How to Start Trading (Compliments of Bondarb)

Revsly's picture
Rank: King Kong | 1,929

There have been a few requests to find the classic post by Bondarb, so it made sense to sticky it. This is what he wrote:

Here is how you learn about trading:

  1. Have at least 5k. If you dont have that then get it somehow, use your imagination.
  2. Set up an account on Interactive Brokers that allows your to trade futures.
  3. Pick one product that has a small sized contract...when i did this I could only trade at night so I picked Hang Seng Index Futures.
  4. Read up on the leverage inherent in futures and create a risk management plan...ie how you are going to size trades, use stops, add to positions, etc. notice you do this before you know anything about the market because it is by far the most important part of being a good trader. Discipline is what is going to make you a good trader not brilliant ideas. On 5k you will probably be trading 1 lots...ie 1 contract. That is fine.
  5. Learn how to account for your performance. Every day you should know how much you made or lost and have a good log of it. Not what the broker sends you...you should do it yourself and use them as a check. You are your own back-office and middle-office.
  6. Learn the interactive brokers execution platform inside and out. The IB platform is not much different then one I use at a large hedge fund so when your done with this you should be able to execute in a professional manner.
  7. Learn everything about the market you trade. For the case of hong Kong if thats what you picked you should know how the central bank works in that country, the politics, the composition of the stock index, valuations, etc. This will take awhile. Start by finding a local newspaper to read every day. Then go to the central bank website. Find yourself an economic calendar that shows what data is coming out in your market (they are not hard to find for free). Start very basic. Notice that you do this only after you are ready to handle all the real business of trading. Also, you should do this even if you intend on trading using mostly technical analysis...it will help.
  8. Start trading. Be careful. Your goal #1, #2, and #3 is preservation of capital. This is a learning experience you arent going to get rich trading 1 lots. Trade defensively at first. If you turn out to be a good trader what you think is defensive now you will probably realize later was insane so heir on the side of caution.
  9. If you actually do all these steps you will be a better trader and know more about markets then most kids do AFTER they complete an analyst or associate stint on a sales and trading desk...i gaurantee it.
  10. Remember what you are doing is learning a trade...you arent learning how to sell bonds to dumb central banks or how to kiss some bankers ass you are learning a skill that few have and makes you very valuable if you become good at it. Treat your work with due seriousness and you will be paid back many-fold.

Comments (61)

Jun 19, 2010
Revsly:

6) Learn everything about the market you trade. For the case of hong Kong if thats what you picked you should know how the central bank works in that country, the politics, the composition of the stock index, valuations, etc. This will take awhile. Start by finding a local newspaper to read every day. Then go to the central bank website. Find yourself an economic calendar that shows what data is coming out in your market (they are not hard to find for free). Start very basic. Notice that you do this only after you are ready to handle all the real business of trading. Also, you should do this even if you intend on trading using mostly technical analysis...it will help.

Here is the global economic calendar I use. I trade FX so this helps with the majors:
http://www.cmegroup.com/tools-information/calendar...
I started trading FX a year ago after reading this post. I should have bookmarked it because I can think of >10 times I needed to reference it before making a trade. After being margin called a few months ago I have finally learned the lessons of discipline, staying with it mentally, getting out and taking a loss, etc. I always had the research part down, but after a year I can finally think of myself as a trader and not a gambler.

Also, for what it's worth, I started with $200. I had to get in and I knew if I didn't start with that $200 I would never get going. The account is inconveniently small, but I have definitely learned about risk management and the lessons I have learned and traders I have talked to as a result of getting in with my own money on the line have been more than worth it.

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Jun 20, 2010

Much appreciated. I'm going to be investing with my Dad so I will be bookmarking this.

Jun 20, 2010
Revsly:

If you actually do all these steps you will be a better trader and know more about markets then most kids do AFTER they complete an analyst or associate stint on a sales and trading desk...i gaurantee it.

This question might be a little random, but do most kids know anything about trading when they start? Or are firms generally looking for people they think have talent (as opposed to people who seem to know much about trading)? Do most of these kids start off as traders? Or do you start off assisting traders and then slowly get taught and eased into it? I ask, because trading is a mystery to me. I have no real idea how people get their first job, where they tend to work, etc.

