Episode Transcript
[00:00:00] Speaker A: Welcome to the Traders Handbook, a limited podcast series brought to you by IG in partnership with your host, the Finance Ghost. Over the course of our upcoming episodes, we are delving deep into the world of trading, helping both novice and seasoned traders alike navigate this exciting field. Join us as we unravel the intricate strategies and insights that define this dynamic landscape and the beautiful puzzle that is the markets. IG Markets South Africa is an authorized financial services and over the counter derivatives product provider. CFD loss can exceed your deposits. Welcome to this episode of the Traders Handbook. And we've made it. This is the very, very last one. You've also made it if you've joined us throughout the season. Thank you so much for that. If you are only listening to this as the first one, then kudos to you. I always have respect for anyone who starts backwards. Maybe go and listen to some of the other stuff as well because there's some pretty good stuff in there. This is episode 13 and it's the last one of the Traders Handbook and we've covered a lot. So with Sean Mirrison from IG Markets South Africa, we've covered everything from the absolute basics of trading. What does it mean to be long? What does it mean to be short? We've dealt with the impact of leverage and how CFDs actually work. We've done key risk management strategies like stop losses and all the different types that you can use. We've talked about some of the trades that I tried throughout the season with varying levels of success. As you would expect in the market. Some worked out pretty well, others did not at all. And I've learned some really good lessons along the way through that process and it really just proves how important it is to open a demo account. Something that we've talked about a lot on this podcast season. You can go and open up a demo account with ig. You can go and try this stuff out before you put real money in. Rather go and make the mistakes with the play. Play money and learn from them, Sean. We've also talked about trading indicators, we've talked about technical analysis tools. We've talked about the IG Markets Academy, which I've got to say really is a great source of information in that regard and I would highly recommend that budding traders go and check it out. And also just anyone really, because there's always something to learn. No one knows everything and I think the Academy is a wealth of information. It's free to read. Go and check it out. You know, there's so much in there. We've discussed different asset classes as well. We've discussed the different instruments you can trade. We had a show on index trading. We had one on forex. We had a very popular one on commodities. It seems like people definitely want to be out there trading gold and oil. Maybe it's just a reflection of where the gold price has been this year. It's been a very strong year for gold, but still. And that was particularly interesting for me given my background in single stocks. You know, I came into this podcast series Understanding single Stocks Investment. I like to think reasonably well and, you know, very much an equities background. And trading single stocks is something completely different. And I think when you start to see what the benefits are of trading stuff like an index or Forex or commodities, you know, that really comes through. And in the last show we talked about the tech of trading, so concepts like scanning for opportunities and doing back testing and all of the stuff you can do on the IG Markets platform. So it has been a pretty great season. It's quite fun to look back on all the shows and realize just how much we've covered and to bring it home and to bring the season to a close. We are doing a podcast on trading plans now. I think we've made it pretty clear on this podcast season throughout the podcasts, actually, the trading is very exciting, yes, but it is also complicated. If you think it's easy and you follow people on Instagram with their fancy cars that they stood in front of for a millisecond to take a photo in front of someone else's car to show you how easy trading is and how much money they make. That's not how it works in the real world. Yes, you can make a lot of money trading, but it is difficult and I think the trading plans really help to just maintain your sanity and tie it all together. So that is where we will be finishing off as we tie this whole season together. Sean, that was a long intro, but I wanted to give people a flavor of what else they can go and find in case for some reason they've joined us here for the first time. So thank you for doing this with me. The last one. Sean, you've made it.
[00:04:01] Speaker B: We made it. It's always a pleasure, though. I've enjoyed the season very much.
[00:04:05] Speaker A: No, it's been great, I must say. So let's dive into trading plans and I think let's just start with the basics, right? In the simplest terms possible, what is a trading plan?
[00:04:14] Speaker B: Okay, so a trading plan, very simply, like a business plan, especially if you view trading as a business, you know, how are you going to go about your business? How are you going to manage your risk, you know, how are you going to manage your expenses, your incomes, how you're going to allocate time? Yeah, it's really just creating an all encompassing system around how you're going to approach getting involved in the markets, trading the markets, and how you're going to improve as you go along, grow that business.
