Updated: Jun 8
The last few years have seen an explosion in the education space with enticements on how to trade the markets. It seems everywhere you look a new guru emerges on YouTube or your spam filter has failed to block the latest Crypto trading strategy email. It’s not surprising really.
Most of these educators and gurus have tried their arm at trading themselves only to fail. They realize there may be more money for them in selling education, rather than trading themselves. The explosion of Crypto over the last few years has only added fuel to the fire. The school playground conversation rapidly shifted from who is the “new head of the year” to what is the latest Crypto coin.
But most retail traders - housewives, husbands, and college kids end up very quickly donating money to the markets. They quickly realize that they need to do things differently so they head out in search of education. Straight into a minefield. Which way should they go, who should they follow, and what course should they take? All these are common questions that aspiring traders ask themselves.
Well, my answer is simple. None of them!
Trading does not have to be so complicated.
This article is designed to give you a road map that you can get yourself on today. No need for expensive courses, or trading software. Everything you need is going to be right here. Follow these simple 6 steps and you will be well on your way to a successful trading career.
1. Realistic expectation
Most aspiring, rookie traders come into the markets for the first time because they want to make money. And in most cases, a lot of it. Most are unhappy with their current job. They would love to tell their boss to go “jump in the lake”. They can “work from home”, they have been told they can “work from the beach”! Personally, when I am on the beach, the last thing I want to be doing is working, but I guess the options are there. They think trading will be the easy solution to their problems and a quick fix to their dreams.
They have seen a few Youtube videos and maybe taken a course. They deposit a small amount of cash into a trading account to “test it out” and off they go. Typically traders start in the markets with $1000, $2000, or perhaps $5000.
I am frequently what is a realistic return you can expect on your trading. And I always reply with the same numbers. 4 to 5% monthly return on capital is indeed very healthy. Compound a monthly return of 5% and you have almost 80% a year. But here lies the problem. If you make the healthy 5% on a $1000 deposit you make 50 bucks in a month. If you had a $5000 account you would have returned just $250 hardly enough to pay for your Internet bill.
So, what happens is, the frustrations kick in, you take trades just for the sake of it, and you fight back and revenge trade when you've had a losing trade. All these problems arise because you are underfunded. This will more often than not result and you blowing up the trading account and giving up on the dream. But just because you only have limited capital it does not mean that you should give up on the dream. You should be thinking about the process rather than how much money you can make. More about this is in point 6.
Many rookie traders when they come to the market for the first time believe trading is all about strategy. A strategy for those that don't know is basically a set of rules that you follow to enter and exit trades. Now of course every trader needs a strategy but it's not the most important component that makes up a successful trader. But you do need one.
A strategy can be simple as you want to make it. You can make your own, use one you found on the Internet, or indeed use one of the ones that we teach. Your strategy needs to be written down, preferably with a checklist, and your strategy needs to have an edge which means it will be profitable over time. This brings me to my next point.
The practice of backtesting is applying a strategy over historical data to see how it performs in the past. It is by far the most important process that you will undertake in your journey to becoming a trader. It is also probably one of the most boring. But essential.
The benefits of backtesting are threefold, firstly it gets you to practice the application of the strategy rules. It will deliver data that proves if the strategy has an edge over time giving you the confidence to stick with the strategy in drawdown periods and believe me all strategies have their drawdowns. And lastly, you get to see the true characteristics of the strategy in terms of consecutive wins consecutive losses, etc. I suggest the back-testing phase of a strategy should take two to three months before you're fully confident to move forward with it with real money
4. Know your metrics
Your strategy formed the backbone of your business. You need to know everything about it. The win-loss ratio, the profit factor, the expectancy, consecutive wins and consecutive losses. you should have so much confidence in knowing your strategy that you are left with no doubt that is the strategy you want to use in the future
5. Demo trading versus live trading
so once you've established realistic expectations, and you have decided on a strategy, fully back tested it's time to hit the trading screens. I often get asked this question, is it better to trade demo or live market? I respect that the emotions of trading live, real money are different than the emotions of the trading demo.
So, without knowing the individual, it's difficult for me to answer however, I will say this. One thing I am sure of is if you cannot make money in the demo environment you certainly won't make money in the live environment. But I can't say for sure that if you make money in the demo environment you will make money in the live environment. so for me, the answer is simply to trade the demo for at least two months before going live with real money.
6. Trading Live
Now that you have followed the first five milestones of this road map it's time to get down to business. You can either deposit money with your broker and start trading live keeping in mind your realistic expectations. Or if you are underfunded to the extent that a 5% monthly return is not worth your while then it's time to consider trading prop firm money.
Prop firm trading is the only way in my opinion that you will achieve any success in trading if you're trading a relatively small account. For those that don't know prop firm trading is basically where you take an assessment, and pass some trading targets which will give you access to a much greater account size than you would have ordinarily had access to. Check out my recent article on proprietary trading.
So, there you have it no need for expensive courses no need for expensive trading tools everything that you need is right here. You just need the right mental discipline and desire to do it. I will leave with this thought most careers have a period of training before you are proficient. Trading is no different.
Rooting for your success!