How To Start Trading The No BS Guide PDF [PDF]

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CRITICAL TRADING

How To Start Trading

The No-BS Guide

HOW TO START TRADING: THE NO BS GUIDE © David Fiacan, Critical-Trading.com | Third edition - March 2020 This ebook may be freely distributed, however only in its original form as prepared by its author and without any amendments and/or edits. All information obtained within this book is for educational purposes only and do not act as an actual investment or trading advice. The author of the ebook is not a Chartered Financial Advisor. When there is a reference to a certain investment vehicle made, such as futures, forex, stocks or options, this is for educational purposes only. Financial speculation carries a high degree of uncertainty and risk. An individual who makes a decision to speculate on movements of financial markets is fully responsible for this decision and its outcome.

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I would like to thank you for the ideas presented in your ebook - it's presented in smart, easy to understand way, and has helped me in organising my trading plan effectively. Alex H.

Thank you for the awesome content of this e-book, it really is a no BS guide that I wish someone would’ve published sooner. Wayne P.

Your ebook was extremely helpful for understanding the basics of trading. Really grateful for putting the efforts for writing this ebook!!! Arnav V.

Your videos and ebook have deeply influenced my trading. Renu B.

About the author: David Fiacan David has been actively researching and trading financial markets for over 10 years. Similarly to many retail traders, he spent his first couple of years in this business stuck in circle of frustration, jumping from one indicator-based strategy to another, while not getting any consistent results. He later stumbled upon Supply & Demand trading, gradually shifting his focus from execution of mechanical patterns to discretionary trading of fundamental principles applicable to all financial markets. After refining his trading style, achieving consistent results and getting rock-solid confidence, he founded successful YouTube channel, sharing his distinctive methodology and influencing thousands of followers. Since then, David has passed his unique strategy to over 200 aspiring traders who forever changed their trading thanks to it, and published free ebook that has seen over 5,000 downloads to date. Today, David actively trades Futures markets on manual, discretionary basis, diversified by a portfolio of semi-automated systematic strategies in US equities.

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Reality Check Trading. Dream job of making a lot of money and being your own boss. No need to be at your desk in that soul-sucking 9-5 job every single day. No demanding clients who expect you to be there for them 24/7. No paycheck that hardly covers your bills. Trading promises to give you all of this just by clicking buy or sell. What’s more, YOU can start doing this business from your bedroom and you only need a couple of thousand dollars to begin with. You have most likely discovered the world of trading by seeing an advert that promised this. Since then, you’ve been jumping from one strategy to another, but still can’t really get it to work. Something’s just not quite right about it. Every time you try trading that proven strategy you got somewhere off YouTube, you lose. It almost feels as if it’s happening on purpose. I’m almost certain you can relate to this if you’ve been experimenting with trading for some time already. I know exactly how you feel. I was there too.

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Vast majority of retail traders lose – you likely heard this before. Did you ever wonder why is it? I know you’re thinking – it’s because their trading strategy doesn’t work. Well, that’s not quite right. You see, most people assume that the trading strategy is the only thing that matters. They believe in finding that perfect system that makes money all the time. Once they have it, they simply follow the signals and the profits will come. No need to think about anything else. This is only partly true. Yes, strategy is important, but there are other things playing a big role here. Not only strategy that wins all the time doesn’t exist (and never will), the strategy itself is not the only element that determines whether one is successful in trading or not. There are other elements affecting the odds of succeeding in trading, besides the strategy itself. Most beginners don’t pay enough attention to these, as they are too busy looking for that perfect, holy grail trading system. They underestimate the importance of starting out with the right trading approach, timeframe, markets and capital. By doing so, they decrease their odds before they even placed their first trade.

