“What steps must I take in order to learn how to become a trader?”
This is one of the most common questions we receive here at Trade With Precision. So we have set out below 5 key steps we believe every aspiring trader should take in order to give themselves the best chance of being a profitable trader:
How to become a trader: our 5 key steps:
1) Why do you want to become a trader? (WARNING: Don’t skip this stage)
The first step in learning how to become a trader is to ask yourself “why”. Trading can be one of the most rewarding challenges you will ever undertake. It can also be one of the most difficult. It has been our experience from teaching thousands of people to trade that it’s those with the biggest reason to want to learn how to become a trader, who typically have the greatest success.
If your sole reason for wanting to trade is to make a little extra money, do you think this will motivate you to put in the hard work that is required to become a consistently profitable trader? The trader’s journey is a bumpy road and a big “why” will keep you moving forward. We suggest you focus more on what you would do with the money – for example, “I want to be a trader so I can quit my job and spend more time with my young family/elderly parents/spouse/church/charity/golf course/holiday home.” Do you think that would motivate you more than just making a little extra money?
Make sure your “why” moves and motivates you every time you think of it.
2) What type of trader do you want to be?
There are two main types of traders: swing traders and intra-day traders. When considering how to become a trader you need to decide which style you want to focus on. Swing traders typically hold trades for a few days to even a few weeks. They typically trade off mid to higher timeframe charts such as a 4-hour chart and above. Intra-day traders typically hold trades for a few minutes to a few hours, and they usually trade off lower timeframe charts such as 15 minutes and below.
All too often, new traders are drawn to either swing or intra-day trading because of what a mentor, friend or trading education company has told them, or something they have read. They never take the time to work out which style best suits their personality, time constraints, or what they want from trading. One misconception which aspiring traders often believe is that you need to be a day trader in order to make the most money from trading. This is completely false. The truth is the best traders make the most money: which style they trade is irrelevant.
3) Fitting trading around your lifestyle
On the early stages of the learning curve, everyone has to juggle trading with their current lifestyle demands. For most, this will include their job, family, exercise, eating, sleeping, etc. One of the biggest excuses people give for not succeeding in trading is that they simply don’t have enough time to devote to it. We too were once in a similar position and that is why we have created a series of free webinars to teach you how to take the first steps to achieving your trading goals.
4) Master technical analysis
Your next step in learning how to become a trader will be to learn about, and then master, technical analysis. Unfortunately, a lot of the material you will read about technical analysis is outdated and simply doesn’t work. That’s why we have created a number of free online resources to help you kickstart your learning.
5) Choosing your Strategy
A key step in how to become a trader is developing a strategy. Your trading strategy will depend upon which market and which style of trading you intend to trade. At Trade With Precision, we teach people to trade any market, style or timeframe they choose. We teach 3 specific trend-following strategies that look to capture the main momentum of the market.
You can learn more about these strategies, with no obligation, by joining some of our free webinars.
Give yourself a chance to succeed
To show you how important risk management is, imagine that you are stuck in a room. And the only thing you have in there is a computer game – just one computer game. You can play that as much as you want and it’s pretty much the only thing you’ve got to do.
Imagine you’re in that room for a week. You’ve got to be pretty good at that computer game, right? Then imagine you’re in there for a month or a year. Imagine that you’ve had 10,000 or even 20,000 hours of playing that one computer game. Then it doesn’t matter who you are. You might be like me, who hasn’t really played a computer game since my teenage years. But if that’s all you’ve got to do with yourself, you will most certainly become very good. The point here is that you have to give yourself a chance to get good.
The problem with most people when they go and start trading the markets is that they don’t manage their risk, and so they don’t give themselves a chance to get good. Now, we do need to trade with real money. We can’t just go and trade on demo accounts, because it’s just not real – it doesn’t have the same psychological challenges and pressures.
However, we can start trading on a small scale with real money, so long as we make sure we can manage our risk. We can work on all of the technical things we need to learn to get our strategy right, ensure we are in the right market, hone our technique, and really work on getting a solid mindset. We can go and we can do all of that, and thus give ourselves a chance to get good.