Jun 24, 2010
econ:
Revsly:

If you actually do all these steps you will be a better trader and know more about markets then most kids do AFTER they complete an analyst or associate stint on a sales and trading desk...i gaurantee it.

This question might be a little random, but do most kids know anything about trading when they start? Or are firms generally looking for people they think have talent (as opposed to people who seem to know much about trading)? Do most of these kids start off as traders? Or do you start off assisting traders and then slowly get taught and eased into it? I ask, because trading is a mystery to me. I have no real idea how people get their first job, where they tend to work, etc.

You would never start as an Analyst and start trading immediately (at least not your own book)... you will basically do the bitch-work for the desk for at least a year (or two, maybe more) usually. The amount of time it takes to get a book also depends on the firm, as well as your progress.

BondArb's statement on capital preservations is SPOT ON. Don't ever think "I could make X on this trade"... always focus on how much you could lose. If your risk management (such as the risk-reward ratio you use) is sound, and your ideas are solid, you should at least break even or have a positive pnl.

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Jun 20, 2010

im a rising junior @ u. of Michigan and have an etrade acct...
i can tell you the vast majority (90%ish?) of my friends don't trade, and out of the few that do, probably half have no idea what they're doing and throw money at the board and hope to get lucky.... which is how I started.

but the key thing to do is just read and learn, IMO. Yahoo message boards is pretty interesting (even if mainly bullshit, a few gold nuggets here and there), bloomberg news, read equity reports, try to understand what is going on technically (i.e. exit points and entry points), set a goal for yourself (maybe say 8% appreciation is your goal), and check out the company's website (they'll usually have an investor powerpoint up describing exactly what they do)

2 warnings, from personal experience

1) don't chase a stock. the market has a way of evening itself up. be patient
2) NEVER FALL IN LOVE WITH A STOCK. easiest way to lose money.

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Sep 19, 2016

Yahoo message boards are a joke. If you're going to throw some type of social media out you might as well use twitter for individual chatter on securities you're trading. You actually have day traders tweeting vs keyboard warriors who don't know a buy from a sell on yahoo.

"Stretch the spread.”
Jun 20, 2010

When I started trading it was pure shorting of stocks.

Jun 21, 2010
balbasur:

When I started trading it was pure shorting of stocks.

shameless plug, but check out my sig if you havnt already. you might like it.

also, this could be the post to get me moving. ive been learning my technicals but havnt started backtesting yet.

John Tabacco's raw, unique market commentary based on real information from real short sellers:
http://www.TheDailyShortReport.com

Jun 20, 2010

learn to use stop loss and trailing stop. your life will be miserable if you stay in front of computer all the time.

Jun 20, 2010
eliteculture:

learn to use stop loss and trailing stop. your life will be miserable if you stay in front of computer all the time.

HORRIBLE advice. Have fun doing whatever you are doing while I'm still sitting in front of the computer picking you off for free money. See "Flash Crash" for further reference...

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Jun 21, 2010

Great information. Why pick IB? I know their commissions are really low, is their platform also very good? Also, how strict are their requirements for opening an account? Do they closely follow the 100 trade minimum? I have an account with TradeKing but the commissions with IB are so much cheaper and they offer a lot more services if I want to branch out from stocks.

Jun 21, 2010

this is true. started getting sim accounts from brokerages when i was in high school and traded everyday til i turned 19. Then i kept going at it until i was half way done with my freshman year in college where i open a live futures trading account, since then i have been trading e-minis.

Personal hands on experience in the markets is better than any internship in my opinion.

Jun 21, 2010

Is Interactive Brokers the best trading platform available? Is it best to use online trading software vs downloadable platforms? Are there any other platforms i.e. ThinkOrSwim, GHOST, TT, E*Trade, Scottrade, etc that are better?