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So, what should you do to avoid making the same mistake as them? You are going to find out in this book. I hope that you’re not expecting to become trader overnight – that’s just not realistic. Trading, like any other business, requires consistent effort over a period of time. Don’t let that put you off, though. Trading really isn’t as difficult as those who didn’t succeed make it out to be. Good news is that if you start out by having realistic goals, focusing on appropriate markets and practice the right thing, you will gain advantage over others and inevitably succeed. This book is going to help you do just that. You are either a complete beginner or someone who, despite having already experimented with various strategies, is still struggling to make it work. Either way, this book will point you in the right direction, like other 5,000 aspiring traders who already read it.

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Start with the right capital Did you come across statement like this before? “This strategy requires only $1,000 and makes 100% per month!” I’m pretty sure you did. The problem with such statement is that it claims trading requires very little capital. This is a deliberate marketing strategy. It makes such statement very appealing, but very unrealistic at the same time. Certainly, trading requires relatively small capital when compared to a traditional business. It doesn’t require any major overheads, upfront investments or employees. But still - in order to provide yourself with as high odds as possible, you need to start with the right amount of capital. How do you know what’s the right amount of capital? This depends on number of factors which I discuss later in this book.

90% of beginners start significantly undercapitalised. They don’t work out whether the amount of capital they have is high enough for the market and timeframe they chose to trade. More often than not, they start with insufficient capital and put themselves into a very vulnerable position.

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Beginners typically start with around $2,000 and gravitate towards highly leveraged markets such as Forex, where a couple of losing trades can wipe out their account balance. Now, am I saying that you can’t make with $2,000? You can, provided you trade market that’s not too volatile. You need to ensure that the risk you take on a single trade represents only a fraction of your account’s size. Most beginners start by trading products with a massive leverage, where a couple of bad trades wipes out their trading account. That’s something you want to avoid. To ensure you have odds on your side, you need to come from a position of strength, meaning having enough capital to allow for errors - losses. It’s absolutely inevitable that you’re going to be making mistakes which result in losses. Your performance is going to be anything but close to the simulated one, at least in the beginning. Too harsh? Possibly, but it’s the reality of trading. Example – backtest of your strategy shows 60% win-rate. This is the ideal performance that’s based on historical charts, not allowing for any mistakes when executed real-time. When you start trading this strategy real-time, its performance will be worse – likely about 45-50% win-rate. This is caused by the psychological effect that’s coming into play when you start risking real money. Your live trade executions won’t be as good as the backtested ones, period.

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What if your capital’s too low and performance worse than expected? What happens then? You panic, start making mistakes and lose. Then, you panic even more when you realise how much you lost. Emotionally shaken, you start to overtrade, violate your plan and lose even more. Sounds familiar? Don’t worry – you’re not alone. I received countless of emails from my students and followers who had similar experience at some point. Based on my experience, beginner typically stops following his strategy and starts making mistakes after he lost about 20% of his initial capital. If he starts with $2,000, he only needs to lose around $400 to get to this critical point. Now, if he trades Forex with leverage of 1:100, depending on his stop-loss size (if any), his margin of safety is miniscule. He can, quite easily, wipe out his account just by a few losing trades. My point here is that adequate initial capital is critical, as it provides you with peace of mind of knowing that you have enough room to make execution errors, while still being able to survive financially. This is a massive psychological advantage right at the start. Equity curve on the following page typical for beginner who starts with capital that’s inadequate for the market he trades. As an example, let’s assume he’s daytrading with $3,000 and risking $100 per trade.

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$600

20% drawdown - psychological effect kicks in Red line shows the 20% initial capital drawdown zone. This is the point at which majority of beginners completely forget all rules they’re meant to follow and start trading literally anything, hoping to make their losses back. Equity curve is decreasing rapidly past this point, while the fear factor is increasing exponentially. 20% of $3,000 represents $600. Risk of $100 per trade this trader takes means that he’s roughly 6 losing trades away from having a blackout. Let’s have a look at a different scenario. Equity curve on the following belongs to trader who starts with $5,000 and risks $70 per trade.

