…we referenced a lot a book and author Malcolm Gladwell who talks about you need 10,000 hours to master something, in fact Michael Martin on Inner Voice talks about that as well, it references the same studies. You know, so one could argue it could take you 10,000 hours to be a master trader and that probably is not inaccurate. Now, there are definitely many, many ways to shortcut that. That’s really our job at NetPicks is to come up with ways to reduce that dramatically for traders. But without a doubt you’re definitely going to have to commit some time in the beginning, you’re going to have a pretty steep learning curve when you first start out as a day trader. It absolutely does get better. You will kind of get over the hump, so to speak. In the beginning it’s going to seem fairly daunting but the people that I know who have kept at it, very much can do quite well. You just got to remind yourself that you’re learning for life.
Now, my second part to answer the question, maybe an answer, would be how much time during the day to commit to trading. I actually think that day trader should try to focus on no more than two hours a day and less if possible. You know, we have something called power quitting. And I’d love to be done in minutes when I can. It’s really hard to keep up, like keep sharp when you’re trading four, five, six hours a day. So one or two hours to me as a day trader is enough time to give any market or a group of markets. How about for you, Brian, can you add to that?
Brian Short: Yeah, the one thing I’ll add to that is this; a lot of new traders when they’re first coming in to the trading business, so to speak, the thought process there is — especially after they’ve had that little bit of success — the thought process goes something like this; you know, with the ForEx we’ve got 24-hour markets and with some of the other markets you can trade on hours on end, and so the thought process goes the more I trade, the more I make. But exactly the opposite we found over the years is true. You want to try to find a slice of time that you can curve out that, you know, whether it’s an hour or two hours, implement a strategy and that is where we find traders having the most success. So whether it’s, you know, I trade silver and I trade it from pretty early in the morning, 7:00, for a couple of hours and then I’m done for the day. And I found that to be almost refreshing as a trader. You know, I’ve gone through the times in my trading where I would trade for hours on end. I’d get up in the middle of the night, trade the third shift, you know, the European session and trade for literally hours. But to me, that’s what I would recommend. Any new trader coming into this is find that slice of time where you can get in and get out and get done.
Mark Soberman: Yeah, that’s definitely a great advice. And you don’t know how much better off you’re going to be if you guys are just sort of, you know, follow that. We’ve learned that over the years at school of hard knocks for sure. I got a question here from Franklin J. That’s a good question. He goes, “When should I make the move from paper trades to real trades?” So for me the one thing that has to happen first is your system has to be positive on the chart and in your back test, meaning if you were to put up all the indicators, learn the strategy and walk through the path, it absolutely right, it has to give you kind of numbers that you would be — you think anyway, would be happy with. We’re actually talking here recently in some presentations about how difficult it is to go from the chart and the back test into your account. The numbers — almost all the time for most people, they don’t match up. And it’s not you see a good match up, it’s you see a negative match up. What you end up within your account is not matching what you’re seeing on the chart, but you absolutely have to have that first.
I think next thing you need to do is, we call it, you know, sort of a 25-trade where we have to demo trade and flawlessly execute 25 trades in a row. But it doesn’t mean 25 winners in a row, that may be impossible and it probably is. But what we mean by that is winners or losers, you do 25 trades in a row on demo in real time and you don’t make a mistake, you just, you know, follow the system whether it’s 13 winners and 12 losses or 22 winner and three losses. I don’t really care as long as you do the trades accurately. And then the last thing you do from there is you open up an account and you trade the bare minimum. I don’t care if you have $1 million to trade in your account, you put in the bare minimum that you can and the smallest possible position because everything will change when you got money on the line.
So Brian, anything you want to add to that?
Brian Short: You know, Mark, you pretty much hit all the points there right on the head. I’ll just reiterate what you said. And it’s this, you know, practice makes perfect. Okay? And so many traders when they first come into this, get excited. They find a new method and they think, “Oh, this is it right here.” And they jump right to real trading without that practice element. And that is just a recipe for disaster. So I guess if I had any additional advise to add to that is just, you know, that’s what the 25 trades is, it’s forcing you to practice the execution of your trades before you invest real money and then you can take that step over to, you know, the real funs, like Mark said, with a low risk per trade and then work your way up from there.
Mark Soberman: Yeah, totally agree. So let’s do one final question and I’m going to give this one to you, Brian, to kick off. And it’s from Linda A. And what she asked kind of goes hand and hand is, “How much can I realistically afford to start an account with and what are my expectations of potential return?”
Brian Short: Yeah, Mark, that’s a great question. And, you know, in the ForEx market you can start with a very low amount. You can start with $100. But the key there is you need to have a risk level that is, you know, in that 1% to 2% range. One of the temptations with ForEx brokers, you know, they give you a lot of leverage to work with. And if I hear a story from a trader where, you know, he says he made 50% in a day, I know that’s a recipe there for disaster because the next day he’s going to probably lose it all. So again, the key there is to keep a reasonable expectation on the amount that you’re risking and start with that small account, build your way up.
And then the second part of that question is, “What are my expected, you know, potential returns?” It depends on your strategy but, you know, depending on your strategy, if you’re risking 2%, you should be roughly going for that in your strategy. Or in some cases you might be going for 1.5 times that or 2 times that, depending on what you’re looking at. And there’s a lot of ingredients there, it’s hard for me to say. But as long as that risk is at 2% you should be gaining that on the other side.
