By McNew, Leslie
Futures (Cedar Falls, IA) , Vol. 33, No. 13
It's said that a trader has to pay his tuition to the markets to eventually be successful. A unique class and independent internship program are putting that theory to the test. Here's their story.
Education evolves with student interests, and as students of trading become more interested in classes that bridge the gap from financial theory to real world application, universities are offering more of what are known as experiential learning classes.
As a professor in the AB Freeman School of Business at Tulane University in New Orleans, one of my classes is on trading of the spot foreign exchange market, in which students leam how to day-trade the EUR/USD relationship, using both the art and science of technical analysis plus a heavy dose of applied economics in the framework of fundamental analysis.
Successfully completing the trading class, both in grades and the in-class simulation trading, is a prerequisite for applying to interview for summer trading positions with the independent company N3Q inc. (doing business as the McNew Pelican Fund). While the McNew Pelican Fund is not affiliated with the Freeman School or Tulane, negotiation of basic training offered in FINC 480/780 is a must. The goal of this experiential learning program is a seat as a trader for the McNew Pelican Fund.
The first half of the class is divided into five distinct training periods: economic fundamentals, western technicals, eastern technicals, building a trading plan, money management and psychology. While technical analysis is invaluable (western and eastern technical analysis is taught - trend recognition and candlestick entry and exit points), a healthy base of applied economics is stressed to illustrate macro trends. In day-trading, fundamentals (capital flows and trade flows) can help illustrate a technical breakout or reversal. Thus, knowledge of balance of payment economics is critical, and students must be aware and be able to react to economic news that moves the markets.
Materials used in the class are varied. For technical analysis, we use as a base Toni Turners' A Beginner's Guide to Short-Term Trading and Steve Nisons' Japanese Candkstick Charting Techniques, as well as more than 200 Power Point slides developed to illustrate actual trend and technical patterns that have occurred in this market.
Fundamental material is more tricky. I have developed Power Point slides to illustrate about 27 monthly or quarterly key economic data series. My recommended text is The Wall Street Journal Guide to Understanding Money and Investing. This book is lacking, but short of assigning an economic text and reteaching macro theory, it covers the basics. The class also uses the Web site www.briefing.com for daily and historical economic analysis.
It has been said that almost 40% of all beginning traders lose 100% of their trading capital in the first four months of trading. Learning the method of trading, fundamental and technical analysis used to spot trends, entry points and reversals, is the easiest part of learning to trade. Where my class differs from the norm is that I stress the phrase "plan your trade and trade your plan." Building a trading plan, learning sound money management skills and psychology are emphasized. There are six basic rules to trading, and only the first two encompass learning the strategies for buying or selling:
1. Locate and go with the trend.
2. Buy low and sell high (or visa versa).
3. Let profits run; cut losses quickly.
4. Add to a winning position and not a loser.
5. Conserve your capital and wait to trade another day.
6. Practice patience.
One of the best books on mental discipline is Alexander Elder's Come Into My Trading Room. However, one of the problems with this book, and other books that stress following your trading plan, is that they don't explain, exactly how to build a beginning trading plan. In the class, students learn how building trading plans and systems forces you to make concrete decisions and provides you with a way to measure progress and discipline. …