Most new traders starting out have similar trading questions. While strategies and trading psychology are tackled at a later stage, new traders typically want to know:
Can successful short-term trading actually be done?
Can it provide a living/income?
How long does it take to become profitable?
How does one get started?
I recently received these question in the form of an email from a new trader. I liked his versions of the questions because they open the discussion up to other issues…such as the economy (and how it might affect trading), and some trading myths. If you’re a new trader, you’ll likely find the responses helpful.
1. Is online trading a business that still welcomes newcomers, or is it hard for them to get a piece of the cake, compared to veterans and given the global crisis (trade wars, etc.)? While trading is welcoming, in that it’s typically easy to get started and has low barriers to entry, it has never been welcoming in the sense that it’s easy to make money and hold on to it. There are times when it’s easier to make money. For example, short-term trading was very popular during the Tech Bubble leading into the year 2000. When an asset is moving in one direction, a lot, it’s quite easy to make money. But to continually grow capital–and not lose it when conditions change–is not easy. Very few new day traders who saw a brief period of success during that time were able to continue producing profits…they gave it all back. With a solid strategy and the right mindset, it doesn’t matter what’s going on in the world. There will always only be a few, of the many, how are very good at something. Day trading and swing trading are no different. There will always be only a few people who make money short-term trading, and the vast majority will lose, even though they have some brief periods of success. Nothing has changed. Trading is a hostile environment. Newcomers are always welcome, but a piece of the cake is always hard to get. This doesn’t have to do with global circumstances though, that’s just the way it is in a zero-sum game (actually it’s a negative-sum game). With a sound trading method, volatility, a crisis, or a trade war isn’t an issue. A trader learns to adapt to changing market conditions, including changes in volatility, volume, and direction. While the article discusses day trading the forex market, many of the concepts are applicable to longer-term trading and other markets as well.
2. Does trading allow for a mid-high quality lifestyle (or free of economic pressure at least) if one sets themself to it? It depends. Like anything, in trading you’ll face your own personal glass ceiling(s). For example, you may have a $10,000 account and make 10 pips a day on average, producing $100 on average per day. In order to make more, without risking more, you’ll need to grow that account, so you can take larger positions. By taking bigger positions, you don’t need to change anything. Just keep making 10 pips (or whatever it is that your methods produce) a day, but with a larger position so that the $100 per day becomes $120, then $150, then $300 and so on. That is very hard to do actually. Most people start fiddling with things, and trying to make 20 pips instead of 10 pips. By doing so you basically change what allowed you to make 10 pips consistently in the first place. New traders need to learn not to tinker so much. Develop consistency first, and then grow the account using that method so you can take bigger positions. In this way, you keep the consistency and can slowly grow daily/monthly income. Whether the income provides a high-quality life is up to you. I know many people who make lots of money, but spend even more. I live in an affluent city, but there are many wealthy people living paycheck to paycheck. So money doesn’t determine quality of life…choices do. Trading can produce a great income in a few hours or less a day, but how the extra time and money is spent/not spent is the true determinant of quality of life. Making 10%+ per month is a reasonable expectation for a day trader (if using leverage and risking 1% per trade). Good traders make more. With swing trading (because there are way fewer trades than a day trader would have), 4%+ per month is reasonable. Again, good traders will make more. Keep in mind, trading is not like a job where you get the same pay each month. Trading income will fluctuate. Please read the linked articles to understand how these averages will vary. This is for the people who actually become successful. Overall, a very small percentage of people who try it will make a living at it. The main reasons for failure are:
Impatience. You are becoming a “pro” at something…it takes time and a lot of practice. No one expects to become any other potentially high-paying profession overnight, yet people have this delusion about trading.
Not practicing the right way. Most people don’t make self-assessments, like “Is what I think should work actually working?” To become successful and stay successful requires constant self-checks.
One thing I must point out which frustrates to me to no end is the when people say “Well, if making 20% a month, in less than 10 years I/you will be a Billionaire!” Not quite that simple. The more capital you have, the harder it becomes to deploy that capital efficiently. Also, as mentioned, each independent trader typically has a glass ceiling. They reach a level they are comfortable with, whether it is a position size, or a monthly income, and they stay there. Yes, it is possible to push beyond this but many traders don’t want to…because they would need to start working on their psychology and possibly their strategies, risking what they already have. Trading is about lifestyle–working less, enjoying what you do and having enough money to enjoy your other interests. Also, you may simply cap out in your market. This is especially true for day trading; you eventually reach the maximum position size you can efficiently trade in that particular contract, forex pair, Cryptocurrency or stock, If you increase your position size to make more money, the size of your positions will actually work against you to reduce your income. You are capped out, at your ceiling, and it will now likely take a fair bit of work to continue the upward progress in income via finding other trading opportunities/strategies. There is a very wide pay scale in the markets…as an independent trader it’s up to you where you fall on that scale.