Imagine being able to trade for 10,000 hours, or 20,000 hours, and giving yourself a chance to get really good. And it doesn’t need to take that long, but you do need to give yourselves a chance to succeed. I see people all the time who go and place five trades, which don’t work for them. So they give up. Some make it to 10 or maybe 20 trades. Some even trade for a few months or even a few years, but then give up.
Don’t give up. Give yourself a chance to get good. Be realistic. Trading is like any other profession. You’ve got to give yourself the opportunity to learning. Manage your risk by very careful trading. Just keep that in your mind all the time that imaginary exercise of having unlimited hours to keep on perfecting my skill, keep on tweaking things. If you do that, you will give yourself a great chance of succeeding.
What all good traders have in common
We often get asked, what are the keys to trading success? And you know what – the answer is always the same – there are no secrets.
Now there are not many characteristics that traders have in common. They’ve got different strategies. They trade on different time frames and trade all sorts of different markets. But there is one thing I have noticed that every single successful trader has in common – they never give up.
You see people give up on trading all the time. They come along, and they’re looking for this magic strategy, and they don’t find it. And then they go and look for the magic market. They change from forex to stocks to futures, and they think that they’ll find a solution by going and changing markets.
You know what? The only thing they need to have is persistence. That doesn’t mean we keep on doing the same thing over and over again, making stupid mistakes. We have to learn from our mistakes. We have to give ourselves a chance to succeed. But the key thing is that it’s not about a secret strategy. It’s not about some kind of secret formula that suddenly you get it, and you’re good. It’s not about the market you trade. It’s about you. What makes you good is persistently working on finding the things that work for you, and never giving up.
It’s just like developing skills at anything. It could be a sport, it could be sales, it could be anything, but whatever you’re doing, keep on working on it. Keep on tweaking it make small changes. And above all, manage your risk very carefully to give you a chance to stay in the market and learn to excel at trading.
How to become a trader
New traders often want tips to fast-track their learning so that they can get consistency in their trading results. In reality, there aren’t any secrets, but there are a number of points that can really help people to master this business much quicker.
The first requirement is that you need a great broker. This isn’t a hobby, it’s a business. If you’re going into the trading business, then you need a business partner. And that is going to the broker who will be able to give you access to the markets that you want to trade. It’s no good having a broker for each individual asset class that you want to access – keeping it together keeps it simple.
If you can then combine that with a broker who gives you good spreads, and good clean commissions on those trades as well, then that’s even better. You also want someone who’s going to be able to give you a great charting package – in other words, a great platform in which to transact that business. One of the most important elements in trading is to be able to conduct your technical analysis. If you get a good broker who combines all of those three things together, then they are going to be pivotal in your trading business.
The next key is the trading strategy. You need a trading strategy that is not only successful but which completely own, in your heart. It becomes part of you so that, when you see that setup occur in the market, you don’t have any second thoughts, you pull the trigger. You need complete belief in that trading strategy. And for that to happen, you need to understand it inside out and you need to be able to understand the techniques and the reasons as to why that strategy is telling you to enter the market here and now.
The third key is to understand and embrace the simple mathematics that lies behind the risk management principles we need to adopt, such as the win/loss ratio. How many times does your strategy win in the markets? What’s the expectancy of success?
And finally, we need to understand the reward-to-risk ratio. What is the potential reward to the potential risk? Get a great understanding of these elements, combine them with your trading technique, execute them with a good broker, and you’re on the way to succeeding in this business.
Being a successful trader takes discipline and tenacity. It’s not a function of being the smartest person in the room – it’s more about having a system and sticking with it, no matter the external or internal challenges.
See our next item for 50 ways to avoid distractions in the market.
- 50 ways to become a better trader without looking at a price chart
No matter how strong your belief is in your trading expertise, other factors can creep in and distract us, creating havoc in our trading account.
Trading isn’t just about the technical analysis and the strategy. Nor is it about being smart. It’s about having a system, being disciplined, and sticking to it, whatever the challenges.