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$1000

20% drawdown - psychological effect kicks in What’s clearly visible here is that this trader provides himself with far better starting position, just by having slightly higher capital and better managing the risk. As a result, he’s got more room to make mistakes while experiencing a drawdown that’s psychologically bearable. Some of those who lost due to not having sufficient capital start to believe that it’s just impossible to achieve profitability in trading. That’s not true. They don’t see they failed simply because they lost their capital during unavoidable trial-and-error phase that can’t be avoided, or during a standard drawdown that can’t be avoided either.

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Even a solid strategy with positive expectancy gets you into drawdown sometimes. That’s just a natural part of trading. Despite all performance indicators clearly confirming profitability of your strategy, it’s inevitable it will have some losing periods. I hope that you understand that – the sooner you come to terms with this, the better for you. Have a look at the equity curve below.

What do you see? Strategy to which this equity belongs has clearly got some edge. Curve has a steady, upward slope confirmed by red trendline that’s applied on it. Initial drawdown that’s visible right at its beginning seems very insignificant when put into context with the rest of it. The thing is that some (but certainly not all) beginners have strategy with equity curve similar to this one. Vast majority of them ends up losing anyway. Why is that? You guessed it – inadequate capital. They lose their capital during an insignificant drawdown, such as the one you just saw on the equity above. What’s more, this tends to happen just before the strategy starts recouping its losses and equity starts taking off. Take a look on the following page – red dashed line is capital = 0.

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TAKEAWAYS #1 Do your homework of assessing what your options are relative to your capital. Don’t just go trading Forex because everyone is doing it. #2 Don’t trade markets that are too volatile for your account – look for alternative markets (refer to the guide at the end of this book). #3 If this doesn’t help, then save more capital. Even a seemingly small increase in capital makes a big difference, as demonstrated in this

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Practice the right thing You may have heard the phrase “practice makes perfect”. I don’t agree with it – let me explain why. The problem is that if you practice the wrong thing, then you won’t get any results no matter how much and how hard you practice. If you just keep practicing something that doesn’t work without stepping back and evaluating whether it makes sense, then you’re just wasting your time. Much better version of this phrase, in my opinion, is “perfect practice makes perfect”. You see, vast majority of those who struggle to make trading work keep practicing the wrong thing, and then wonder why it is not working. You most likely started out just like them - with a ‘hot’ strategy off YouTube with 5 different indicators, promising instant profits. Many traders get stuck in a circle where they keep jumping from one strategy to another for months or even years. They invest lot of time and money during this process, just to find out it doesn’t work. An extreme case of this can be seen on the following page. This is an email from one of my students that I received a long time ago. It really resonated with me, so much so that I remember it to this day.

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It’s so easy to fall into the trap of not sticking to one strategy and keep jumping to others. It’s commonly referred to as ‘looking for the holy grail’. You need to avoid it at all costs, otherwise you will waste a lot of your time and energy. I spent my first 2 years looking for the holy grail – a perfect strategy that would make money all the time. Referring back to the phrase I used a few sentences back, I can say that I practiced the wrong thing for 2 years. I started with strategy based on indicator called CCI. The premise was simple – open a chart, wait for the pattern to show on CCI and click buy or sell. That’s it. Deep down, I just didn’t buy into it. The whole approach seemed flawed. It felt like something was missing - a deeper understanding. I simply didn’t have confidence in what I was doing.

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This was the underlying reason I kept changing the strategy, timeframes, markets and constantly redoing the backtests. After receiving dozens of emails from my followers and students, I realised this is very common among others as well. Markets don’t move because of indicator patterns. They move because different groups of traders are pushing the prices in certain direction, at certain times. If your trading system lacks this fundamental understanding, you’re likely to start jumping to other systems, stuck in search for the holy grail.

Below is a chart that’s typical to beginners who tend to unnecessarily overcomplicate things.

