On your mark, get set…

Go. 

Start reading and watching anything and everything you can (CNBC, Bloomberg, YouTube, books, podcasts, etc.) that covers the financial markets. I’ve listed below some of the more important things to do when you begin. Put these on your to-do list and learn as much as you can about each topic. Many of the topics will flow or lead into the others, so starting with some of the first topics listed will help you build some momentum.

And remember that journaling about everything you learn will help you soak it all in, retain it and make sense of it all.

Read the classic book “Reminiscences of a Stock Operator” by Edwin Lefevre. The trading and investing principles in that book are timeless. I still think about it sometimes when I watch price action.

Learn as much as you can about stocks and the stock market, what they are and how they work. Study the history of the stock market and what has changed about it through the years.

Study and understand the difference between exchange-traded funds (ETFs) and mutual funds. You also want to understand the difference between exchange-traded funds (ETFs) and exchange-traded notes (ETNs). 

Learn as much as you can about the futures, bonds and options markets. 

Study currencies and commodities.

Study the different sectors like technology, retail, consumer staples, utilities, consumer discretionary, healthcare, homebuilders, semiconductors, financials, industrials and energy. Understand what kinds of companies make up the different sectors and why.

Understand how stock exchanges work as well as the regulatory bodies like FINRA and the SEC.

Learn all the different types of orders like market orders, limit orders, stop orders, stop-limit orders, good-till-canceled orders, conditional orders, etc.

Understand the difference between the bid and the ask as well as the difference between open interest and volume.

Research all the different major retail brokerages like Schwab, TD Ameritrade, E*Trade, Fidelity and TradeStation. Each broker tends to have its strengths and weaknesses. 

Understand the difference between cash accounts and margin accounts and how margin is calculated by the different brokers. It’s also very important to understand what you can and can’t trade in a retirement account.

Understand the difference between Regulation T (Reg T) margin and portfolio margin, as well as the difference between portfolio margin and SPAN margin.

Make sure you understand margin maintenance requirements and what triggers a margin call. You don’t want to be caught unaware by this kind of thing. And make sure you understand what the Pattern Day Trader Rule is if you’re trading with less than $25,000.

Study technical analysis and fundamental analysis to see which one you gravitate toward or whether you want to use both.

Understand the differences between intraday trading, swing trading, momentum trading, trend following and position trading.

Study single options so that you understand your rights and obligations when you buy and sell both calls and puts.

Study option spreads like credit spreads and debit spreads (verticals), calendar spreads (horizontals), diagonal spreads, condors, butterflies as well as iron condors and iron butterflies. Understand the “Greeks”, especially Delta, Theta, Gamma and Vega.

If you want to trade options many brokers will want to know what your level of experience is before giving you permission to do anything complicated or advanced, like multi-legged spreads.

Understand what role the Federal Reserve Board (the Fed) plays in the economy and how its actions can affect the markets. Study and understand how its actions have affected the markets historically.

Understand the difference between monetary policy and fiscal policy.

Pay attention to economic announcements like jobs numbers and GDP.

Join communities and chat rooms and post in forums to connect with other traders and to see what they’re talking about. This can be very important for accelerating the learning process. Conversing with more experienced traders can help you understand concepts, and if you can find someone who will be patient and courteous enough to answer your questions you’ve really hit gold. They are out there!

Expose yourself to as many trading styles (intraday trading, options trading, futures trading, etc.) as you can. And study, test and simulate (paper trade) as many strategies as you can. Take as many courses as you can and make detailed notes, re-reading them to gain an understanding of each strategy.

Here are some places to start:

If you’re interested in Technical Analysis and trading stocks, the gentleman who runs www.swing-trade-stocks.com does a great job of differentiating between different types of stock trading and giving examples of each, and if you’re interested in building a foundation in positive Theta “income” options trading start with the folks at www.sheridanmentoring.com. If you want to move on to more advanced options trading, check out www.smbtraining.com, which also provides training in intraday and futures trading.

Did I do all of this?

Yes, I launched myself body and soul into the Foundation Phase. I watched CNBC constantly, read as many books as I could get my hands on, watched as many videos and bought as many courses as I could. I truly inundated myself in the industry and I don’t regret it. You’ve got to have this kind of interest level. You have to be passionate about wanting to learn as much as you can. It will definitely pay off for you in the end.

But it’s normal to feel pretty scattered at first because there’s so much to learn. I definitely felt like I had little to no direction when I started. I bought some stocks with the intention of holding them and did some intraday trading until I lost money in the selloff of 2011 and realized I actually needed some structured training if I was going to figure out how to do this. So I paid for a course in technical analysis and options and started watching videos on reading the charts. I felt like a yo-yo for a while because I was trying to find one trading style that would work all the time. Once I’d lost some money in options trading in early 2012 I switched almost exclusively to learning swing trading through technical analysis. But my results were flat to negative so I bounced right back to options. Boing, boing.

It was during this time in 2013 when I was focusing on many different courses in options and continuing to dabble in trading stocks with technical analysis that I was firmly in the Exploration Phase. But I was finally journaling, taking very detailed notes and reviewing them on a constant basis. I was bouncing around but I was really applying myself. And that paid off bigtime in the end.

And I didn’t know it at the time but I was actually knocking on the door of the Gravitation Phase. The problem was that I didn’t realize it was okay to focus in on more than one type of trading. If I were able to go back in time I’d tell myself that I needed to focus on these two types of trading at the time: short-term stock trading, namely swing and momentum trading in stocks, and market-neutral “income” options trading. But I kept bouncing between the two, thinking I had to settle on only one of them. For some reason I had the ludicrous idea in my head that you could be either a stock trader or an options trader, but not both. And on top of that I kept getting distracted by other types of trading styles, like intraday and pairs trading and scalping and many, many others, and this is why I got stuck in the Exploration Phase for way longer than I should have.

It wasn’t until later in 2013 when my friend and mentor, Andrew Falde (www.formafinancial.com), taught me automated trading that I started to turn the corner and enter the Gravitation Phase. Not long before this I remember telling another friend of mine that I thought there was no way I was going to figure this whole thing out and that I was done with trading. In fact, I took Andrew up on his offer to teach me automated trading only because I thought it was an interesting concept. I didn’t have any expectations going in and only agreed to learn it because I didn’t feel like I was getting anywhere with anything else at the time. But after the third or fourth session a light came on and I realized what an important door had been opened. 

This was the first trading style that so strongly captured my attention and so the gravitational pull became very strong. That was a big deal because it allowed me to eventually narrow my focus on the other things as well and accept all three styles as the ultimate direction to take. I’ll talk more about this in a subsequent step.