External challenges mainly revolve around volatile or unexpected market developments. These can unsettle the most experienced of us but there are many ways to deal with these factors.. But there are many ways to deal with those factors, essentially beyond our control, stemming for global disruption in the markets.
Internal challenges are what happens inside your head: the temptation to switch gears unexpectedly or to pursue the next tempting shiny market. We can learn how to control our responses and position ourselves so that we don’t get distracted. Below we outline 50 ways to become a better trader:
- Focus on winning. We trade to win. Never place a trade if you expect to lose. If that’s the outcome you expect, why would you place the trade? If you don’t like the loo m of the trade, if it doesn’t meet all your criteria, then don’t place the trade: just walk away.
- Manage wisely the percentages you can lose on a trade. You must understand exactly how much you risk losing on any trade. Remember, if you lose 50$ on one trade, that means you need a 100% uplift to get it back. That’s a lot of hard trading to make up for one bad trade, so don’t take risks that will be difficult to recover from. year of trading to make up for one bad trade, so don’t take risks that will be too hard to make up.
- Have a sound strategy. It’s important to combine good risk management with sound money management and a solid trading strategy. You can think of your strategy as a recipe – you need to combine multiple ingredients together to get something much more powerful than the individual items.
- Specialise. Don’t spread yourself too thinly. You risk paralysis by over-analysis. You don’t need hundreds of trading strategies – just develop a few and then stick with them. If you have too many strategies, you can wind up with too many things to watch for and do too many things to watch for, and too many markets that you don’t know well enough to trade effectively in.
- Believe you can win in the markets. Be confident in what you are doing. Trading is not an easy profession to learn, but it’s certainly not out of reach. Make sure you keep on top of the usual experience of others and read the numerous good books on trading. One we recommend is Jack Schwager’s Market Wizards. Marty Schartz’s Pit Bull: Lessons from Wall Street’s Champion Day Trader is also very informative, especially about dealing with the pain when trades go the wrong way.
- If you do not believe you can succeed in the markets, stop reading this list. (Everyone else, let’s continue…)
- Spend time with people who support and encourage you. Surround yourself with people who understand you and have the same mind set. For more on this, see #8 below.
- Never talk trading with people who think you will fail. You would be crazy to spend time talking about trading to people who don’t understand the business. It can be so exciting that it is tempting to talk about what you are doing. They you will get people asking what the markets are going to do six months out. When you explain that no-body knows that, they may try and discourage your activities. But the reality is, you don’t care about next year – you’re a trader not an investor. Surround yourself with people who understand you and have the same mind set, not those who will be negative and discouraging.
- Accept full responsibility. Keep mind that you, and only you, are the person who pulls the trigger on a trade. It is never your broker’s fault, or the market’s fault. This applies to everything in life. If we don’t accept responsibility for our actions, we don’t learn and we will keep on making the same mistakes. Admit what went wrong, fix it if you can, add it to your checklist of things to not do again, and move on.
- Take charge. Be your own boss. Be very wary of taking advice from people who are not active experienced traders, or who don’t have good in-market experience. Remember that end of the day it’s your money at stake. Do your own analysis, and make sure you are comfortable with the trade.
- Trade with money you can afford to lose. Don’t stake more than you can afford to. But plan to build up wealth slowly over time. See #13 below.
- Trade with your own money. Don’t trade on behalf of other people. And never borrow from friends, family or banks. It just adds pressure, and trading is already hard enough. It is difficult enough to keep the right, calm mindset in trading without the additional stress of knowing someone else’s money is at stake.
- Learn to trade with small amounts of money. It is not true that you need a lot of money to make a lot of money. Learn to trade with a small amount. Increasing your account is steady slow work, it’s not a fast forward button. Larger amounts will follow as your expertise grows. There isn’t any need to risk a lot of money when you’re starting out. You will inevitably make mistakes, and you don’t want to do that with a lot of money at risk. There are now a lot of brokerages that allow us to make small trades, allowing us to get experience without being devastated by losing a lot on one trade.
