So you want to trade for a living eh? Have you ever sat down to speak with someone that actually does it? Have you tried it on for size, to see if it fits you? Most people are attracted to trading for the same reasons: money, social status, freedom; and very few actually dig deeper to understand the challenges and what’s involved.
Trading Requires Sacrifice
One of the first things to understand is that the paths of successful traders usually start with a sacrifice. Given the objective difficulty of the task at hand, sacrifice is necessary in order to live & breathe the markets, study them, and start moving up the learning curve.
Are you ready to give up weekends, holidays and evenings with friends, in order to study and learn how to survive in this environment? That’s what I did, and that’s what other traders I have spoken to through the years had done. It’s a mix of personal motivation and sense of responsibility. Once I took the plunge and gave trading a real shot, I had a limited amount of time to make progress. So I tried to make the most of that time.
Are you prepared to make sacrifices in order to achieve results? Are you prepared, for example, to lower your lifestyle a tad, until you start obtaining results that can realistically substitute a day job?
Trading Entails Stress
People use the word “stress” it too superficially. For example you could be tired because it was a tough day at the office but you can still do something to be happy and end the day on a positive note. It’s not so easy when your income depends on your best guess.
Stress is defined as a state of mental or emotional strain or tension resulting from adverse or demanding circumstances. Traders are really under constant stress – whether they want to admit it or not! The fact that you can do all the research in the world but effectively have no control over the outcome of your next trade provokes frustration (i.e. disappointment). This frustration can be massaged, but it does exist.
And if one single negative outcome can cause some frustration, what about drawdowns? One of the best ways to separate aspiring traders that actually have a shot at this game, is to observe how they handle themselves and their accounts during a drawdown. Everyone is able to maintain their poise during positive runs. Hardly anyone is able to really work their way through drawdowns with little to no impact on their character.
On Financial Security
This may sound strange, but learning how to trade is not the panacea people think. Why do investment vehicles exist? Why would Paul Tudor Jones or Ray Dalio decide to start hedge funds, if they could simply get rich sitting in their living rooms?
The answer I’ve been given, by the few fund managers I’ve been in touch with, is always the same: once you have a good system, seek economies of scale. Try to get the most bang for your buck, while your method still works. It’s not a secret that funds charge a management fee on top of the performance fee. The management fee is the “risk free” money that allows the fund manager to remain balanced while managing other people’s savings.
Successful market participants have all been through the tough times and are usually quite humble. They know that past performance is not a guarantee of future performance. The markets are inherently uncertain and that’s why learning how to trade consistently should be the first step of a more robust plan – not the endgame.
Fail-Safe Project Management
If you’ve made it this far down the article, well done! Most people aren’t prepared to hear the hard truth. If you’re going to give trading a shot, then make sure you have fail-safes in place.
- Diversify your income stream: one of the best things to do is maintain a part-time job or at least some secondary income stream while you’re climbing the learning curve. This will eliminate the pressure to perform, will allow you to make minor sacrifices, and still enjoy life. As a secondary benefit, if you learn to trade around your day job or part time job, you can ideally maintain both going forward, which will give you a much more comfortable situation.
- Diversify your savings: do you really want to wake up early to catch the market open when you’re 50 or 60 years old? Do you really think top traders pull money from their accounts on a regular basis like an ATM? Not likely. After a good run, the best in the field usually go and diversify away from the markets. Some invest in commercial or residential property; some invest in start-ups; some invest in art or fine wine. Like Warren Buffett said years ago “if you don’t find a way to make money while you’re sleeping, you’ll end up working until you die”.
- Get in touch with a real trader: you will avoid loads of stress and frustration if you learn from someone who has been there and done that. Remember that many people never overcome the learning curve in trading, usually because they are just too proud to ask for help.
- Be mentally prepared to call it quits: most people spend years on end climbing the learning curve, and forget to live. So give yourself 12 months to obtain some kind of consistency. Give it all you’ve got. And be prepared to abandon ship. Not everyone is cut out to be a trader and there’s no shame in that at all!
- Treat Your Body like a Temple: I got this one from our very own Steve Lucas! Be sure to treat your body well, so it can actually withstand the stresses we have spoken about, and allow you to perform at maximum efficiency each day. Eat well; get enough sleep; meditate; exercize regularily.
- Don’t Forget to Laugh: if you can’t remember the last time you had a good laugh, you may be working too hard or under too much stress. How many times did you have a good laugh last week? Did you laugh at all today? Laughter is a natural remedy that our body needs.
About the Author
Justin is a Forex trader and Coach. He is co-owner of www.fxrenew.com, a provider of Forex signals from ex-bank and hedge fund traders (get a free trial), or get FREE access to the Advanced Forex Course for Smart Traders. If you like his writing you can subscribe to the newsletter for free.