Chapter 1

Some changes from original idea but big picture still stay:

There is no serious lack of trading books in the library, why should I bother myself with writing one more. For 1 reason, I am free. For 2nd reason, there are components within a trading plan that are not widely explored in the trading books arena. Besides Brett Steenbarger trading psychology books that are selling at 100+bucks, simple books on mindset and psychology are seriously lacked.

Mostly on the book shelves, you will be able to find "how to make money in the market", there is absolutely nothing wrong with it and most of them do work, but trading strategies are just one part of a big picture. Do you hear of "how do you consistently take money from market?" and" Why do most and i means 99% contra players lose money?" "How do you outperform the index?" Therefore this book seek to fill up the area that is lacking in other books and I hoped in a very simple way.

First of all, as I mentioned, component of a trading plan, what are them? And for simple explanation, I will treat investing as trading with more than six months horizon, so basically long term trading. I would classify the components of a trading plan into 4: strategy, psychology, expectancy and money management.

1. Strategy - there is no lack of books on this, stochastic, RSI, etc, etc

2. Psychology - it is to be the most important component, what is your mindset in the market? To make money for retirement? to pay off debts? for entertainment?

3. Expectancy - among the 4 components I believe to be 2nd most important because ensure consistence in profits.

4. Money management - Given 1mio in cash, how do you allocate to make sure diversification can outperform the market? If allocation below 1mio, how do you compensate for the lack by outperforming? Does leverage helps?

So I will show you in the following chapters how do you discover the components for yourselves. Because as individuals, we have different personalities that will fit in the market and trade optimally within. Optimal in this context means being able to have emotions stability (cool like), personality fit in the market (doesn't feel irritated) and profits.

And I hope I will be able to focus more on psychology and expectancy.

Stages of a trader

Just like in primary school, we learn about counting numbers, then addition, subtraction, multiplication, etc, then sec to differentiation, integration blah blah. Therefore to jump start your trading journey by getting ahead of your learning curve will not help you, rather more harmful. By learning how to multiple without understanding the concept of addition will result confusion later on. Similarly, by learning strategies and not testing them will in most cases, cause losses.

So in following I seek to identify which stages you should be in and what should you do in each stages to minimize the errors (not eliminate errors) you will encounter. Many people have make and loss money and they have gone ahead to give you lessons, so that you do not waste your time and money repeating the same. From some books I read, experts says the time taken to become professional is 10,000hrs of practice. Well in our modern days, there are ways to optimize to reduce it

1. noob (lack of terminology)

You do not know anything about stock market, but you want to make a lot of moneyas you heard story of traders making millions and you aspire to be one of them. In reality, ask yourself seriously, do you think by the abilities you have, are you able to beat the smartest people in the world in this "so-called" zero sum game.

"For more than two decades, Simons' Renaissance Technologies' hedge funds, which trade in markets around the world, have employed mathematical models to analyze and execute trades, many automated. Renaissance uses computer-based models to predict price changes in easily-traded financial instruments. These models are based on analyzing as much data as can be gathered, then looking for non-random movements to make predictions."

Yes of course, I am playing down your ego which help you save some money at the beginning. For a start, learn all the basics, timing of markets, what bids/asks, limit orders/market orders? what is a technical analysis, fundamental analysis, quantifiable analysis? what are the terms normally used? MA, PE, RSI, Stocastic, BB, PS, what are they? Learn the ABCs before you step out into battle ground. Learn the basic definitions, the strategies can wait later.

If you are still in the noobs state, certain parts of the books are still not for you yet. Read up or search the web, then the terminology will sound more right.

2. Amateur (searching and seeking)

You have read up financial statements and think that every (if not certain) companies can buy. Or you have read forums and people have been recommending certain stocks and had gone up. You look at the market and realise there is certain ways you can make money from it. You are either confident to make a plunge or still too careful in committing (different personalities which I will explore in future chapters)

You will seek trading gurus in whatever they claim to be, attending whatever seminars you can get your hands and search for a holy grail that you can make money from the market. You look at charts and use technical tools taught to you. Sometimes you make money, sometimes you don't. Overtime you forgot what you had been taught and seek the next best tools or systems. On the whole, either you lose money gradually or for some exponentially.

At this stage, which I feel a lot of people will be spending most time. And to be put it even worse, to be perpetual in this state as they get excited from one knowledge to another and want to test the market with it. But the best way to move on is to get to the discovery state.

3. Discoverer (Discovery state)

As the name suggests, this state is very important as you discover who you are in the market. If you did not give up from your losses from the amateur state, congratulation.

From now, you should discover that trading/investing is a game of probabilities. Taking full responsibilities of every trades you put in, accepting the rules of the game. Accept losses and commissions knowing is natural course of the business. You blame no one, even yourself, why? Because you should be finding out your personalities, and where and which time frame in the market and that is the reason why this book is written in this sequence to help you discover yourself and find the timeframe and the style of trading that suit you.