Jun 21, 2010
GoldenEagle2009:

Is Interactive Brokers the best trading platform available? Is it best to use online trading software vs downloadable platforms? Are there any other platforms i.e. ThinkOrSwim, GHOST, TT, E*Trade, Scottrade, etc that are better?

i use etrade and love it.
i hear amazing things about thinkorswim though. scottrade, from what i understand, sounds like a slightly worse version of etrade.

Aug 6, 2010

Be careful when moving away from IB. Other than offering very good spreads, they are seen as quite credible i believe. Many other discount brokers have been accused of tweaking prices to cause you to hit stop losses etc, if they can profit from it. I'm sure it won't matter on a small account, but it would still pay to research the firm you trade with. Also, I found it easier to use a downloaded version of the platform (many firms offer both) especially if you frequently log on/off. Just my preference.

Jun 21, 2010

What are some good books for Futures trading or just trading in general (not equities)?

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Jul 5, 2010

Many thanks for this post. For Bondarb or anyone else who has an idea about how this sort of trading should work:

1) For this type of trading where you are doing it in your own free time and on your own capital, would trading purely on fundamentals be ok, or does one need to incorporate technical analysis and charting? If it is necessary, that makes this Everest even steeper given how unique the two approaches are and (I believe) the need to really thoroughly understand each approach before actually implementing it.

2) How frequently did you change positions on average? Is 100% of your invested capital being turned over on a daily basis? Weekly? Or is this a function of trading style (from question 1) and someone who is doing something more fundamental might experience a turnover more in line with an equity investor?

3) How intensive is this? If someone's already in banking or research (but not trading) and let's say that person (let's be honest here, I'm talking about myself :) ) actually has a few hours each night. Is this something that can actually be pulled off?

4) Anyone on this board actually doing this? Would be curious to hear how things have gone thus far.

Thanks Bondarb, Revsly, and others who have contributed here.

Jul 5, 2010
darkxfriend:

Many thanks for this post. For Bondarb or anyone else who has an idea about how this sort of trading should work:

1) For this type of trading where you are doing it in your own free time and on your own capital, would trading purely on fundamentals be ok, or does one need to incorporate technical analysis and charting? If it is necessary, that makes this Everest even steeper given how unique the two approaches are and (I believe) the need to really thoroughly understand each approach before actually implementing it.

2) How frequently did you change positions on average? Is 100% of your invested capital being turned over on a daily basis? Weekly? Or is this a function of trading style (from question 1) and someone who is doing something more fundamental might experience a turnover more in line with an equity investor?

3) How intensive is this? If someone's already in banking or research (but not trading) and let's say that person (let's be honest here, I'm talking about myself :) ) actually has a few hours each night. Is this something that can actually be pulled off?

4) Anyone on this board actually doing this? Would be curious to hear how things have gone thus far.

Thanks Bondarb, Revsly, and others who have contributed here.

I dont think I would try to start trading if I already had a good front-office job. I traded on my own when i was working a 9-5 back-office job and I meant this to be more for college students or those who couldnt get a job out of college. If you are going to trade you need to do the work and develop a style that works for you regardless of how you generate trade ideas or how often you turn over your portfolio. Read, do research, etc. and decide for yourself how you want to trade.

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Jul 5, 2010

sweet how true..

IB is good enough (attractive spreads etc), etrade i think is more towards equities,

most important is ur method/skills; doesnt really matter how good the system is if you suck big time

Jul 5, 2010

I love to do credit spreads.....very lucrative but dangerous too.

Jul 6, 2010

Wikinvest's platform is very impressive, and works with any brokerage account from the major brokers. It easily syncs your information over and displays it in a very helpful and organized way. Wikinvest calculates Beta, P/E, P/B, etc for your entire portfolio, and pushes data live directly to you-- all you have to do is leave the web page open and news articles and real-time quotes come streaming in.

I highly recommend it. For those that are worried about security and privacy: they have been certified by Verisign, TRUSTe and Mcafee.

https://www.wikinvest.com/?_acn=portfolio&_acm=com...

Jul 15, 2010

May I ask how much capital is needed for trading Forex? Which platforms are good? I live in Canada.

Thanks in advance.

