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Trading Education Posted by Team Topstep August 22, 2022

Stop Gifting Money To The Markets Part 5: Keep Learning

Books - Keep Learning

Rock star traders are made, not born. Nobody emerged from their mother’s womb and started generating massive profits in the futures markets three years later. It takes time – trading is complex, and the learning curve can be steep. One might argue that continued success requires lifelong learning because markets are constantly changing.

(Note: this is the fifth in a five-part series. If you missed them, check out Part 1, Part 2, Part 3, and Part 4.)

What might that learning look like? The first step is to learn the ins and outs of the products we trade:

  • When are the markets open?
  • What is the initial margin requirement?
  • How many dollars does one tick represent?
  • What is tick size?

Learn What Moves Markets

Understanding basic product specifications are only the beginning of becoming a successful trader. For any market where you hope to trade well, you’ll have to familiarize yourself with the many forces that can affect it.

Tip #1: Know the key dates and catalysts of the products you trade. Economic data, OPEC meetings, earnings reports, inventory data, and crop reports can all move markets, some more than others. So what’s moving your market? You should know these events and their timelines as well as you know your own birthday.

Another consideration: Markets react to new information. When news flow is absent or if important news is pending, trading can turn quiet or choppy.

Explosive moves typically happen around unexpected or surprise events. For example, Crude Oil might drop if inventory data shows a larger-than-expected build. Treasury bonds often fall when economic data is stronger than anticipated.

No Substitute for Practice

The best way to get a feel for a market is to watch over time and practice trading. Check charts over different (monthly, weekly, daily) time frames and watch intraday. Identify spikes and dips that seem out of the ordinary and research past news reports for reasons for unusual moves.

Tip # 2: Concentrate on one market that seems particularly interesting to you or where you might have an advantage before branching out to others. Then practice, stay focused, and give it 110 percent.

Markets can and often do change. Have you heard that before? Many brokerage firms use the phrase in their disclaimers followed by this one: “past performance is no guarantee of future results.” It’s true. Just because a market acted one way in the past doesn’t mean it will in the future. Just because one approach worked in July doesn’t mean it will work again in September.

Yet some things, like the mechanics of how a product trades, are fixed and do not change. In addition, each market has important news catalysts that are often known ahead of time. Knowing these dates can help you avoid opening a new position just before the market makes a big rip in the wrong direction.

That’s where practice trading can help – it’s the only way to get a true sense of how unfolding news events will affect a market and your positions. Always keep learning because products and markets are constantly changing.