Trader Rob from north of the border in Canada (at least that’s north of the border for me) has submitted a question that actually feeds into something I plan on working on in the not too distant future. He wants to know how to shift from trading under the direction of someone else’s methodology to trading on his own.
Hello John and Thank-You for the opportunity to ask a question that I have been working on !
I am currently new to day trading and am going to do everything possible to make this my new career. I am spending lots of time reviewing, learning and actually trading. My trades are based on a buy/sell list provided to me for a fee combined with what I have learned so far. Currently getting better all the time but still a lot to learn.
My question is this in the hopes of including it in my studies.
If I am going to make this my career I will have to pick my own shares to trade, where should a great portion of my studies focus to help get to this point quicker ??
Regards
Rob in Canada
Rob is facing the issue new traders almost always face when they base their trading on someone else’s signals. Eventually, they are going to want to (in most cases) break away and make their own decisions. The path they will take is generally going to be one of two main choices.Â
The first possible path is continuing to employ the same main strategy as the person providing the signals they’ve been using, obviously with them becoming the one identifying the trading opportunities and devising the trading strategy. This path is possible if the signal provide is one which does more than just says “Buy here. Sell there.” The provider must be taking the trader through a process which has previously been outlined and repeated so that the trader can see it in action, then try to get their own work to produce matching – or at least comparable – results.
The second possible path is for the trader to venture off on their own, either because the signal provider doesn’t provide the system education required or because the trader wants to go in a different direction with their trading. In this case, the trader should take whatever they learned from following someone else’s trades and apply it to figuring out where they should go. That’s things like trading timeframes, markets, methods, the type of risk and volatility that they can tolerate, and all those things that go in to developing a good overall trading plan. With that in hand the trader can narrow in on what would likely work for them and begin the requisite study.
What should Rob do?
Rob seems to be happy with the trades he’s doing based on the recommendations he’s getting. In that case I would work on trying to match up the results of his own research with that of what he’s being sent, at least as the first step (he can look to improve later). One way for Rob to do this could be to run a parallel demo or paper trading operation based on his own work.  When he’s comfortable with being able to mostly match up with what he’s being sent then he can make the leap into doing the live trade identifying and strategizing entirely on his own. Along the way, if he has the funds, Rob could split is capital and trade part based on the signals he’s receiving and part based on his own work – slowing shifting the balance toward his own strategies as they become on target.
Now, if Rob wants to go in a different direction then he needs to figure out what kind of trades he’s after. Day trading is the expressed focus, so he’ll need to figure out the characteristics of the types of stocks he’s going to want to trade and come up with a way to find them. Of course knowing what kind of trading he wants to do first, in terms of type of moves he’s going after and the system or method to find those trades, would help him better know what kind of stocks to seek. Chances are this is going to mean some testing.
Thoughts on Using Trading Signals
I have said many times that I am not a big fan of people trading off of signals they get from someone or something (blackbox) else, especially new traders. Experienced traders who know what they are getting into can perhaps work with other people’s signals, but a new trader generally speaking is going to struggle to stick with them.
The simple facts are that most trading systems don’t work for most people and that is mainly because they aren’t the right fit. An experienced trader can look at systems and methods, see how they trade, and know if it could work for them. New traders don’t have that ability to make those judgements yet, and end up getting caught up in the profitability figures without thinking about all the other stuff involved. New traders are much better off doing a lot of system and method research and testing so they can learn the markets, learn the methods, and learn about themselves as traders than trying to let someone or something else tell them what to do.
Please do note that I am differentiating here between a trader who actually executes the trades of their own volition and a money allocator who is simply looking to let someone/something else make all the decisions.
Unless you can look over their shoulder
Having said all this, the exception I would make in the no signal taking suggestion is the case where the trader can learn from someone along the way. By this I mean the signal provider is walking the recipient through the trade selection methodology, analysis, screening, or whatever goes into the trade identying, strategizing, and managing process. In that case the trader can learn by watching and doing, which in the long run has potentially considerably more value than just being told where to go long and put your stop.
This sort of thing is actually something I am planning on getting going myself. I’m going to set something up where traders can follow along the analysis that I do so they can learn to apply the same techniques themselves. Look for more on that in the not too distant future.
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About the Author
John Forman, author of this blog, has traded for more than 20 years, is a professional market analyst, and authored The Essentials of Trading. He is an active participant in trading forums, consults for trading related businesses, as published literally dozens of trading articles, and has been quoted in a number of books and in the media.
** See John’s full bio.
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