Apr 2, 2011
levelworm:

May I ask how much capital is needed for trading Forex? Which platforms are good? I live in Canada.

Thanks in advance.

I use Oanada's MT4 platform: http://fxtrade.oanda.ca/
Also:
https://www.thinkorswim.ca/tos/client/index.jsp http://www.questrade.com/trading/forex.aspx
http://www.interactivebrokers.ca/en/main.php

I win here, I win there...

Apr 2, 2011

After almost a year of carefully following the advice in Bondarb's post (made a print out last year, and I still have it on my desk), coupled with further research that consistently revalidated his advice, I have undoubtedly become a much better trader, especially in the FX market. Proper money management and discipline is critical to the performance of any new trader, and that post extensively articulates on those factors. Thanks, Bondarb!

I win here, I win there...

Apr 19, 2012
Bi-Winning:

After almost a year of carefully following the advice in Bondarb's post (made a print out last year, and I still have it on my desk), coupled with further research that consistently revalidated his advice, I have undoubtedly become a much better trader, especially in the FX market. Proper money management and discipline is critical to the performance of any new trader, and that post extensively articulates on those factors. Thanks, Bondarb!

Congrats I am glad I could help in any (small) way!

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Apr 3, 2011

I started with about 10k, saved up from an allowance I didn't touch for 18 years and some of seed money from parents. I learned by trading specific stocks in patterns I noticed. It evolved into more stocks and more patterns. I made a killing for a part-time job...

"All I've ever wanted was an honest week's pay for an honest day's work."

Apr 3, 2011
Linfone:

I started with about 10k, saved up from an allowance I didn't touch for 18 years and some of seed money from parents. I learned by trading specific stocks in patterns I noticed. It evolved into more stocks and more patterns. I made a killing for a part-time job...

Your post slightly contradicts your signature.

I win here, I win there...

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Apr 18, 2012

I second the 'download the platform onto your computer' comment. You can't afford to be using a web-browser platform if at all possible; risky for many reasons.

I'd say even 5k is too small. The more capital you have, the more leeway until failure you have.

I'd say risk mgmt is better than half the fight. If you don't have PROPER stops put in the second you initiate the trade, you're gonna get killed in the long run. Know and accept that the stop will be hit on that trade (even if it isn't); if you can handle that loss on that trade, then go ahead and execute the trade. CUT YOUR LOSSES SHORT AND LET YOUR WINNERS RUN. Implant this in your head from the outset.

PROPER stops: The market doesn't care where you put your stops; your trades aren't block trades (unless you're trading something illiquid, which is not a good strategy). Use resistance and support areas; anything else is completely arbitrary and your stops will likely get run.

The more frequently you trade/the shorter the time frame, the less edge you have versus the big boys/the machines. Not to mention commission costs start to pile up. The best edge you have is on longer term charts.

Apr 19, 2012
gossard13:

The best edge you have is on longer term charts.

the best research to use should be at least 1 year old

Moving tonnes of product. Making fat stacks.

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Sep 19, 2016

the best edge is you have is developing a strategy based on your trading style. If you're trying to scalp a fast moving security or actually "day trading" a one year chart won't be as effective as looking at the 13,20, & 50 day MA and seeing how much volume is pouring vs. where the security is priced at in relation to it's support and resistance levels, etc. etc. etc.

"Stretch the spread.”
Apr 19, 2012

I have to agree that the only edge left in the markets is long term charts due to the proliferation of high frequency traders that dominate shorter time frames. Top fund managers use annual OHLC candle stick charts for a reason- would you rather see 20min worth of data or take birds eye view of 300 years of market activity, dating as far back as the south sea bubble? I don't wish to brag, but I was fortunate to have been able to capitalize on the 07/ 08 financial crisis by shorting Dow futures, and this was only made possible as a consequence of the double top I identified in 1876 (left top) and 2007 (right top). With technology improving and more data becoming available, it is more than likely that speculators will gravitate towards using decade OHLC charts in the near future. Remember, the market is extremely random in the short term but predictable in the long term. Who do you want to bet with, the day traders or elite portfolio managers? Data is expensive but if you can afford 400-600 years of annual OHLC candle stick charts, you've got a decent edge. In fact, I wouldn't start trading until you have acquired that data.