3. At an average dedication of 2-3 hours a day, how long does it take a beginner to become an independent trader with the necessary tools to also make auto-improving assessments (i.e. recognizing mistakes and having the tools to correct them)? I say 6 months to a year, because 6 months is how long it took me. Some others I know took about 1 year. Many other successful traders will say it takes much longer: multiple years. I can only discuss my own experience. To help speed up the process, put in some time on weekends during this initial phase. Therefore, put in 14 to 20 hours a week for at least six months. When I first started in 2005 (no prior experience) I worked on my trading about 7 hours a day (during the week; no weekend work usually), was barely profitable after five months and was making a regular income in month 6 and after. That’s five months working 35 hours a week before I saw any payoff. That is about the same or quicker than most of the other day traders I personally know (and I know lots). See How Long Does It Take to Become a Successful Trader? to get more details on what’s required to really succeed. If you work and only have a couple hours to trade a day, trade the same two to three hour period each day and develop consistency, and trade the same asset each day. Focusing on very specific things is a much quicker path to success than trying to trade and learn everything. For swing trading, look for your trade setups at the same time each day–it takes about 20 minutes a day. Take screenshots, with comments/profits/losses/trades of each day you trade, and save them in a folder on your computer according to date. That way you can go back and look at what you did each day under the circumstances of the day. That is the best way I know to review, self-assess tendencies, and notice problem areas. In 6 months to a year, a dedicated person should be able to develop consistency and start building an income. The 6 months+ of practice should give a good idea of how much that income will be, and what it could be if the account continues to grow or if more capital is used. Once consistent in a demo account, start trading with real money, and make sure you have a few months of profitable live trading under belt before giving up other income sources/job. The “self-assessment” part of the question is critical. Just putting in hours isn’t good enough. Practice doesn’t make perfect. Perfect practice only leads to improvement. Very critically look at what you are doing. Study charts to see if what you are doing would work in alternative scenarios. Is what you are doing working? Are you seeing improvement? Why, or why not? If you aren’t, you need to continue asking “Why?” Until you get to the point where you are actually practicing something that can eventually be profitable, you are just putting in hours, not practice. Practice is actually practicing something specific to become better at it. Most people just put in hours, trying random things (not specific) and therefore never improve. 4. What would you recommend as a path? Your e-book then go for a test run on a platform with a minimum deposit while reading your blog/also keeping up to date with global news? This is topic is covered right at the start of the book. Pick one or two strategies you like. Develop a trading plan–how you’ll trade the strategies (time of day, which assets, position size, etc.). Then start practicing in a demo account. Before switching to real money, you should be profitable in the demo account for at least 3 months. Yes, you can read the blog, but try to only read posts that are related to what you are doing. Remember, focus on specifics (discussed above). Once you’ve picked a couple strategies to focus on, and are building your trading plan, you’ve created your “trading home”. Live inside that home. There’s nothing for you outside. Just focus on learning those strategies and practice implementing your plan. That is it. Your search is over. There’s no more need to ever visit another financial blog or watch the financial news again. It’s all irrelevant once you’re trading a strategy that works. I have practiced my strategies to the point where they make money in all types of market conditions (this is where you are headed). So why would I need someone else’s opinion to trade? I don’t, and you don’t. I do seek help from time to time, and you may too, but only from trusted sources and the help is limited to a specific problem area. Watching the financial news will NOT help your short-term trading. There is no reason to watch it except for entertainment/conversation with buddies. If you watch for entertainment, don’t let it affect the proper deployment of your strategies. As a day trader or swing trader our only job is to take trades based on our strategies. No strategies covered in my book or swing trading video course discuss global events…they are irrelevant to consistency and will only serve to make you question your strategies or take trades which aren’t part of your trading plan. The only exception is that you need to check the economic calendar daily to avoid day trading during major scheduled economic events (interest rate announcements, etc). We don’t care what the outcome of the economic event is…we just don’t trade for the couple minutes around its release.
To simplify: Pick one or two strategies > develop a trading plan > practice in a demo account > once profitable, switch to live. At this stage, if you struggle, you need to do more research on trading psychology. Once you have your basic strategies and trading plan, it is all on you…there is no need for outside opinion. De-clutter and focus on practicing the implementation of your strategies perfectly. If you need guidance, seek help or read up on that particular issue, but avoid bombarding yourself with a whole bunch of useless trading opinions. There is so much information that it is easy to get sidetracked. Stay the course. That is what builds consistency, and allows for the all the things discussed throughout this article to become reality.