The biggest stumbling block for people looking to launch their own trading businesses from home is a failure to understand the complexities of the back office operations needed to be successful. Survival Guide for Traders is here to help. Packed with strategies for building a successful home trading business, and featuring answers to questions most up-and-coming traders would never think to ask, Survival Guide for Traders is required reading for anyone who wants to start and sustain a trading business from home.
- Explains how to create a trading business plan, set up an office, implement a trading system, use margin, deal with legal and financial issues, and keep appropriate records
- Examines the opportunities and challenges of handling a home-based trading business
- Details the process of setting up and organizing your trading business
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Table of Contents
Foreword xii
by Toni Turner
Preface xvii
Acknowledgments xix
Disclaimer xxi
Introduction: Survival of the Fittest xxiii
PART I Survival Basics 1
CHAPTER 1 It’s a Jungle Out There! 3
Brawn, Brains, and Technology 4
Technological and Innovation Time Line 5
Don’t Bring a Knife to a Gunfight 7
Right in My Own Backyard 7
CHAPTER 2 Managing Your Money Is Serious Business 9
Trust and Financial Advisers 10
Tips on Selecting a Qualified Financial Adviser 11
So, Who Are You Going to Trust? 12
Creating Your Own Business Plan Will Strengthen Your Ability to Prosper 13
Trade, Invest, and Live within Your Means 14
CHAPTER 3 Accountability, Setting Stops, and the Rogue Factor 15
Traders Are the Ultimate Entrepreneurs and Must Be Held Accountable 16
Setting Stop-Loss Exits Is Essential 17
The Infamous Rogue Trader Named Nick Leeson 17
Watch the Rogue Trader Movie 18
Insurmountable, Large Losses Usually Start As Small Losses 19
CHAPTER 4 What’s Your Net Worth? 21
Net Worth Statement 21
Creating Your Financial Profile 22
Are You Moving Forward, Falling Backward, or Standing in Place? 28
CHAPTER 5 The Life of an Entrepreneur 31
New Start-Up Businesses Have High Failure Rates 31
What Does It Take for a New Business to Succeed? 32
Small Businesses Are the Backbone of the Economy 34
Reduce Your Expenses and Increase Your Revenue 35
How to Reduce Expenses 36
A Penny Saved Is Really One and a Half Pennies Earned 38
It’s All About the Revenue 39
CHAPTER 6 Understanding Financial Markets 41
Buyer and Seller Agree on Price, but They Disagree on Value 42
Buyers and Sellers and the Financial Order Flow Process 42
Types of Orders 49
Using Margin and Leverage 52
The Importance of Liquidity and Volume 53
Zero Liquidity 56
Volatility and Market Gaps 58
How Can the Bid and Ask, Spreads, Fills, and Slippage Affect Your Profits? 61
You Can Parallel Test Your Broker and Data Feeds 62
“I Feel the Need for Speed” 63
So Many Markets to Choose From 64
Ticker Symbols at a Glance 65
How to Choose the Best Data Feed for Your Needs 66
How to Choose the Best Broker for Your Needs 70
How to Choose the Best Front-End Platform for Your Needs 72
Manias, Panics, and Crashes 73
CHAPTER 7 Adapting to Changing Market Cycles 75
Four Major Market Cycles 75
It’s All in a Name 78
Using Trend Lines to Identify Market Cycles 79
Using Elliott Wave Analysis to Identify Market Cycles 80
Pitfalls of Not Identifying Market Cycles Correctly 81
CHAPTER 8 Education and Support 83
A Few Classic Trading Books 83
Learning Styles 84
Repetition, Repetition, Repetition 85
Paper Trading Is an Essential Learning Tool 85
Do it Your Way 86
You Can Learn from Your Mistakes and Failures 87
Life Mentors, Professional Mentors, and Trading Coaches 88
CHAPTER 9 Writing a Business Plan 91
Business Plan: Blank Template 91
Front Matter: Title Page, Table of Contents, and Mission Statement 93
1. Summary 94
2. Strategy 108
3. Operations 118
4. Financials 124
Business Plan Tips 128
Part II The Financial Pie 129
CHAPTER 10 The First Slice: Trading and Investing Rules 131
Develop and Test Your System 132
Perseverance Is the Holy Grail 132
Failure Is Not an Option 133
Creating Your Trading Rules Profile 134
A Note about Day Trading versus Position Trading 138
Holding Trades Overnight and Assuming Overnight Risk 140
My Definition of Scalping 141
Sample Trading Rules to Start With 141
Combining Fundamental and Technical Signals in Your Trading Rules 142
Technical Analysis Signals 143
Fundamental Analysis Signals 146
Value Investing in a Bear Market 148
The Importance of Paper Trading 148
Set Up Multiple Brokerage Accounts to Monitor Your Trading Results 152
CHAPTER 11 The Second Slice: Scanning for Opportunities 155
Technical Scanning Techniques 156
Fundamental Scanning Techniques 157
Opportunity Is Always Abundant in the Markets 165
Stocks 165
Options 169
Futures 170
Forex 174
Exchange-Traded Funds 177
CHAPTER 12 The Third Slice: Money Management 179
What Can Money Management Do for You? 179
Three Ways to Control Risk 180
Risk Factors to Develop Your Plan Around 180
Stop-Loss Exits Can Save the Day 182
Your Survival Depends on Having a Healthy Respect for the Risk of Ruin 184
Optimal f Formula: Information Similar to the Risk of Ruin Tables 186
Comparing Optimal ƒ Equation Results to the Risk of Ruin Tables 187
The 2 Percent Risk Amount Formula 188
Using the Trade Size Formula 188
Trade Size Formula Using Leverage 189
Using the Trade Size Calculator 190
Good Record Keeping and Performance Analysis Are Essential 191
Without Risk, There Is No Opportunity 192
CHAPTER 13 The Fourth Slice: Financial Psychology 193
The Trader’s Mind-Set 194
Even Good Change Can Be Stressful and Emotionally Challenging 195
Looking at 15 Destructive Psychological Trading Issues and Their Causes 196
Optical Illusions Show How Our Minds Can Mislead Us 198
EPILOGUE 201
APPENDIX A Online Bonus—Survival Guide Central 203
APPENDIX B ART Basics 209
APPENDIX C Resources: Front-End Platforms, Brokers, Data Providers, and More 243
APPENDIX D Suggested Reading and Education 255
APPENDIX E Market Exchanges 273
Glossary 283
About the Author 307
Index 309
