Ask Colin

I have studied the SIA technical analysis subjects, but cannot decide on a system and technique. What should I do?

Most people go through the stage that you are in. It often takes people a few years to settle on something that suits them.

You should first try to decide whether you feel that you want to be an investor or a trader. This will determine the timeframe for the trends you should be interested in.

It may be that you want to trade some of your money and invest the rest. This is OK too, but you will most probably need to have two different techniques and systems.

The next step is that you should write down your trading plan. Don't try to be perfect at this stage - that comes later. However, you need to write down something. That is where my videotaped seminar Building Wealth Through Shares comes in, because it is aimed at teaching you a model for a trading plan.

If you are intending to be an investor, you can start with my plan from the videotape. Then, you can think about what each part of the plan does and if you are not comfortable with the technique I use, you can replace it with a technique you are more comfortable with from the SIA subjects or elsewhere.

If you are intending to be a trader, I suggest that you start with the method in Dr Elder's book Come Into my Trading Room. Write it down in the format of my trading plan and again replace any technique you are not comfortable with from your studies.

In arriving at what you are comfortable with, in either case, I suggest you start with my plan or Dr Elder's plan and paper trade it. You will soon see how each part of the plan works. If you think there is a better technique, replace that element of the plan with a different technique and again paper trade it. Keep doing this until you have something that seems to work for you.

Then you can take the plan into the market. You may find it works fine. Alternatively, you may find, as many do, that it worked OK on historical prices when there was no money at stake, but you are not comfortable with it when you are in the market using it. In that case, you go back a step and paper trade a revised plan, prove it works and then take that into the market.

I strongly suggest that you test your plan on shares first. If you can demonstrate that you can make money trading or investing in shares, over a year or more, then and only then should you consider trading derivatives like options, warrants and futures. And do not trade with borrowed money until you can make money with your own capital.

Most people find that it takes a few years of study and a few years more of trading experience before they come up with something that is profitable and which suits them.