Learn How to Trade Profitably

By John Pontikas and Brian Dibbins

Chapter Two

Introduction to Trading

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This chapter provides an introduction to trading, and explains that successful trading requires a trading plan, and attention to trading psychology.

By backtesting and paper trading a trader can test and gain confidence in their trading system and learn which markets their system can be applied to successfully. Our objective it to preserve our capital and make it grow, so we do this by trading with market sentiment (the trend) and taking high probability trades.

This chapter also provides some background information on the authors; John Pontikas and Brian Dibbins.

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Trade Profitably Introduction to Trading.mp3

Introduction to Trading.

In order to trade the markets, one must have a trading system which consists of entries, exits, risk/money management, and trading psychology.  Personally, we are not interested in the long term approach.  We are more interested in what is happening at present.  Our objective is to identify strengths in the market, and not to necessarily diversify.  By diversifying, we may win some and lose some, which brings us to a break even situation.  Our objective is to preserve our capital and to make money from the markets.

Personally, we do not pay attention to media or news reports, because the majority of these are based on fundamental analysis.  We are predominantly interested in technical analysis and what the charts tell us and not what other people think.  When it comes to trading, we do not think, we respond.  We always follow the direction of the trend, and only trade in the same direction as the trend.  The trend is our only friend when it comes to trading, if we go against it, we are bound to lose.  By trading in the same direction as the trend, the probability of a successful trade is much higher.

In order to be successful at trading, one must have a trading plan, which has definitive rules, and these rules must have a solid mathematical basis and they need to have been backtested through all market conditions; bull, bear and sideways.  The business of trading is not about being correct, it’s about achieving one’s financial objectives.  To achieve these objectives one needs to follow the trading plan and be disciplined.

We believe that twenty-five percent of a trading plan is charting, whilst the seventy-five percent remaining is all psychological, which we will cover in more detail later on.  Ninety-five percent of traders have no plan, hence they fail.  The life expectancy of a global trader is seven months, before they erode all their capital.  In Australia, that statistic stands at three months, once again because these traders have no plan.

We back test and paper trade every stock or market we are interested in trading.  This helps our subconscious mind, gives us faith and confidence in our system and also helps us to identify strong markets compared to markets that move sideways.  We always trade what we see and not what we think.  Professionals always count their money at the end of the trade and not during.

We trade market sentiment.  If the sentiment is strong, we have a bullish view.  If the sentiment is weak, we have a bearish view.  The best way we have found to determine this is to look at the chart, as the chart displays actual price movements and is a factual representation of market sentiment.  The secret to successful trading is to preserve capital and make that capital grow.  The way we achieve this is to trade a system that we have backtested, paper traded and have confidence in applying.  This gives us a high probability of overall success, and we are only interested in taking high probability trades that meet our trading plan.

This document explains how we achieve this, but first let us say…

Welcome to the wonderful world of trading.

John and Brian

About the authors:

John Pontikas has a business background in the wholesale and retail industry.  His trading career began in 1999, after attending numerous courses, reading many books and obtaining private mentoring.  Despite this hard work, John found himself over $200k down after his first three years of trading.  While most people would probably have given up trading, John accepted the challenge and distilled all of the knowledge and experience he had gained to identify what would have worked over those same three years. The systems he developed are the result of countless hours of backtesting, refining and eventually trading successfully. He then shared these systems with family and selected friends, and now the general public to try and prevent other traders from suffering the heartache and losses that he did.

Brian Dibbins worked in the employment services industry for over 21 years helping people to find employment until leaving work in Feb 2006 to trade ‘full time’. He began trading in January 2005 with mixed success.  Despite implementing a bullish strategy in a bull market, he still managed to lose profits gained as well as part of his original trading bank. He accomplished this the same way most new traders do; lack of a trading plan with clear rules, trading on emotion, failing to backtest, lack of stop losses, and so on. After attending training with John and testing and implementing a working system, the mindset and discipline to trade effectively and profitably followed. The friendship formed during the follow-up coaching developed into a partnership as they both shared a common desire to help others avoid losing money trading as they both had done.