There are a series of steps which are highly important in the journey to becoming a professional trader. What I mean as a professional trader, is to be able to successfully trade for yourself, with your own money and live off the returns.
To be brief, the steps include learning how to trade, how to use your trading platform professionally, how to manage and improve your emotional and mental state, reverse engineering your required income and piecing it all together.
Learning how to trade
In order to star your journey, you will first need to learn the core concepts of how to trade, and more importantly how to trade profitably. This will likely take some time and will be ongoing throughout the remainder of your journey.
Learning to trade will consist of watching the markets, trading what you think will work, reviewing your trading, learning from professionals and learning trading and analysis techniques.
This is one of the most challenging parts of trading and is probably the most talked about in the retail trading space.
Things you can do to learn to trade include learning core concepts such as support and resistance, trendlines and indicator uses and how they work. Do not spend too much time on these, but understand how they work and what the are used to identify as we will touch on this later. You will be shown that indicators alone are not very useful to use for trading systems.
Understand that it is all a function of price, and where price is relative to the value of what you are trading. The market is either imbalanced and moving towards the next likely balanced trading zone, or it is in balance in a price area where the market is happy to conduct trade at. Price is relative to current uses and needs, but also relative to future potential. As ideas and concepts are coming to fruition, price will look to reflect these future conditions, so be careful that once you hear of the ‘news’ that the market hasn’t already moved to those conditions you are just hearing about now.
Targets, stops losses and risk management are all massive parts of trading. A small target may not be enough to remain profitable if you lose one big loss. A small stop loss may cause too many losses before you see gain, and risk management is probably the most critical part of trading that there is. Understand that you will be wrong in your analysis at times, and risk management is the only thing that will keep you in the game for the long haul. Treating your trading like a business, means that you need to be able to operate tomorrow, and the next day and well into the future. Never risk it all on something that looks good now.
Take courses with traders that seem to trade in a style or circumstance you like, work out what works for you and what you would like to do as a trader. Do you want to sit there all day taking snips here and there, or watch the open times and make your money once or twice a day, or perhaps will you trade on a more longer term scale, waiting for the time to strike?
Define the markets that appeal to you, understand them deeply, perhaps even choose a market and zone in on it to become its master.
Learning to code in the language of your platform will also be of great help. This will also be quite a journey, but you can easily define what can work unconditionally and what will cause a strategy to fail either short or long term without having to trade it manually for years. This will fast track your learning and remove any misconceptions you feel about the market. This is due to a process called back testing (using the program, not manual) and at the press of a button you can see what works and what doesn’t in a time frame you choose to trade it. This process will also help greatly with your understanding of risk management, targets and stop losses and the effect they have on a strategy.
Start trading (even if it is a demo, use a demo until you are profitable and confident). Trade as though you are a professional, never losing more than 1% of your account in a trade. Keep your drawdown minimal, around 2 – 4% maximum if you can. You are effectively building a useable data set for future steps. I call this the “Fund Manager Account” which can be used to provide to firms or institutions for verification of risk and return if required, and also to copy onto other accounts for money purposes.
Get the percentages working, then the dollars will come.
How to use your trading platform professionally
Using your platform as a professional will mean learning every aspect about it. How to use the tools, how to use the areas of navigation and how to create the chart setups you need. This is also about using the coding segment of your trading platform and being able to create your own tools and trading algorithms. This may sound daunting, but cut to the chase, and become a professional, one that is a true professional that is holistic and unstoppable.
Understanding your platform to a high level will help to reduce any potential mistakes, fix issues faster and become a better trader. The less you rely on support of any company, the less issues you will face and the more independent you will become. Remember, one slip in trading, one period of being offline or unable to trade can be costly or have huge opportunity cost.
This is phase two, however this is something I would start to work on in the first week or two in conjunction with trading strategy studies.
How to manage and improve your emotional and mental state
Once you are trading and have confidence in your decisions, the next step is to manage and improve your mental fortitude. Become unstoppable as a trader, and unshakeable so that nothing can sway your decision if it is what the market will be reflecting in the coming trading period. A clear mind and a focused brain can have massive impact on your trading. It will negate any silly decisions, overtrading or over risking and will be one of the most useful abilities you have as a trader.