[00:04:38] Speaker A: Now, I think previously in the season when we actually talked about how you manage trading losses and your mindset around that, you made that analogy of trading is a little bit like running a business. So rather than beating yourself up about, oh, I lost money like this, why am I here? It's more like, okay, these are the expenses, you know, and as long as I'm coming out with a profit, I'm kind of doing okay. So I think the business plan analogy ties in quite well with that actually. And this is important stuff. I mean, look, I'm not a great poster child for business plans. I never actually did one for the Finance Ghost on paper, but I certainly had one in my head. And I think a lot of people do that. You know, you've got to have a plan, you've got to have a strategy, otherwise what are you doing? You're just going to wake up every day and just see what you feel like that day. Like that's not going to end well for you or anyone around you. So this is important stuff. But I think with trading it's even worse because there's just so much noise out there every week. Right. You get absolutely bombarded with news and headlines and data that you can trade. There are a gazillion instruments out there. You can randomly wake up one Tuesday and say, oh, today I feel like trading Forex and the next day you're trading equities. I mean, you can really hurt yourself. I think it's much worse in some respects than a business. You can't wake up in your business one day and say, hey, today I'm a restaurant and tomorrow I'm a hardware store and next week I'm a dry cleaner. I don't know, those were the silly examples that came to mind. But in trading you can do that stuff and that's very, very dangerous. So how do trading plans help you with this? How do they bring discipline?
[00:05:57] Speaker B: Yeah, I think a lot of people, when they talk about trading and a trading plan, the focus is always on when to buy and when to sell. But it's a lot more that how much money are you going to risk when you're wrong? You know, how are you going to formulate your strategies, how much time do you have to allocate to the markets and just how you're going to learn from your mistakes? You know, on, you talk about markets being chaotic and it can be quite overwhelming. That's why we always push the idea of, you know, trade in a risk free environment. Start off with that demo account, go make the mistakes and see, you know, where your skill sets lie or what instruments might be better for you to trade, you know, and that can start forming part of your plan. You know, a demo account is actually could be part of a trading plan, that sort of initial stages of practicing, you know, getting your business ready before you actually go to market.
[00:06:43] Speaker A: Yeah, so it's not to say that a trading plan is, hey, I've looked at these five charts and you know, these are the exact five companies that I'm going to trade this week. Or these are the five setups. I mean that might be part of a trading plan and we'll get into the components just now, but I think the point is that it's way more high level than that and it's kind of this overarching. Again, just to use your business plan example, those, oh, I'm going to do these five companies this week or these five indices or whatever else that can be something like, oh, I'm going to sell to these five customers. But that's not your business plan, that's this week's tactic. That's not the same thing. That's your immediate thing you're going to focus on. That's not the same as your business plan. So I think we'll make this clearer by going into some of the key components of a trading plan and you know, maybe you can just cover those components off and just comment on whether or not this is something you're doing weekly, daily, monthly. You know, how often are you really updating these different components?
[00:07:36] Speaker B: Look, I think starting off with the key components for me it's, you obviously got to have a golden ambition.
You have to recognize that sort of time and strategy, the time you have to allocate to markets and that might determine the type of strategy that you would use, how much money you're going to risk within that market on any one trade or of your portfolio at once.
And then in terms of how often you plan, I think it has to be a continual, you have to look to continually improve your plan. So you need to diarise what you're doing, you'll have an initial plan and you'll diarise what you're doing and then you'll do some self assessments and work towards continuous improvement.
[00:08:18] Speaker A: Yeah, that makes sense. And then in terms of how often you're actually updating this thing, no, it's continuous.
[00:08:22] Speaker B: I think, you know, that's where the self assessment of it comes, comes into play. So if you have a diary, you know, even write down the things of like how you felt when you placed the trade, see how you reacted emotionally, you know, did it inhibit your decision making?
