Flying blind is not a risk professional traders take, whether it involves implementing a new back office system, expanding trading into a new market or exploring a new money management approach. Beginning traders, alike, should develop a flight plan for their approach to learning the markets.
The first step to entering any new field successfully is education. Futures traders are blessed with an abundance of literature and educational services to choose from to supercharge their learning. But that abundance also can be a hindrance, as buying the wrong book or attending the wrong conference not only wastes time and money, but it also could give a prospective new trader the wrong impression of the futures industry.
As a service to new traders, below are some guidelines and information regarding the two most widely used ways of learning about trading are reading books and attending educational conferences. Not being on this list does not preclude a product or service from being a quality tool for beginning traders, but that said, all items listed here have been used by the editors of Futures, and many are staples of our everyday endeavors into the futures industry.
Books, the most valuable resource for a new trader, are tricky to sort out. Depending on what type of trader you hope to become (technical, fundamental, discretionary, systematic, etc.), one set of books can be orders of magnitude more useful than another. But, if you don't know anything about the markets, how do you know what type of trader you will be?
Thankfully, there are a number of comprehensive beginner books available that introduce most aspects of trading without asking too much of the reader. For the true beginner, consider Mastering Commodity Futures & Options by George Kleinman (also the editor of the Trends In Futures newsletter). While the title is a little overdone - no book will make you a "master" - it does offer a good overview of many aspects of trading and is well-written and designed. For a more comprehensive treatment, get a copy of The Futures Game by Richard J. Teweles and Frank J. Jones. Originally published in 1974 and meticulously updated, The Futures Game covers nearly every aspect of the futures industry on some level, and many areas are covered in depth. This is a much heavier read than the Kleinman book, though, and not as lively.
If you're still eager to learn after digesting the Kleinman book or a few chapters of The Futures Game, then pick up another volume on the type of trading approach you're considering. For example, if interested in systematic trading, purchase Perry Kaufman's Trading Systems and Methods, Murray Ruggiero's Cybernetic Trading or one of Tushar Chande's books. If you're interested in discretionary technical trading, get a copy of John Murphy's Technical Analysis and the Futures Markets or The Handbook of Technical Analysis : A Comprehensive Guide to Analytical Methods, Trading Systems and Technical Indicators, edited by Darrell Jobman. If fundamentals (the study of factors affecting the supply and demand in a market) are your game, then buy Jack Schwager's Fundamental Analysis and get a copy of a good statistics text. (One is Statistical Analysis by Sam Kash Kachigan.)
Then there are a number of books that cover general topics that should be a concern of any trader. The list here is endless, but four stand out for their impact on the industry and the insight they offer. One is another book by Schwager, Market Wizards. This compilation of interviews with established great traders uncovers the underpinnings of trading success. Another is The Remarkable Story of Risk by Peter Bernstein. Risk is an essential ingredient to every type of trading. This book puts risk in perspective by tracing humankind's understanding of risk and how we measure it. While many have discredited the book after its author blew out, Victor Neiderhoffer's The Education of a Speculator traces the unique path one of the industry's best known gunslingers (high flying discretionary traders) followed to at least temporary phenomenal success. A final book deals in depth with what many consider the one aspect of a trading plan on which true success hinges: money management. While Ralph Vince's The Mathematics of Money Management is highly technical, its ideas (and their proper implementation) are some of the most powerful in trading. (A note of warning: Before applying anything in Vince's book, read the whole thing and practice, practice, practice; the early chapters build up to the later ones, which are integral to benefiting from this work).
Educational services are available in many forms - from one-on-one consultations to highly attended industry conferences - to every level of trader. If you take well to this type of tutelage, then it would be helpful to attend a general industry conference on trading techniques. If you do your best learning alone, then read more books, discover what analytical approach you'll follow in your trading and find a more specific conference to meet that need. Whichever route you take, there are numerous options available.
At the risk of self promotion, one of the most enduring trading conference series for the futures industry is put on by Futures magazine. While other companies have followed suit, using the familiar setup that includes an exhibit hall of product vendors and daily lectures on specific trading issues, Futures Magazine Conferences have been offering a dynamic list of speakers and topics for decades.
For those who have advanced in their studies, more specific and technical seminars are available. Two that include a large number of professional traders are the Market Technician Association's conference and the International Federation of Futures Traders conference. The subject matter of both conferences may seem somewhat esoteric and advanced for beginners and there typically are few product vendor exhibitor booths.
The key conference dealing with industry issues is the Futures Industry Association (FIA) conference held in Chicago every fall. The FIA conference is the largest in terms of attendance and exhibitor booths, but most of the daily lectures deal with regulatory, accounting and brokerage-oriented issues that appeal little to retail traders. While FIA has succeeded in recent years in adding a few seminars on trading techniques, the quantity and selection are not up to par with general trading conferences.
In addition to the above conferences, there are a number that cater to just a few traders, users of particular software programs or followers of a specific analysis method, such as Elliott wave counts or Gann analysis. While a beginner should shy away from such conferences until he gets his legs, you can find information about these in the classified ads section of Futures magazine and other industry publications.
The next step after educating yourself on trading in general and your particular approach is to find some software and test your strategies. The types of available software vary even more than the types of books to consider and are beyond the scope of what a beginner should consider. Nevertheless, to track paper trades, perform some basic market analysis and even maintain some price charts, there is no better solution than a simple spreadsheet application, such as Microsoft Excel or Lotus 1-2-3. In a future column, we'll review some basic principles published in past issues of Futures magazine and cover some new ideas and reasonably priced commercial applications that can help you take your trading to the next level.