Traders sometimes know the market well, but make the opposite decision due to frustration of a trade not going the right way instantly, or will over risk on a trade due to over confidence and a want for money now. The market gives what the market gives, no more and no less. Respecting the market, something you cannot control is of huge importance if you are to become a professional trader attaining the freedoms that are given by the gaining status.
Concepts such as meditation, health and fitness, diet, water intake, sleep, sunlight, positivity and thought are just a few.
Global Finance Trading is currently exploring neuroscientific options to enhance and maximise brain function.
Train to be smart, clear, focused and disciplined.
Reverse engineer your requirements
There are some common misconceptions of traders either lose or become millionaires. Sure, in some cases this might happen and I have seen some situations where a lot of money has been made through trading.
The concept of freedom doesn’t necessarily come from having huge capital, it comes from having cashflow. Ongoing cashflow that is controlled by you, derived with reasonable consistency and that can be trusted long term to bring you money.
In order to understand your requirements, you first need to know what you are happy with in terms of a goal. This goal might be enough to live off, or a partial amount of living costs that alleviates common pressures of life or to fund other projects you wouldn’t normally spend your normal income on. Your goal is completely up to you, but starting with something that is achievable will be of great help.
Step 1 of this task is to set a figure you are targeting, as a monthly dollar target. This might be $2,000 per month. This would work out to $500 per week.
Step 2 of this task relates back to learning how to trade. Work out your average return per month.
You first need to have a reasonably consistent or profitable return over a year. Let’s say your average return is 2% per month.
Step 3 is to now work out the capital requirement you would need based on these returns. It is best to use returns you are actually achieving, from there it is simply a matter of repeating this process rather than chasing something further and further.
The capital amount is worked out by dividing the target income by the percentage return. In this example, it is $2,000 income per month divided by 2% (0.02 on a calculator) which equals $100,000.
Step 4 is to work out your actual risk tolerance. Using the data you have been building when you were learning to trade, you might be able to work with the figures and assess the maximum loss you would have incurred with a higher risk tolerance, or perhaps which markets you will not trade anymore and the markets you want to focus on long term. If the maximum drawdown on the account was 3%, you might have a risk tolerance of 5 times that on another account. This would create far higher risk however would shave 5 times the amount off the capital. So getting the same returns and risks, and you earn 2% on your “Fund Manager Account”, this would copy across to say a $20,000 account ($100k/ 5 times risk multiple), which would bring in $2,000 for the month.
The first step, before setting dollar targets is to prove you can consistently earn between 1% – 3% per month with limited drawdowns in a “Fund Manager Account”. If you can successfully do this over and over with confidence, you can easily copy from this account onto other accounts with differing risk appetites.
Piecing it all together
Becoming a professional trader has many steps, and isn’t an easy journey. The freedom that comes from this journey however, is great and allows for opportunity to make your own choices, uninhibited by the people that generally would dictate your daily activities.
Using a copy trader or other method to use your “Fund Manager Account” to copy across to other accounts will make it much easier to transition from trading small and risk averse. You simply continue trading as you always have, on the smaller account while your larger accounts copy what you do at higher dollar values. The psychology of this is that when people trade larger money, they make different decisions. Trading the smaller “Fund Manager Account” takes a lot of this pressure away, trading the market itself rather than your dollars, and focusing on achieving a percentage return rather than adapting to the money going in and out.
To recap, learning how to trade and becoming profitable is step one that will last throughout the steps. Learning as you go, you will master the platform and understand strategies and what influences a system to work or fail. Then, mastering your mind and mentality will be key in sustaining the ebs and flows experienced by many traders. Sustaining a losing trade or losing day, and coming back to fight another day is a huge step in the right direction. Once your become consistent over a series of trades, with records you can trust in and adapt to, you are well on your way to obtaining freedom through trading financial markets.
Tell us where you are on your journey, your experience to date and if you have gone through each one of these sections outlined above in your own journey. What do you endeavour to do moving forward?