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I totally get where they’re coming from – more indicators should logically equal higher win-rate, as the trading signals should be higher quality. There are two issues here. Firstly, more indicators don’t necessarily equal higher win-rate, as most indicators generate a signal at the same time and price. Secondly, having to watch multiple indicators simultaneously results in higher likelihood of making a mistake. Additionally, more variables that are involved are making it easy to overoptimize the strategy. Below is the same chart, but with my layout applied on it – no indicators. My short trade from mid-Feb 2020 is marked by yellow arrows. All I need to successfully trade the markets is the Volume Profile and an understanding of Supply & Demand.

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I think it’s the best course on trading. Sebastien V.

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So, what should you do? Go back to basics. Simplify your approach and start focusing on fundamentals on which all markets are built – Supply and Demand. When I did this myself, that’s when it finally ‘clicked’ for me. That’s the point at which I started seeing consistency in my trading. To conclude - there’s no need for you to have 5 indicators on your chart. It’s not going to help you to understand markets better, nor is it going to help you achieve higher win-rate. The sooner you realise this, the better for you. TAKEAWAYS #1 You don’t need to complicate it by trading multiple indicators. In fact, you don’t need indicators at all. #2 Go back to basics and start focusing on actual markets rather than indicator patterns. #3 Subscribe to my YouTube channel where I teach you to understand the markets via price-action and Supply & Demand. I publish my weekly market analysis that already helps thousands of traders.

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Manage your expectations Let me ask you a question. What was the most attractive thing about trading that made you to be interested in it? It was, almost certainly, the prospect of financial freedom that trading promises. If a beginner who discovered trading a week ago is asked why he wants to trade, his response would be something along the lines of this: “Because I want to make a lot of money without having a day job and boss.” There’s nothing wrong with having such ambitions. In fact, it’s great to have them. The problem lies in definition of ‘a lot of money’. Is it a return of 50%, 100% or 200% per year? Usually, the rule of ‘as much as possible’ applies to virtually all beginners. Their expectations range from making 100% per month to buying 2020 Mercedes AMG S 63 Coupé with 603 horsepower, 4.0L AMG V8 biturbo engine and $170k MSRP. Not bad. What am I trying to say? I’m trying to say that you don’t need to aim for ridiculously high financial targets, such as making $500 per day with $500 capital.

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Why? Firstly, you’re significantly reducing your chances of actually achieving any returns by doing so. Secondly, you can increase your capital at a later stage, raise external capital, or generate additional income by renting out your strategies. Meet Joe – novice trader equipped with inadequate capital and unrealistic expectations.

I’ve got $2,000 to trade with. According to the back-test on 3 months of data, I should get a return of 200% per month!

Joe starts like most beginners – trading a couple of Forex pairs on 1-minute timeframe. On his first day of live trading, he opens his trading platform and waits for his signals. Market behaves a little different to what Joe is expecting. A quarter of the intraday session is gone, but there’s been no signal yet. According to his backtest, Joe’s strategy should average 5 trades per session.

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After a while, he starts to question his strategy.There’s been a nice move up, but he didn’t catch it as his strategy generated no trading signal. Joe’s becoming anxious, as he really needs to start making some trades to meet his financial targets. Market makes a clear reversal and price goes down rapidly. Again, no signal gets generated by his strategy. “I knew it! I knew the price will go down because of the double top!” At this moment, Joe throws all of his rules out of the window and starts clicking buy and sell, biased by the need to trade in order to achieve his unrealistic financial targets.

Buy Buy Buy

Sell

Sell

Sell

He’s just made 5 or more trades within few minutes, all of which were losers. In addition, not even one of them was in line with his strategy he was meant to follow.

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Joe experienced a blackout caused by pressure he imposed on himself when coming up with a ridiculously naïve financial target. You have quite possibly experienced it yourself before. This is common among traders who aim at targets they can’t handle. By doing so, they put themselves under a lot of pressure, and are prone to violate their plan. Throw fast-paced intraday charts into the mix, and you’ve got only one possible outcome – losses. Losses

Errors

Back to square one Unrealistic expectations

Unrealistic targets

Emotional pressure

Graphic above just about sums it up. As I said previously – it’s not all about the strategy itself. In the previous scenario, Joe quite possibly had a solid strategy. The argument here is that it doesn’t matter, as he mismanaged other elements of successful trading.