If now your plan says oh well, I struggled to get out of a trade that moved against me, I struggle to implement a stop loss then. Or you realize that's a weakness and something that you could be improving within your trading plan. And how would you improve that? Well, if that's a weakness of yours, automate that. Use stop losses in the system so that you don't have to think about, about getting out of a trade or second guessing yourself if it's moving against you. You've already made that decision. The important part about trading is making all the decisions for the trade before you get into the trade. Because once you inside of a trade and you're looking at your bank balance either going up or down, what you're going to see is that emotion is going to be a factor. So we can remove that emotion with something like a stop loss or an automated system, utilize that. But that might not be where you start. That might just be an example of improving your plan. But it's all about it's continuous improvement. So create your initial plan, you work to your plan, assess your plan, see where it's, where it's working, where it's failing and then review. And so that could be on a weekly or a monthly basis, which all depends on how active you are in the market.
[00:09:55] Speaker A: Yeah, it's very iterative thing and I think that's exactly how a business works as well. So that analogy just keeps working so well. You know, you might have this plan but you've got to then adapt to it or you've got to adapt the plan rather to what's going on out there. You've got to update it based on what's happening. You know, you've got to remember good old, I think it was Mike Tyson, everyone has a plan until they get punched in the face. I think the market will probably punch you in the face a few times, but I think the difference is you still need to have your trading plan. I think his, you know, his view is actually extremely applicable to running a business because there you have to react quickly. You can't just sit there and say, oh, you know, I'm going to carry on with this business plan even when it's clearly not working. You know, you've got to adapt quickly. I guess with a trading plan, trades are going to go against you even when you didn't do anything wrong because you just get unlucky. That's the nature of the markets, I guess. You know, you've got to be careful not to say, oh, my trading plan is terrible because I had an unfortunate trade. Right. I mean, it's, it's going to happen. It's part of the game.
[00:10:50] Speaker B: Yeah. I think if you, without going through all the cliches, but failing to plan is planning to fail youl know, if you, if you've got a strategy and you've got a trading plan and you're getting involved in the market, two things can happen. One is you're making money or you're losing money. If you're losing money, why are you losing money? Are you losing money because your plan is failing or are you losing money because you're not following your plan strictly? But you don't know that unless you've actually documented what you want to do and how you want to go about this business of trading and actually just measured your success and measured those failures and look to tweak that plan as you go forward.
[00:11:25] Speaker A: So I think let's look at some of these components in a little bit more detail. So the first one you raised was this concept of goals and ambitions. All sounds lovely. The ambition surely is just to make money. No, I'm kidding. I think it's a little bit more nuanced than that. So what would these goals be? Would they typically be financially based? I want to make 1000 rand this week, I want to make 10,000 rand this week. Or is it other stuff like I want to try out a specific strategy this week?
[00:11:47] Speaker B: Well, I mean, it's, it's different for each person, but it just needs to be clearly defined. I mean, the overarching factor is we all in the business have to try to make some money, aren't we? So, you know, your goal is to make a profit, but you know, what is a, a feasible return? You know, can you make 20% a year or 100% a year? Or, you know, what is, what is a feasible return and what can you achieve? So start off with, you know, I think monetary could be one of the goals. The other goal might Be to be disciplined in your approach to trading, being able to execute your strategy. It's multifaceted. But you know, as in life, you've got to have goals and got to have targets. You know, you can see whether you can achieve those targets or not.
[00:12:23] Speaker A: Yep, that makes perfect sense. And of course you've got to be realistic in terms of how much time you actually have to achieve these goals. Because if you're working a full time job and you have two kids and everything else, you're not going to be doing a huge amount of day trading, I don't think, or if you are, you are going to just have a bad outcome from all of this. So how do you find a way to make it all work? Is that part of your trading plan? Would you basically say look, this is how many hours I have a week actually this is when I'm going to trade. Or something we've talked about on previous shows which is just set the trades up and let them run in the background and put in place your stop losses and keep an eye on them. We actually have talked about some of that stuff of how to fit trading into your life, lifestyle.
