So you want to become a trader? Do you know what type of trader you want to be? Scalp trader, day trader, swing trader or position trader? Once you break it down by timeframes and trading styles it’s only by experimentation that you will truly find what fits your personality and comfort level which will make you the most efficient trader you can be. Let’s start with the floor trader.
Floor Trader
Now if you are really serious, you can pursue a career as a floor trader. For the most part, floor traders work for “ticks” to make their living, trading by buying the bid and selling off the offer and making hundreds and even thousand of trades a day to earn their pay. Their style of trading is called scalping. Just because someone is a floor trader does not mean they have to trade all day long making all those trades as a scalper. There are some floor traders who choose to trade the first half-hour after the opening bell and come back a half-hour before the closing bell; that is where you will find the most liquidity in the market you are trading. Some floor traders actually buy or sell and hold a position throughout the trading day, know as intra-day swing trading, and some will even hold a position over night looking for a multiple-day swing trade.
The key factor is floor traders find what they are comfortable with and what works for them, an idea that applies to all of us. If floor trading is an option you are thinking about, you have to live in a city that has an exchange. Bring your checkbook; some of these seats cost more than $1 million to give you the privilege to become a floor trader. You can also lease a seat, but depending on the exchange, the lease can run up to $4,000 a month or more, so to say you need to be active is an understatement.
Trading off the Floor
Trading off the floor is the most logical option for most traders because of the cost needed to either rent or buy an exchange seat and the large capital needed to get started. Trading off the floor requires a fraction of the capital needed to get started as a floor trader. If you want to trade electronically, there are a number of brokerage houses to choose from that offer low commissions and low margin requirements. The biggest factor is you can live for the most part anywhere in the world and trade from any computer with a realiable Internet connection.
Day Trading
Day traders go home at the end of the trading day flat with no open positions, but day trading styles vary. With the efficiency of the electronic trading platforms, you can actually scalp from a computer just like a floor trader scalps in the pits. Other styles of day trading include trading the intra-day trends, trading off gap areas and range-bound trading of support and resistance levels. All day trading styles end the trading day with no positions. If you like the idea of a longer-term trade, you can swing trade holding onto a position over night, looking for a move lasting several days or weeks.
Finding your style
Once you are ready to trade, the big question is what type of trader do you intend to be. What time frame charts will you look at to help you decide when to trade? Will you only look at five-minute charts or multiple time frame charts to help you in making a trading descion. Are you thinking about using overlapping patterns, incorporating different time frames or scalping off the one-minute chart? These are questions you’ll need to answer. But these answers come from real-time live trading experiences, and you must begin the process of finding what will work for you and more important, what you will be most comfortable with.
Some traders find that too much activity causes stress and creates loss of focus; for others the feeling of being right or wrong within seconds or minutes fits their personality. Still, other traders might like less activity and trade less frequently while risking more on fewer trades. Finding what works for you is the key, and what you find that works for you might not work for others. So do not try to copy someone else’s success story.
Regardless if you are just starting out as a new trader or an experienced trader looking to improve your results, there are clues from your own past that can help determine how active of a trader you may want to be and what style fits you best. A key exercise I suggest you go through is to make a list of all your accomplishments and failures. Go through each accomplishment and failure individually and see if you notice personality traits that helped achieve successes and if traits you were lacking could have helped you achieve the success you were looking for in the list of the failures.
Examples of what you are looking for are:
1. Did you have a burning desire?
2. Did you create goals?
3. Did you have a well thought out plan?
4. Did you have a positive attitude?
5. Did you have great confidence?
6. Were you decisive?
7. Did you have patience?
8. Did you have discipline?
9. Did you take on risk?
10. Were you persistent?
For those who have read my past articles, the September 2003 article titled “Are You Trading In The Zone?” consists of most of these components. The key is knowing yourself. Knowing your limits and your abilities. Knowing when you need to push yourself harder and knowing when to lighten up on the pedal to ease the pressure off yourself. Raising your own level of self-awareness.
You may ask yourself “What does this have to do with trying to figure out what time frame and what trading style fits me?” Clearly the more you know about yourself, the less time it will take you to find your comfort level and most efficient style of trading to help you meet your trading goals. By getting more in tune with yourself, you will have a better idea what time frame you should be trading and what trading style fits you best. If you lack patience, as an example, a smaller time frame might work best for you.
Regardless of the time frame you trade, you should start at a larger time frame and work your way down to the lower time frames. Every day after the market closes, I take a look at the monthly charts and work down to the weekly, daily, then to the 60-, 15- and finally five-minute charts. For most day traders, the five-minute chart is common to trade off of. However even if the five-minute chart becomes your primary time frame to trade from, it is a good idea to see what is happening on the higher time frame charts.
What are the key levels on the monthly chart? What are the next significant retracement levels that you would never see, if all you were only looking at was a 60-minute chart or a five-minute chart. Dropping it down to a weekly chart, you get a closer look at more recent key levels. The process continues down to the five-minute chart. By looking at all key time frames, you will have a better understanding and awareness of multiple time frame patterns. Even if you find that your best combination of time frames to trade from is a 60-minute with a five-minute, it’s still best to look at the larger frame charts. Becoming aware of all time frames and their patterns is a key factor in understanding the whole picture. Understanding the whole picture will help you make better trading decisions.
Now you are ready for the experimenting process to see what is the best time frame for you to trade. Now is the time to see if you are more of a trend trader or a trader who gets in and out quickly. This is a very important stage, and it is important you keep a detailed diary of your personal feelings when trading. You may find that you thought you wanted to trade more frequently than what is best for you in the long run. You may find it’s best to trade only a few times a day versus 10 times a day. There is no right or wrong answer to finding what fits your comfort zone and trading zone the best. Take your time through this process, as this is one of the most important exercises you will do for yourself to put you in the direction to achieve your trading goals. Learn what fits your comfort level, learn what time frame is best for you and pay close attention to the components of Trading In The Zone to achieve your success as a trader. Remember, this is a process and it will take time to find what time frame and trading style fit you the best. Take your time and listen to yourself through this process.
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