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Sadly, this usually isn’t the end of the story. Many people don’t understand why they had a blackout and lost. Unaware, they try again with different strategy or market, but with same capital and target that’s far beyond of what’s feasible. They end up losing again, despite their strategy shows positive expectancy and beautifully looking equity curve on historical backtests. What if Joe started with slightly bigger capital and lower expectations? He would do himself a big favour, as he wouldn’t feel the pressure to trade every single movement in the market. He would be able to successfully withstand initial trial-and-error process and eventually master the execution of his strategy and see the profits. Once again – a huge difference with no change made to the strategy itself. 2nd account, similar capital, different strategy

1st account blown

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2nd account blown

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Green equity curve is the one Joe would have seen had he started with conservative target. He would still be making inevitable beginner errors, but he certainly would make a lot less of them. Is it possible to make returns in excess of 100% per year, or make $1,000 per week daytrading Forex? Yes, but it depends on number of factors. One of such factors that you must take into the account is the maximum drawdown associated with the return. Have a look at the below – key financial metrics of system traded by Larry Williams, a veteran trader who’s very well known in the industry. Average annual return of 140% is truly amazing. This, however, comes at a price - 50% drawdown.

Source: www.worldcupadvisor.com

You may have heard the phrase “There’s no free lunch”. When it comes to trading, this is 100% true. High returns always come at a price. That price is the drawdown that’s needed to get them. Ask yourself - can you withstand 50% drawdown to get that 140% return?

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There are many ways you can generate higher returns besides aiming for unrealistic financial targets. You can source more capital at a later stage, once you are able to achieve consistent returns, or explore alternative income sources. Renting out strategies for a fee, as visible on the screenshot above, is nowadays a standard business. But, if you manage to blow your account by overtrading when aiming to make $1,000 per day, then you will never manage to get to that stage.

TAKEAWAYS #1 Don’t aim for unrealistic financial targets. You’re more likely to make errors, violate your plan and lose your capital by doing so. #2 Instead, focus on mastering the execution of your strategy so that you get consistent results which are in line with your backtest. #3 You can increase your return potential at a later stage, by simply switching to different markets offering higher leverage (e.g. Futures instead of stocks) or sourcing more capital. #4 Remember: higher returns go hand in hand with higher drawdowns. Don’t overestimate yourself by thinking you could withstand 50% drawdown. Don’t believe anyone claiming their strategy makes 150% a year with 10% drawdown – it’s a lie.

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How to start I’ve recently seen advert trying to sell me an intraday Forex strategy. One of the selling points used was that Forex is the biggest exchange in the world (as if this was important at all), and that I can trade it during the day to generate a steady, daily income. Most beginners simply consume such statement without thinking and go trade Forex on 1-minute timeframe. That’s a huge mistake. Starting off with market and timeframe that are appropriate for your strategy and capital makes a big difference. Without exaggeration, it can even determine whether you survive in this business or not. What I noticed over the years is that those who haven’t made it tend to focus their efforts on things they should not be really focused on. Spending dozens of hours contemplating about what’s the best broker or trading platform seems to be a running theme in these cases, as well as hunting for ‘hot’ strategies on YouTube, of course. Trading can be done successfully in many different ways. You need to make sure you fully explore all of them. All of these have pros and cons, and some may fit you better than others. Don’t just go trading Forex on 1-minute timeframe as most people do, just because it’s heavily promoted by brokers.