[00:13:03] Speaker B: Yeah, I think that's very, very important components in terms of how much time do you have to allocate to the market. It's funny when you start looking at the people that are trading very, very short term. So we talk about the day trading, the scalping, you know, and that type of stuff that generally requires a lot more time, you know. And I know most of the people you know, maybe listening to the podcast and that are, you know, they have day jobs and so they don't have all day to sit and watch markets. You know that time allocation, when do you have time to look at markets and which markets are open when you have time to trade.
If you're busy during the day, maybe something like a trend following approach or swing trading approach might be more appropriate where you holding a position for a couple of days to a couple of weeks, that's really just assessing your surroundings and what you can allocate to the market. So if a person is, for example we mentioned the US indices, for example, we recently introduced an Iran based account with ignorance. So if you were trading, you know, you don't have time to trade the South Africa 40 index or if you're an index trader during the course of the day or maybe you have some time in the evening and maybe that's, you know, that's the type of market that you'd be trading, maybe you're looking at a 24 hour market or 24 hour market, like a Forex market, might be more suitable to you, or if you'd like to, you know, have a little bit less time, you're doing a little bit of analysis in the evenings, you want to set your orders in there, into the market and let it trade for you. Hold your positions for a couple of days to a couple of weeks. You might be more suited to trading shares and equities, you know, in a derivative format. So it really is just knowing your own limitations in terms of time when you can actually trade and that will just dictate the frequency with which you are trading within the market.
[00:14:41] Speaker A: Yeah, it really comes down to just playing to your strengths. Right. It's that business plan points again, it's like, what can you realistically do? It doesn't help to set yourself an unrealistic plan. You know, pick markets you can trade that suit your lifestyle, suit your abilities, suit the amount of research you can or can't do. It really does make a lot of sense. And of course, the other thing you have to think about is how you will manage your risk. This is something that we've just kept on driving home this whole podcast season, is how important risk is. And it's not just whether or not we use stop losses. Right. It's also the maximum that you might be willing to risk per position. And overall, I imagine it's very easy to get drawn into a situation where, you know, I don't want to use the word gambling lightly, but I think that if you don't have self control in the world of trading, it can very quickly go down that road to say you just keep throwing money at it. Oh, this, I know that was a bad outcome, but you know the next one's going to work or you get greedy and you think, well, I'm on a purple patch here. I've had a really great few days. Let me now dig into the savings account. You've got to be super disciplined with this stuff, right?
[00:15:40] Speaker B: Yes. So, I mean, risk management is key. I think it's probably the most important thing. You know, high risk, high reward, you know that that is the environment. And the first part of your game is a defensive one. You know, general guidelines. You know, in the short term trading there, you're not under a small 1% of your portfolio in any one trade, maybe up to a maximum of 5% if you are a bit more risk tolerant. So in terms of managing your risk, there are other risks to the market and we do find Especially new traders, they tend to, you know, there's emotion. We've always talked about the emotion and that's something that obviously need to be aware of. You can't stop emotion be aware of. But common mistakes when we're talking about risk, but common mistakes we do find is that traders might have a win or two and then get a bit overexcited and over trade. So trade too frequently through that euphoria. And also trading too big, taking too big position sizes relative to the money in the account. Those are two of the most common mistakes we do see traders make. So in terms of managing risk, there needs to be a bit of a discipline there. It needs to be a self awareness of your emotions, of are you trading through euphoria? Are you trading through depression? There's a friend of mine who always used to say he had one rule about trading, he says, and he put it in his trading plan. He said, don't trade when you're sick. He thinks that when he's not feeling well, he doesn't think his ability for rational thinking is always there. To each their own. But managing risk is the most important part of trading in my opinion.