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Apr 19, 2012
Macro Arbitrage:

I have to agree that the only edge left in the markets is long term charts due to the proliferation of high frequency traders that dominate shorter time frames. Top fund managers use annual OHLC candle stick charts for a reason- would you rather see 20min worth of data or take birds eye view of 300 years of market activity, dating as far back as the south sea bubble? I don't wish to brag, but I was fortunate to have been able to capitalize on the 07/ 08 financial crisis by shorting Dow futures, and this was only made possible as a consequence of the double top I identified in 1876 (left top) and 2007 (right top). With technology improving and more data becoming available, it is more than likely that speculators will gravitate towards using decade OHLC charts in the near future. Remember, the market is extremely random in the short term but predictable in the long term. Who do you want to bet with, the day traders or elite portfolio managers? Data is expensive but if you can afford 400-600 years of annual OHLC candle stick charts, you've got a decent edge. In fact, I wouldn't start trading until you have acquired that data.

kid's on a roll

Moving tonnes of product. Making fat stacks.

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Apr 19, 2012

I was on a 'roll'- markets have been choppy lately and I have been barely breaking even. I'm waiting for the S&P to bottom in 2038 due to a key Fibonacci support level that roughly corresponds with that time frame. Need to wait things out till then as it is absolutely critical to pick your battles as a speculator. This caliber of inferential financial time-series would not be possible without a few centuries of data. My models also indicate that there shall be a significant drop in the markets this summer, but it shall be followed by a rip-roaring V recovery until the market surges towards the same resistance level that it reached in 1894.

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Best Response
Apr 20, 2012
Macro Arbitrage:

I was on a 'roll'- markets have been choppy lately and I have been barely breaking even. I'm waiting for the S&P to bottom in 2038 due to a key Fibonacci support level that roughly corresponds with that time frame. Need to wait things out till then as it is absolutely critical to pick your battles as a speculator. This caliber of inferential financial time-series would not be possible without a few centuries of data. My models also indicate that there shall be a significant drop in the markets this summer, but it shall be followed by a rip-roaring V recovery until the market surges towards the same resistance level that it reached in 1894.

I concur with this analysis and have already gone ahead and put in my buy order to be triggered Jan 2 2038 on the Asian open....ESH8...2038...

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Apr 21, 2012
Bondarb:
Macro Arbitrage:

I was on a 'roll'- markets have been choppy lately and I have been barely breaking even. I'm waiting for the S&P to bottom in 2038 due to a key Fibonacci support level that roughly corresponds with that time frame. Need to wait things out till then as it is absolutely critical to pick your battles as a speculator. This caliber of inferential financial time-series would not be possible without a few centuries of data. My models also indicate that there shall be a significant drop in the markets this summer, but it shall be followed by a rip-roaring V recovery until the market surges towards the same resistance level that it reached in 1894.

I concur with this analysis and have already gone ahead and put in my buy order to be triggered Jan 2 2038 on the Asian open....ESH8...2038...

Might I suggest that you execute your order on the Friday, Jan 1, 2038 Asian open as it would certainly be impossible for you to get that order filled on a Saturday. Plus from a behavioral psychology perspective, I'm confident that market participants would have their glasses half full due to New Years.

Apr 20, 2012
Macro Arbitrage:

My models also indicate that there shall be a significant drop in the markets this summer, but it shall be followed by a rip-roaring V recovery until the market surges towards the same resistance level that it reached in 1894.

You realize you will be the Meredith Whitney of WSO if you are correct

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Apr 22, 2012
Macro Arbitrage:

I was on a 'roll'- markets have been choppy lately and I have been barely breaking even. I'm waiting for the S&P to bottom in 2038 due to a key Fibonacci support level that roughly corresponds with that time frame. Need to wait things out till then as it is absolutely critical to pick your battles as a speculator. This caliber of inferential financial time-series would not be possible without a few centuries of data. My models also indicate that there shall be a significant drop in the markets this summer, but it shall be followed by a rip-roaring V recovery until the market surges towards the same resistance level that it reached in 1894.

you cant be serious with 2038...