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Have you ever wondered why do brokers promote daytrading so much? It’s because they want you to make as many trades as possible, so that you generate more trading commissions for them. Daytrading is far more popular among beginners than swing trading. It offers higher frequency of trading signals, which makes it very appealing. This is a great selling point for brokers and get-rich-quick marketers, who spread the idea that more trades equal more profits. Despite this is true in theory, reality usually turns out to be very different for most beginners. I always advocate that the best way to start is by swing trading on daily timeframes. My reasoning here is the fact that swing trading is far less mentally demanding than daytrading. If you execute your strategy on daily timeframes, you can plan your trades in advance which frees your mind to focus on executing them well. If you watch 3 indicators generating 5 contradicting signals within 15 minutes, you have far lower chances of doing so. Daytrading definitely isn’t the easiest type of trading you can choose. Low timeframes are dominated by high frequency trading algorithms – HFTs. These blazing-fast algorithms are manipulating the orderflow and are essentially hunting for unprepared retail traders. HFT manipulation became very apparent in the recent years, when the majority of short-term trading opportunities on low timeframes almost entirely disappeared from markets. A typical intraday session of major US indices has now got a form of a volatile trading range, with healthy trends being close to non-existent.

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Another huge challenge of day-trading that no one seems to be talking about is its psychological difficulty. The problem lies in the way intraday markets move. They are designed (by HFTs manipulating the orderflow) to attract retail traders to enter in certain situations, at certain times. It really isn’t a coincidence that you see a massive bullish candlestick with buyers jumping in, just to see the market breaking below its opening range 3 minutes later, absorbing sellers. High of day broken - start of an uptrend? Minor high broken. Maybe it really is an uptrend.

Low broken, looks like downtrend now. Now low of day made, that’s definitely a downtrend!

0

2

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Above is an intraday session plotted on 2-minute timeframe, comprising of a lot of false breakouts.

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These breakouts are created deliberately by HFTs which manipulate the order book. This can cause the market to move in certain direction for a short time. This is done in order to attract unskilled amateurs to enter the market. HFTs then manipulate the orderflow again and move the market to where the stop-losses of these traders are located. Why is this such a big deal? It’s because such manipulations are taking place literally constantly. Such a volatile and fast-paced environment gives rise to an enormous psychological pressure that beginner can’t handle. As a result, he ends up clicking buy and sell instead of sticking to his plan. Let’s revisit our novice trader Joe from previous chapter. Not only Joe starts with inadequate capital, he, as many of his peers, decides to trade Forex on 1-minute timeframe. Illustration on the following page shows outcome of his intraday trading session. Horizontal axis shows time in minutes, while vertical axis plots level stress. Each trade is shown by a coloured vertical line – green for profit, red for loss. Blue lines are missed trade opportunities.

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2 3

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8

Stress

1

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Joe’s first trade is profitable. His stress levels rise, as Joe has to carry on trading to meet his unrealistic financial target. The profit he just had is therefore at stake. Second trade is a loser. Stress shoots up, as Joe realises that he just gave back the profit he made in the beginning. A nice signal is generated only a few minutes after, but Joe misses it. This doesn’t help his psyche at all – stress is at its peak and recovers slowly. It’s been a while since the start of the trading session, and Joe hasn’t managed to generate any profits. He’s getting impatient. It’s now been 50 minutes since the start of the session, and so Joe isn’t as sharp as he was initially. As a result, he misses another valid trading setup.

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The best thing he can do now is to call it a day and come back tomorrow when he’s fresh. He makes a critical mistake – decides to carry on. Next trade is a loss – a nail in the coffin for emotionally shaken Joe. His emotional stability falls apart, he gets a blackout, throws his rules out of the window and starts clicking. He ends up making 3 more trades, none of which are in line with his strategy, and are all losses. Conclusion? Fast-paced intraday charts generating barrage of distractions in a very short time don’t allow for your stress to recover quickly enough. Don’t get me wrong.

I’m not saying you absolutely can’t succeed in daytrading. In fact, some of my students trade my strategy on intraday basis, like the one below.

