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Interview: Trading Tips from the Pros
11/16/2007 12:00 am EST
Interviewer Tim Bourquin asked Daniel to give new traders some tips on getting started. Daniel emphasized that no matter the current market environment, it is imperative that traders take with them their skill set—their thought process and logic—that they used to accumulate money in their careers. Often folks ignore the very talents that brought them the successes they have built in their lives.
Next, he commented that it is crucial to take time and study the market itself, and find out when and how to get in and out with a loss or profit.
Daniel stated that although seed money is a function of the markets being traded, as well as their capital requirements, he would suggest a starting kitty of at least $10,000, preferably money that you can afford to lose if things don’t work out as you planned.
In a separate segment, Daniel focused on knowing the difference between trading techniques and strategies. Most people focus on trading techniques, such as various types of charting, mistakenly believing those are strategies. But a strategy is taking your technique and wrapping it into a strategy to estimate your risk and profit, frequency of your trades, how much patience you will need, and the typical length of your trade.
In addition, Daniel commented that your strategy should tell you if your technique is robust, and whether it works on trending, sideways, or both types of markets. Lastly, it should reveal the limitations of your technique.
It’s important to understand both the strengths and weaknesses of your technique and what failure looks like.
In determining the amount to risk on a trade, Daniel prefers no more than 1-2% of his account balance. As for the trade itself, he doesn’t use percentages to determine risk. Instead, he relies on a concept he calls heat, which determines how far the trade can go against you before it is failing.
In his last interview, segment, Daniel discussed trading oil and suggested that traders have a thorough understanding of their market, whether it is equities or futures. You must understand the risks as well as how and when to take profits.
He shared some amazing statistics regarding the regions of the world from which the US gathers its oil supplies. In 1979, 60% of our oil came from the Middle East. Today, we import from more than 35 countries, with only 15% sourced from that region. 55% of our supply now comes from North America.
To trade oil, Daniel recommends that you look at how the market digests all the available information in the price of crude oil and then establish your trading strategy recognize so that you recognize opportunities as well as when those opportunities are not working, in terms of risk.
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