Apr 19, 2012

And with all due respect, please don't ever attempt to belittle me by calling me a "kid". I'm obviously far more experienced than you.

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Apr 19, 2012

If I could trade "trading knowledge", I'd go long Macro Arbitrage and short 'rynofrowan'.

Macro Arb: you may be right regarding your 2038 thesis, but by moving down a few time frames, surely you could make pretty good money AND be able to enjoy it over the next 26 years...

Apr 19, 2012

Come on guys, don't troll THIS thread...

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Apr 20, 2012

I've used every equities platform, TD Ameritrade is the best
For Forex, FXCM is the best.

Apr 20, 2012

Cool thread. Great to see people talking about what makes you successful and not just getting a job.

Macro Arb reminds me of the 1980s documentary of PTJ...

Macro Arb,

Serious question, do you have Bruce Willis sneakers or do you use something else?

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Apr 21, 2012
Relinquis:

Macro Arb,

Serious question, do you have Bruce Willis sneakers or do you use something else?

A pet turkey that thinks it's a dog.

Apr 21, 2012

Knowing your platform, exchange rules, understanding risk/money management and discipline, these are all your supporting departments and just prerequisites. They won't help you at all making money, but you will lose money by not having them.

Now, what is way more important and the only way to stand out from the zero sum crowd is your edge. You need to identify and execute upon your alphas.

For this you will need to develop models of your market. Once you have good models, you will need to manipulate the data (technical, fundamental or whatever kind of information) to extract your edge.

This is your starting point. Now you will need to combine your supporting departments with your edge, which is usually already difficult enough.

Then you will need to train and continuously go through the process to improve the components.

Basically hard work and you will need to combine different talents.

Apr 21, 2012

^ You're obviously not trade4size...

Apr 21, 2012
Macro Arbitrage:

^ You're obviously not trade4size...

Should I take that as a compliment? :D

Apr 21, 2012

i hate my compliance department
just thought id mention that here

Apr 21, 2012

Am I the only one here who thinks day trading is a bad idea? What percentage of people make money in the long run? 5% max (and that's a liberal estimate)?

Apr 22, 2012

The bottom could also materialize in late Q4 2037, only time will tell as I admittedly don't have a crystal ball. Although, like bondarb, I think early Q1 2038 would be far more probable as it corresponds with a critical lunar cycle phase that has historically tended to create strong positive statistically significant returns in the S&P500. As you can see, like most other macro traders I use a fairly holistic approach when making concentrated bets and I truly have a lot of conviction in the S&P 2038 bottom trade as there is almost perfect confluence of agreement among all the proprietary methods that I developed throughout my career. This truly is a no-brainer trade, the only question is if you'd prefer to retire in a ghetto 1 b/r apartment in Brooklyn or your own private island off the coast of Scotland.

Apr 24, 2012

Has anyone here traded options on commodity futures before? What is the least capital intensive way to trade commodities?

May 13, 2012
Sean518:

Has anyone here traded options on commodity futures before? What is the least capital intensive way to trade commodities?

to not trade commodities.

Jan 2, 2013
Sean518:

Has anyone here traded options on commodity futures before? What is the least capital intensive way to trade commodities?

e-mini contracts on major commodities.

Jan 3, 2013

Intracommodity calendar spreads/butterflies/condors can be super cheap to carry. You'll need a broker than actually knows what they're doing to get the proper margin credits, though.

http://www.cmegroup.com/trading/energy/crude-oil/light-sweet-crude_performance_bonds.html

May 9, 2012

And the crash of summer '12 has just begun. If you didn't initiate those shorts, look out for that 1894 resistance level...

May 13, 2012

anyone have good links to hong kong economic newspapers?

Aug 26, 2016

Always good to have different points of view and different advice when trying to expand your knowledge of something

Sep 19, 2016
  1. Buy High, Sell Low
Mar 30, 2018
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Mar 31, 2018
Apr 22, 2018
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"When you stop striving for perfection, you might as well be dead."