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Screenshot on the previous page is trading setup of one of my students. Ricardo adjusted the strategy and successfully trades it on Crude Oil intraday. He won the competition on Topstep Trader (www.topsteptrader.com), and got a funded trading account. Want to learn more? My Supply & Demand strategy has helped more than 200 traders. Find out how it can help you, too.

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So, can you make it in daytrading? Yes, you can, but make sure you’re aware of its challenges before deciding to do it. How does the swing trading compare? Same visual layout as on previous illustration applies. Again, every trade naturally produces spike in stress. That’s simply part of the game. In this case, however, horizontal axis is the number of days rather than minutes. 2

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Stress

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Swing trading doesn’t require watching detailed market activity on which the manipulation by HFTs is taking place. This makes the trader better focused on his strategy. It’s without a doubt that by swing trading, you provide yourself with considerably more time to recover from stress caused by an outcome of any given trade. Below is an equity curve of one of my other students. Benjamin trades a portfolio of Futures on swing basis as I recommend it.

As visible on the equity, Benjamin managed to yield results very quickly, despite some minor losses that are inevitable in the beginning.

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So, how do YOU actually start? What timeframe and market do you choose? The number of different instruments and markets can be overwhelming, especially if you are still quite new to this business. I prepared a handy guide to help you. We’ll look at different options you have with regards to markets, depending on the size of your capital and the timeframe you’re looking to trade. Let’s start with scenario that will likely apply to most people – capital of around $3,000. With this amount of capital, you can’t expect to become fulltime trader next month – that’s just not practically possible. You can, however, use this capital as a great tool to start trading your strategy in real markets, gain confidence and source more capital at a later stage. Doing this is far superior to papertrading. Papertrading doesn’t prepare you for real markets at all, and so I always recommend to start with real money instead, but making sure you limit your risk properly. Despite your options are quite limited with this capital, there’s still a lot more available than unregulated Forex. What’s critical is to make sure that you have strong control over your risk. If you trade on intraday basis, I recommend not risking more $60 per trade, including trading commissions. Let’s look at your options on the following page.

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Capital: $3,000 Option A: Intraday trading of mini/micro US indices or FX futures E-minis: $50-60 stops including commissions - circa 2% risk E-micros: $30 stops including commissions Forex option: micro FX futures E-mini and e-micro futures have great liquidity and are strongly regulated, unlike Forex. If you have starting capital even lower than $3,000, then go for e-micro Futures that allow you to trade with roughly $30 stops. If you want to stick with Forex, then trade e-micro FX futures contracts. Below are the actual markets you should be looking at with this amount of capital.

Source: www.cmegroup.com/trading/equity-index/#usIndexes

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Source: www.cmegroup.com/trading/fx/#eMicros

Do you have any other options with this capital? Yes – swing trading. Capital: $3,000 Option B: Swing trading of US stocks Mini portfolio of 5 with equally allocated capital 1/5 per position No margin to start with, 50% margin later This is an ultra-conservative option that I recommend you start with. Swing trading with capital this small is not going to yield any material gains (neither is daytrading). But, as opposed to daytrading, it provides you with considerably higher odds of success, as demonstrated in this book. It’s extremely unlikely you lose your capital with this approach.

CRITICAL TRADING

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I recommend trading with no margin to begin with. Use 50% margin once you’ve gained solid grounding. This gives you twice the amount of capital to trade with, increasing your return potential. I suggest that you start with a fixed watchlist of 20-30 different stock tickers to keep it simple. Later, you can opt in for scanning all tickers that belong to certain index. This is what I do with my systematic trading strategies. You can use online stock scanners to scan hundreds, or even thousands of tickers based on various criteria, such as breakout of recent n-day high, or whether the price is above the moving average. This gives you access to potentially hundreds of good quality setups to choose from at any given time. Let’s now look at what your options are if you have $10,000 or more. Capital: $10,000 Option A: Intraday trading of US e-mini indices E-minis: $100-125 stops including commissions One contract, then add more and diversify exits In this case, I suggest that you focus on e-mini S&P 500 (ES), or S&P midcap 400 (EMD). These require slightly bigger stops than mini Nasdaq or Dow Jones, although you can still trade those if you wish. The other option that’s available at this capitalisation level is to trade something more ‘exotic’, such as Crude Oil.

