The New Trading for a Living summary

Most people think trading is like gambling. Why? Maybe because both seem like very risky ways of making money. But that’s not quite the reality. Though poor trading may resemble gambling, good trading is nothing like it.

If you trade like you gamble, chances are your capital will disappear rather quickly, as gamblers don’t carefully control how much money they put down. But how do you know when you’re trading like a gambler?

All we ever discuss in trading is the market, but what does this term actually mean? Amateurs think it’s an entity in its own right; people with a scientific background often think it’s a scientific body; but professional traders know that it is merely a mass of people following trends.

To become a successful trader, you must avoid the market crowd. But remaining an independent thinker isn’t always easy. In fact, human instinct impels us to seek out the safety of the crowd. A stone-age hunter, for instance, was more likely to survive if he joined a crowd of hunters, and even if there aren’t literally any saber-toothed tigers on Wall Street, those primitive impulses still affect your everyday trading.

Have you ever seen a chart of a stock, or an index like the S&P 500, and yet remained unsure of its meaning? With classical chart analysis, you’ll be able to identify price patterns and benefit from them. But first, you’ll need to understand how a bar chart is constructed.

It all comes down to the following five elements: opening prices, closing prices, the highs of a bar, the lows of a bar and the distances between the highs and lows.

You’ve learned how to read a bar chart and what it tells you about the market. However, there are two more elements that a bar chart reveals, elements that will help you grasp the mood of a market.

To find the first of these, we’ll need to examine the price level. When buying is so strong that it reverses or interrupts a downward price trend, we’re witnessing support. You can imagine support as the floor that you bounce a basketball on. Every time the ball hits the floor, it bounces back up.

There are so many things you can trade: stocks, options, ETFs and futures, to name just a few. Each group has its benefits and drawbacks. Stocks are what we most commonly trade. They’re great for beginners, as they’re easy to understand.

Yet this doesn’t mean that you can be careless when trading stocks. In fact, it’s crucial that you stay meticulous when deciding how many you try to trade. The author monitors only a single digit amount of stocks during the week, but some of his friends watch several dozen at a time. How much take on is up to you – just be sure you can manage it effectively.

No matter how great your profits are in trading, without proper risk management, all your capital could disappear in minutes. If you want to be secure, you’ll need to follow two key rules.

The first of these is the 2% rule. This prohibits you from risking more than 2 percent of your trading equity on a single trade. In order to implement this rule, you’ll need to take a few factors into account. We can illustrate this with an example.

Know the saying “you can only improve what you can measure”? The same goes for trading, except it’s not just mere measuring that you should be doing. The cornerstone of successful trading is record keeping, because it helps you develop and maintain discipline.

In trading, the importance of disciplined record keeping is comparable to weight control. If you don’t know your weight and don’t know if you are gaining or losing it, how can you get the results you want? The same is true for trading. If you don’t keep an eye on how much you are gaining or losing, how can you ensure you improve your strategies in the future?