[00:17:14] Speaker A: Yeah, it certainly makes sense. And you've got to, you've got to figure out what works for you. I mean that's the point of a trading plan. It's specific to you. There's no one size fits all where you need to then follow someone else's plan. That's not going to work. So this also talks directly to routines. You know, your routine is going to be very specific to you and something that you raised as well when we were thinking about doing the show. And you know, this concept of a trading diary which sounds very old school, it's kind of a nightly Dear Diary moment with pen in hand, you know, writing about your trading day. I mean, would you say that most trading plans genuinely are that kind of handwritten notepad next to your computer while you're trading? Does that drive better discipline? Do you find that people like type it? I mean it's, it's obviously probably specific to people and their preferences again, but I'm just curious what your experiences have been and what you find most traders have done.
[00:18:01] Speaker B: I think you'll end up with a whole loads of different spreadsheets. You know, if you're trying different types of strategies, you might have, you know, these Excel straight sheets just tracking your progress and your reports and obviously, you know, there's a lot of reporting from your trading account that you can get as well. But I think keeping a diary is a very, very important tool and the discipline to keep following it. I mean, I'm not always the most disciplined with it, but it is, I try to. And I find that my ability to improve my own work is much better if I can actually just track what I do and just simple things like, you know, why did you get into the trade?
Why did you exit the trade? Were your assumptions correct? Do you use a stop loss? Did that stop loss hinder the trade? Did it keep you out of trouble or was it too close? Maybe if you had a, you know, a difference level stop loss. But the point is, you know, that that trading diary just helps with that, helping you understand what you're doing and you can reflect and just see where you've gone wrong and where you've gone right. You know, at the end of the day you need to, you know, you need to see if your plan is working or not. And the diary is going to really help you with that. It's going to help you identify the strengths and weaknesses of that plan. I suppose it's like buy the rumor, sell the fact this is what we think is going to happen in markets and this is how we're going to be trading. And when we actually start to implement this strategy or this planet, this is what really happens. So continual self assessment. Continual improvement. Self improvement, yeah.
[00:19:31] Speaker A: And that, and that kind of almost answers the next question, which is, you know, how often should you really be doing the self assessment? And like you say, it's pretty much continuous. It's striving for an iterative process where you are checking in on what you thought was going to happen. Here's how it played out and I think just being honest with yourself, you know, it's like when you go and play golf, you can always very easily cheat very easily, but what's the point? You know, it's your score at the end of the day and if you are getting better by cheating, then you're only cheating yourself. You know, what are you even doing? So rather go through the hard yards, go through the process. If you waive it from your trading plan, then you know, you've got to make note of that and you've got to be honest with yourself and really think deeply about this stuff because it can really swallow you up. I think the world of trading can be incredibly exciting, but it is something that you need to treat with immense respect. And I think a trading plan goes a long way towards just keeping you on the straight and narrow. You know, it's it's just a really good way to go about it. You're not just going out there and hitting golf balls in every direction known to man. You know, there are 18 holes you need to play. That's the plan. You tee it up. Every time you look down the fairway, you figure out where you're going to try and hit the ball. It's not always going to go to plan. In fact, in my experience, it will rarely go to plan on a golf course. But that's, that's kind of how it is, you know, and then you adapt and you do the self assessment and you try and grow and you try and keep your head in the game. It's not for everyone, but for those who get it right, it's a really rewarding and lucrative way to do things. And that's. That's probably a good place to leave the season, to be honest. I think we've got more than enough content for people to go and engage with, to go and just figure out if this is for them to go and listen to. Again, make notes, you know, use the episodes for what they are, which is an evergreen resource about trading. You can go and listen to specific ones. It might catch your eye. You can listen to the whole season from start to finish. If you go onto the ghost mail website, you'll find all of the transcripts there as well. If you prefer to read rather than listen, there's a lot to engage in and there's a lot to read. So, Sean, thank you. I guess just for this whole season, really. It's been a good few months of effort to produce this podcast season. I think it's a lovely resource that will make a difference to people and I appreciate all the time you've put into it.
[00:21:35] Speaker B: Great. It's been a pleasure.
[00:21:37] Speaker A: And of course, for those who haven't yet done it, go and open a demo account. By this stage of the season, if you have still managed to not open a demo demo account, then there's nothing else to wait for. There are no more podcasts coming, so go and get it done. And all the best to you in the markets. Good luck.
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