In his BBC television TV show Million Dollar Traders, former Goldman Sachs trader Lex van Dam trained a diverse group of eight people with no trading experience for two weeks, after which he handed them $1 million of his own money. They then traded his money for eight weeks, and ended up outperforming the professionals.
This training program they followed serves as the basis of 5-Step-Trading® Stocks
The goal of 5-Step-Trading® Stocks, which is primarily aimed at beginners, is to give you a good grounding for trading and investing in the stock market. Our main ethos is to help Main Street understand the methods of Wall Street.
Lex van Dam is regulated by the FCA and the Academy adheres to the highest professional and ethical standards.
Why take this course?
Lex van Dam is one of the leading financial educators in the world.
This course covers everything you need to know about trading stocks. The 5-Step-Trading® Stock course is the culmination of everything Lex has learned about trading in the financial markets. It has taken him twenty years to get to where he is today and the courses he has written serve as a robust basis for those who want to learn more about trading and investing. Lex’s 5-Step-Trading® methodology takes you from Idea Generation through to Technical Analysis, Chart Analysis, Trading Psychology and Risk Management, and you will also learn some of the most important and necessary ingredients for trading and investing in Stocks.
The first step in 5-Step-Trading is Idea Generation.
Stock Idea Generation
Lex discusses the basics of trading and investing, how to find good trading ideas, and how to avoid common mistakes. This module also investigates general market direction and stock market history to help put ideas into perspective.
Original ideas are KEY to successful trading. This module shows you why you need to have your own ideas, and how to find good ideas. Without good ideas it is very unlikely that you will make money consistently.
Most people already go wrong at this first step: they listen to people on television pushing certain shares, they follow their friends’ tips, or they trade based on rumours from the Internet.
Wouldn’t it be great if share trading were that easy? You wouldn’t have to do any work, and the profits would just keep rolling in.
In reality it’s nothing like that. If you listen to other people you tend to lose money and it messes with your head because you are never quite sure why you actually traded in the first place. Also, people will tell you only about their winning trades and never about their losing ones.
If you want to become a great trader you will have to generate your own ideas and do your own research. There are just no short cuts.
Equally, when you follow other people’s advice to buy or sell, it is much harder to know what to do when things start going wrong. You become uncertain — should I get rid of the position or stick with it? If it was your own idea in the first place then it is much more straightforward to decide when to get out of a position. If the original reasons why you decided to own the stock are no longer valid, it’s time to sell. It’s really that simple.
That is why it has to be your decision when to enter and exit a trade — generating your own ideas will help you do exactly that and in a more controlled manner.
Blindly following the consensus view is usually costly. Don’t do it.
Lex discusses how to take a stock trading idea and decide if the idea makes sense from a valuation perspective — what is important to look at and what is irrelevant.
Company management and research analysts cannot be trusted to give an independent view of a company and its business. You need to do this yourself. In this module we aim to show you how.
This second step shows you how to investigate your ideas in more detail. To be able to do this well you need to really understand the company.
This involves finding out about the management and products and knowing in which countries they operate. You also need to try and estimate the value of the company, so you can then compare this to the value of the stock on the stock market.
It’s sounds complicated, but luckily for us a lot of information is readily available for you to use. You just need to know what to look for.
Analysing companies is a part of trading that scares most people, but not doing it will put your hard-earned money at risk.
So before you invest your money you need to do some research into the fundamental elements that define the company.
To do this properly you have to become a company detective.
The best source of information on a company is the report they publish at the end of the year called the Annual Report. Often interim reports are produced as well.
As you become more experienced it is fun to look through these reports in an attempt to find not only what is included, but also what is not included! You will find that although company management normally tells the truth, they often hide important information, so never be naïve when you look at a company.
Here Lex shows why looking at charts is necessary before trading. He teaches you how to read a chart properly and show you which techniques should be used and how. He will look at general market indicators to put things into perspective.
Stock charts will help you decide if you should trade and if so, help you with the correct timing of that trade. Timing is everything!
Looking at a chart gives you an important picture of the stock in addition to the company analysis you have done previously. It gives you an insight into the history of the stock price and where traders have bought and sold a stock over time and it also tells you about the psychology of other market participants.
In practice, trading is not exactly a calm experience. Stock markets are very volatile and you really have got to keep your eye on the ball and not get carried away. Even after almost 20 years of trading for a living, Lex still finds it psychologically very challenging.
And he is not the only one! During his trading career Lex has seen some people break down and cry in trading rooms. He has seen computer screens broken and phones smashed. The stress of losing money affects every single trader no matter how much experience they have. Trading is an emotional activity and if you fail to take account of that then you will burn out very quickly.
It is the mental game that ultimately determines who wins and who loses. To be successful you have to control your emotions and not let them control you. For this you need to know yourself and understand your mental weaknesses and strengths.
That is why Step 5 is Trading Psychology. This module will teach you the issues that are important to understand, plus how to strengthen and focus your mind to make the right trading choices.