- Take holidays and other breaks. Just as in any profession, it is important to recharge your batteries. Some of us become focused on a mission to keep on trading for ever-improving results. But you can get fatigued doing that. You need to make sure that at least every couple of months you take some time out and do something completely different. And you should reward yourself occasionally for making money, and making the right decisions.
- Ease back in after a break. When you come back to work, ease into trading. You wouldn’t run a full marathon the day after a layoff from training. Treat trading the same way; it is a demanding profession and most of us need a day or so to get back in the swing of the markets.
- Take the time to learn well. You don’t become a doctor, a pilot or an astronaut after a two-day course. The same is true for trading. Pressing a button to place a trade seems easy. But that’s the problem. It’s not about placing the order, it’s about finding the right opportunity, and identifying the correct setup. You need to take the time to learn all aspects of the business.
- Have realistic expectations. Most people overestimate the speed at which they can they can succeed in the markets. But they also often underestimate just how much they can achieve if they give themselves time to get good at trading. Give yourself time to work your way into a position of strength and experience. Think about how long it would take you to earn a black belt in a martial art. Be realistic about how long it could take you to replace your current salary with an equivalent or better income from trading.
- Have a second income. It is good for you psychologically to still have money coming in as you learn your new business. It also means that if there are no good opportunities in the markets, you won’t feel any pressure to make a trade. Remember that even the best fund managers earn a management fee before taking a split of profits.
- Always use stop losses. No exceptions to this rule. You must safeguard against risk. None of us knows which way the market will turn. Always factor in the potential downside and protect yourself.
- Visualise. This is really important. Winners in every endeavour in life expect to win. They “see themselves” winning. Take five minutes each day to see yourself winning in the markets. If you see yourself losing then you’re likely to get exactly that result. You need to picture yourself where you want to be.
- See the end result of your winnings. Take five minutes each day to visualise the things you will have when you achieve your trading goals. Think about where you want to be and what you want to do. It doesn’t matter what you are striving for – a holiday, an adventure, a boat – visualising positive outcomes helps keeps you motivated.
- Associate with peers who are more successful than you. They have been there and done that many times, and they will push you to new levels. You want to be able to talk to people who have struggled where you struggled, and come through. Successful peers pull you up, where others just put you down.
- Commit. You have to commit. Success in trading is unlikely to come from frequent changes in strategies, markets, or brokers. Success comes from finding the best focus for you and committing to it long term. That doesn’t mean you keeping on doing something that doesn’t work. But if you keep on chopping and changing without proving out the results, you’ll never see what is working for you.
- Develop a plan that you can print and stick on your wall or whiteboard. Do away with multi page trading plans that are too long to print and never get re-read. It’s often enough to distill your strategy down to a few sentences one or two sentences. You can always change or add to the strategy. Don’t make it too long and complicated.
- Aim for consistency. If you consistently lose, make small tweaks to your plan until you consistently win. There is often no need to make big changes – make sure the changed strategy is working, then look to see whether anything else can be improved. We can always benefit from more knowledge.
- Stick to your plan. Small tweaks are okay, but if you find yourself making major changes, that’s not sticking to a plan. Your plan has to expect some volatility and market surprises. There are some surprises – GDP announcements, interest rate rises, which can be expected, others that nobody could be expected to account for. Make small tweaks and remember they have to prove they are worth becoming part of your strategy.
- Harness the discipline you use elsewhere. Harness discipline you have developed in other areas of your life. Sticking to your trading plan is no different from going for a run, giving up smoking, or eating healthier food. Think about lessons learned in other areas of your life that involved creating new forms of self-discipline, and how they can be applied to trading. You can do it if you choose.
- Read the news. Know the facts. Then form your own opinions. Whether or not you trade fundamentals, it’s important to stay on top of the news affecting the markets you trade in. Factor key upcoming events into your trading plan
- Avoid others’ opinions. They are often biased and easily misinterpreted. Remember, there is a myriad of opinions on subjects such as President Donald Trump, or Brexit’s impact on global markets. It’s important to draw your own conclusions from the available evidence, not rely on someone’s Facebook opinion.
