.
This gives a little introduction to what I see as a more advanced application of candlesticks, where you observe and are in-tune with the changes of sentiment of the buyers and sellers, regardless of how the pattern displays on the screen.
Hope that helps a bit. Don't forget to check out "Trading for a Living" - the bottom of page 85, and page 235 onwards.
Cheers,
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