Wednesday, October 25, 2006

Trading Games

Trading is a game just like any other game. When you are learning how to play a game you first need to become familiar with all the rules and only then can you start to practice what you have learned to start playing the game. Eventually with practice your skills will improve and you will start to win more. You must be careful to not mix up those steps though. Remember, practice makes permanent not perfect. You want to discipline yourself to practice the right way from the start so you have good trading habits.

Lets start with the rules. What are your rules for trading?

The rules are different for every trader. That is something you have to decide for yourself based on your goals and the amount of risk you are willing to take. It works best if you write these rules down on paper or on your computer, somewhere where you can see them easily and review them often. The first draft doesn't have to be perfect, but this will be your playbook for the game. Always keep yourself accountable to these rules. Here are some questions you will need to ask yourself to start to develop your rules for your system of trading:

When are you going to trade? Are you going to place all your orders after hours and let them execute during the day or are you going to watch the market during trading and place your orders? Types of orders are you going to use? Are you going to place market orders, limit orders, stop orders or a combination of different types depending on the situation? What are the advantages and disadvantages to each and how will you use them for money management? What is your hold time going to be? Day trading? Swing Trading? Short-term trading? Long-term trading? Different time periods have different potential opportunities and risks. What are you going to trade? Just stocks? Perhaps options as well or even futures and currencies. How does volume affect your trades? There are plenty more as well, but you get the idea.

Then you need to use your rules to develop your system. To do this you will need to learn about different indicators and oscillators, how they work and what assets they work best with. You will need software of some kind to test the results of your strategies.

Once you know the rules then you need to practice the game.

Then it is a good idea to do some ?paper trading? with your newly developed system, that is using either one of the stock market trading simulators available on the internet or just keeping track on your own. Get used to applying your strategy to real life and get a feel for how to manage it for several weeks at least.

Once you've done all this, you will be ready to start playing for real.

You probably noticed that the majority of this article was dedicated to the rules section. That is how it is supposed to be. The actual trading is the easy and fun part. Just like most games, playing is the fun part, but many hours of work and dedication go into learning the skills before playing the game. So learn the rules, practice what you've learned and then you'll be ready to win.

Click the Trading Games header link to download a free trading game and to learn more about creating a system of rules to successfully trade the markets.

Good day and good trading.