CRITICAL TRADING

How To Start Trading: The No-BS Guide - page 34

What’s important here is that although you can possibly start trading with multiple contracts, I strongly recommend that you don’t. Start with one contract, master the execution of your strategy and get consistent results. At this stage, you shouldn’t focus on the actual gains, but rather on achieving results that are almost identical to your backtest. After you’ve managed to do this, add more contracts and diversify using multiple exits. For instance, I use two types of exits in my strategy - one is a small target with high win-rate, second aims for much higher profits but its win-rate is lower. By doing something similar, you add a layer of micro-diversification to your strategy, making it less mentally demanding to trade. You will be surprised as to how your performance improves thanks to this, without making any changes to your entries. Capital: $10,000 Option B: US stock swing portfolio Portfolio of 2-3 swing strategies traded simultaneously 8-10 positions per strategy with equally allocated capital No margin to start with, 50% margin at later stage Again, an ultra-conservative approach is to trade a basket of US stocks on daily timeframes with no margin.

CRITICAL TRADING

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At this capitalisation level, you can start building your own diversified portfolio by trading a couple of different swing strategies simultaneously. I suggest that you allocate your capital into 8-10 positions per strategy to start with, with 50% margin used after you’ve gained solid grounding. I trade three systematic strategies in my stock portfolio. I diversify it by having each strategy trading stocks from different index. Additionally, each strategy differs in its fundamental logic and trade frequency. One trades short-term reversals that take 2-3 days on average, while the other one holds its positions for months.

I don’t recommend you do this if your capital is lower than $10k mark. Stick to one strategy only, otherwise your transactional costs go through the roof. As far as actual stock tickers are concerned, I suggest using online stock screeners to scan through various indices to find suitable stocks to trade. This way, you are not limited by fixed watchlist, but are rotating the stocks that you watch. Now, if stock trading is not for you, and you’re looking for higher returns by trading leveraged markets, then there’s one more option available see the following page.

CRITICAL TRADING

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Capital: $10,000 Option C: Swing trading of low volatility Futures and ETFs Watchlist of 10-15 markets High volatility Futures substituted with ETFs Maximum 5% risk per trade The option C is to trade portfolio that combines low volatility Futures with some ETFs. As futures are involved, return potential is higher, but so is the drawdown.

This is what I trade with my discretionary Supply and Demand strategy, and recommend to my students as well. Make sure you’re not risking more than 5% of your capital per trade. With $10,000 capital, this translates into $500 stop-loss. This is the limiting factor in the process of choosing the right markets to trade. In terms of Futures, you’re pretty much limited to US grains only. Some of these are available in form of mini contracts and so are the ideal candidates.

Source: www.cmegroup.com/trading/agricultural/#grainsAndOilseeds

CRITICAL TRADING

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In order to have more markets available to trade, I recommend that you combine Futures on the previous page with ETFs. Focus on ETFs that copy movements of Futures that are too volatile for capital you have available. This allows you to trade movements of ‘big’ markets that would otherwise be out of your reach. There’s a number of options available - Coffee, Cotton, Cocoa or energy markets, just to name a few. However, bear in mind that some ETFs may have low liquidity. That’s it for this ebook. I hope that you found it helpful, and that you took away a lot of practical information that you can use in your own trading! Remember - trading really isn’t a rocket science. It’s not as inaccessible as some people make it out to be. The reality is that most people simply fail to set it up right in the very beginning, as demonstrated in this book. Looking for more content to help your trading? Subscribe to my channel for weekly Supply & Demand market analysis that already helps thousands of traders.

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Good luck! David Fiacan Founder & Head Trader | Critical Trading

CRITICAL TRADING

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