In the first part of the module Lex will look at human psychology and how that can affect your trading.
He will also look at the skills that are important for good traders so you know what to focus on.
In the second half he will look at common trading mistakes and how to avoid them.
In Step 5 you are going to learn how to manage your risk and avoid putting all your eggs in one basket.
Risk is an inherent part of trading. Without taking risks you will not make much money. However, you have to make sure you stay on top of the risks you take and in control of them.
An essential ingredient to controlling risk is to invest only in stocks that you have thoroughly researched.
In this module Lex teaches how to end up with a portfolio of stocks that work well together, where everything is sized properly, with targets and stop-losses, correctly documented, and where the balance between risk and reward is right. If you do not do this you are likely to end up with large losses. Knowing you have a risk management strategy in place will help you maintain the composure you need if you want to be a successful trader and investor.
As the course comes to a close, you will have a good idea of how to go through the 5 Steps all the way from coming up with good trading ideas to managing your risk. You will be well placed to start trading stocks safely and successfully.
In his many years as a professional trader, Lex has seen and heard just about everything. When it comes to trading, people seem to make the same mistakes time and time again. In this course, Lex takes a deeper look at the most common mistakes traders and investors make, and shares tips on how to avoid them.
This is a topic you can’t think about enough. Every trading mistake you make costs you time and energy. In trading you want to use that time and energy to come up with new, original ideas, not use it to correct your mistakes, especially those mistakes that could and should have been avoided.
Despite the stories we hear about people making fortunes in the stock market, Lex believes that the majority of people who trade actually lose money. And the reason is not because they are foolish, no — it is because they make mistakes that can be avoided. And obviously, when you make fewer mistakes you have a much better chance of making some money. This is why the first part of this course looks in detail at the frequent and avoidable mistakes most traders make.
Of course, making mistakes is an inherent part of trading. Every trader makes mistakes. Lex makes mistakes. But hopefully, by discussing some of most the common ones will help you become more aware of them. Once you are aware of them, you can hopefully avoid making those same mistakes too often yourself. As a very famous hedge fund manager once said: «There are so many ways to lose, but so few ways to win. Perhaps the best way to achieve victory is to master all the rules for disaster and then concentrate on avoiding them.»
In the following modules, Lex organizes the mistakes in the same way as the 5-Step-Trading modules.
Some mistakes are made in the first step when you are trying to come up with original ideas:
— Trading consensus opinions
— Trading based on news that is already priced in
— Following the views of professional research analysts
— Basing your trading ideas on rumours
— Believing emails recommending penny stocks
— Buying a stock when ‘smart money’ sells
Others occur when you do your fundamental research (Step Two):
— Assuming that a great top-down theme will make for a successful investment
— Believing what company management tells you
— Ignoring the balance sheet
— Using current year’s earnings to decide if a stock is cheap or expensive
Some mistakes that are made in Step 3 when looking at the technicals:
— Ignoring a terrible stock chart because of a misplaced buy and hold conception
— Selling a stock because it has done well
— Trading stocks in one sector versus each other based on the concept of mean reversion
— Ignoring the story that a chart tells you because the idea seems so great and the fundamentals so appealing
A lot of mistakes are made in Step 4, where you have to look not only at our own psychology, but also at the psychology of the trades we are looking at:
— Unrealistic expectations
— Confusing bad trading results with a wrong trading strategy
— Thinking that good trading results mean you have good trading habits
— Confusing a great company with a great stock
— Confusing intelligence with trading ability
— Cutting positions because you are in pain
Step 5, risk management, can also involve the following mistakes:
— Putting on too many correlated bets
— Not looking at the volatility of your positions
— Buying more of the same stock when it drops in value
— Holding on to losing positions
In the second part of the course, Lex will give you a selection of trading tips, arranged into sections that correspond to the five steps of 5-Step-Trading, so you know where they have the most relevance.
Of course, when people hear the words trading tips they like to hear which stocks to buy and which to sell. Unfortunately, that is not going to happen in this module, because Lex wants you to learn yourself which stocks to buy and sell. In the end it is your own money, and your own responsibility to invest and trade wisely. Listening to other people is normally a mistake so what Lex would like to do here is to fill up your toolbox with thoughts and methods, and as much knowledge as possible, so that you have a better chance of making money on your own, without needing outside advice.
By popular request, Lex has also written and filmed a trading screen module. In this final module, he will share the indicators and information that he looks at every day on his own personal trading screen, which you hopefully will find very useful as well.
Idea Generation (41:37)
Company Analysis (38:55)
Chart Analysis (30:23)
Trading Psychology (26:24)
Risk Management (29:25)
Common Trading Mistakes (48:17)
Lex’s Trading Tips (46:36)
Market Indicators & Lex’s Trading Screen (27:11)
5-Step-Trading® Stocks Workbook 1
5-Step-Trading® Stocks Workbook 2