Mark Soberman: Yeah, I mean, Linda, obviously, we don’t know your specific, you know, situation but I think Brian is right. You can start with just a few hundred dollars in ForEx trading. Micros, it’s amazing education. You’re not going to get rich starting with $300. I don’t care what anybody tells you. But it’s a great way to learn. There’s nothing wrong with, you know, sort of getting your feet. I was talking to a friend of mine who’s gone pretty heavy into ForEx trading, and that’s what he said and that was the biggest thing for him. He goes, you know, “One of the best thing about ForEx is just it’s a great way to learn.” And he’s moving on to the futures market and trade the ForEx on the CME and like the Euro FX futures. But now that he’s ready for it, but he’s glad that he did not start there initially because he probably needed $5,000 or $7,000 per contract to trade those futures contract. So it’s heck of a lot better to risk it on a few hundred bucks than $5,000.
On futures, you know, that’s probably a good benchmark, you know, at $5,000 or more tends to be what you need to trade a contract in futures for day trader, you know. And obviously, a stock day trader, typically, even more. An options trader can start for a few thousand dollars. So there’s definitely, I think, something for everybody. You know, if you got a large portfolio, there’s no problem. It’s more of a challenge of what are you going to trade. If you have a smaller account, the nice thing is these days for the retail investor, you have opportunities but if you approach it like get rich quick and you want to know what your expectations of return are, I’m already a little concerned because you cannot guarantee returns in trading. You certainly will not have consistent daily profits day in and day out. It’s going to vary quite a bit. What I always tell people is, you know, in the years where buy and hold maybe works which these days seems to be rare, if you’re not blowing that away in actively day trading, then why do it. So I don’t know if that kind of helps give you sort of a top level if what you should expect or demand. It’s got to be work of your time and then some. Right? If you’re going to put all these time and effort into it, the reward has to be there.
So great questions, everybody. Please keep them coming. Again, podcast@netpicks.com, those will get to us and we’ll make sure we answer some more of your questions in the future.
So Brian, I think this is a good chance to sort of wrap up a little bit. We’ve got some good stuff planned for the next podcast. I think we’re actually going to, this time, maybe even interview one of our trading couches. I won’t say who yet but that’s always fun opportunity because these guys really know what it takes to become successful traders. They all started out as people who, you know, bought one of our courses and mastered them and have done well. And now are sharing that knowledge and teaching others how to do it.
We recently launched one of out trade system, an upgrade to it. It’s the Seven Summits Trader. And we actually released the, what we call the SST Pro, basically a pro level version. Certainly if you want to, you know, learn more about that, all you got to do is just go to netpicks.com, just, you know, put yourself on one of our lists and we’ll definitely keep you on the loop when we release the SST. It gets taken off the market usually after a week or two and then comes out every few months. So, you know, make sure you’re in there to take advantage of that opportunity. If you’re a ForEx person like we were just talking about and you want to learn, a system to consider. It’s low price and it’s a great way to learn is One-Day Swing Trades and that’s on the end, .com. Understand $100, onedayswingtrades.com. It reminds me because we got some really neat testimonials today from some people who have been trading that throughout the past month, have done well and, you know, a couple of them actually said that, “Hey, the nice thing about this is it just straight forward and easy and kind of set and forget.” That’s definitely a good way to learn. That’s a good way to do it when you can just place the trades and walk away.
And one final thing, actually, two final things I want to mention is we have an interview series with book authors like Michael Martin. If you want to hear the next one, that’s coming up. Another link I’ll give you is netpick.com-interview. So I know I’ve given you a lot of URLs today but go ahead to that one. You just want to make sure you always get notified of NetPicks stuff and events. Just make sure you’re on our master list and we’ll make sure you know about the interviews and the freebies and the software and all that good stuff.
And then the last thing I’ll end it with and then, Brian, you can have any of your closing comments as I overload them with URLs, is netpick.com-theinvestorsbrain. And that’s a really cool report where we’ve kind of boil down three best selling investment books, no charge, you just go there and you’ll be able to grab the special PDF report. So it’s just netpicks.com-theinvestorsbrain. It’s just a real good way to have a very top level summary on some great books including one from Warren Buffett, I think that might be interesting for people especially if you’re just getting and going and want to understand some of the top level things to do with investments.
So Brian, I think we’ve covered a whole bunch of great stuff today.
Brian Short: We did.
Mark Soberman: I appreciate you joining me. Anything to tell the people, the fine people on the way out here?
Brian Short: Just thanks for your time and attention and I hope that you were able to take away, you know, a gold nugget today that you can implement into your own trading.
Mark Soberman: Sounds good. If you are not leaving with a golden nugget, then I think you need to listen to all these again. There’s plenty of them in there. So anyway, if you can stand it, rewind and hit play again. With that, we’ll be back with you again soon, next day Trading Authority podcast from netpicks.com. Thank you.
Stay tuned for parts 2-4 of The Day Trading Authority Podcast Episode 2: Understanding Your Losses!
If you cannot wait, or if you would like to listen to the actual podcast, please visit: http://thedaytradingauthoritypodcast.com
About the Author:
Mark Soberman and Brian Short are cofounders of NetPicks, day trading systems since 1996. To hear the top day trading tips that help transform active traders into day trading authorities, visit The Day Trading Authority Podcast at http://thedaytradingauthoritypodcast.com/