- Balance opinions. When you do see market opinions in the news, be sure to seek out an opposing view. Make sure you have the facts correct before trading on the information.
- Have a routine. You don’t win Olympic gold medals by having a night out drinking and skipping breakfast. Trading is a high-performance activity as well. Keep to a healthy routine. Stay fit, get a good night’s sleep and have a nutritious breakfast.
- Record your best trades. Review them regularly and emulate them. Analyse why a particular trade worked well for you. See also #33 below.
- Record your peak moments. This applies to both life events as well as trading successes. Reviewing your peak moments will give you insight. Visualise how confident you felt at the time. Don’t trade from a place of fear, stress, and anxiety – trade with confidence.
- Learn from your mistakes. Tweak your rules if necessary, but don’t dwell on your mistakes – just move on. You can always learn something from examining why trades went wrong. Remember – winners learn from mistakes – losers who don’t learn keep on losing.
- Admit your mistakes. The first step in learning from your mistakes is to admit that you made one. Many traders fail to make it in the business because they can’t acknowledge their mistakes. If you don’t admit to making a mistake, you’re likely to repeat it. Everybody screws up sometimes. But a lot of people cannot or will not recognize that they have made a mistake. It’s helpful to keep a list to avoid repeating the same mistakes till they become a habit.
- Choose your mentors carefully. Good mentors will stick with you, and vice versa. As noted above, find people who are in and understand the world of trading. People who are not in the business simply don’t understand what you are doing. You want to build relationships with people who will call you out on your mistakes, and build up your spirits when you’re down.
- Be tenacious. In every profession, the best share one quality: grit. They never give up. To succeed in trading, you need a burning desire to make it work; that’s how you sustain your drive during the downtimes, or those periods when no suitable trading opportunity is presenting.
- Trade the market that is best for you. Don’t trade XYZ market simply because someone else does. Match your market(s) to your personality and lifestyle. Remember that your normal lifestyle and hours may not allow you to effectively trade in some markets.
- Trade the strategy that is best for you. See #38. Make sure you fully understand the strategy you are using. If you don’t see the reason behind the strategy, you’ll find it hard to place an order by looking at the chart. You always need to understand why you are making a trading decision.
- Celebrate the trading success of others. If you support others, you’ll find that many will be there to help celebrate with you as well. You need to maintain a positive attitude, not begrudge others who may be doing better than you.
- Think like a winner and focus on what you want. Losers, in both life and the markets, focus on what they don’t want and wonder why they get exactly that. Generally, you tend to get what you focus on. When you ask people what they want, a surprising number will fill the space by telling you what they don’t want. Focus on what you do want. Write your goals in a positive manner. Even if you’re not there yet, remember you’re working towards a fantastic goal, so always think like a winner
- Know when to walk away from trading. Family dinners, weekend sports, and rest/bed times deserve your full engagement. Be fully present at those events, not half and half. Focusing on the moment is very important. When you’re trading, focus on that. When you aren’t, don’t trade, and don’t check the markets. You should have your entry and stops in place, so there should be no need to worry about what is happening in the markets when you’re not online.
- Keep your chin up. As certain as night and day, trading will provide good times and bad. Remember that without the bad times we wouldn’t appreciate the good. Don’t let a bad period drag you into bad behaviour on the market.
- Deal with problems, but never dwell on them. If there’s a problem, find a solution. Tweak your rules and move on. And remember, as noted above, make small changes and evaluate the impact, not major changes. Problems are opportunities in disguise.
- Reap the benefits of your chosen profession. Traders have freedom and flexibility, so enjoy the lifestyle your chosen path offers. It is fantastic to be your own boss. Don’t be glued to a screen all day – if there is nothing worth trading on the day, then walk away. You don’t have to be there.
- Breathe! These days, we all tend to breathe too shallowly. If you are not yet a fan of breathing exercises, then commit to trying them for 21 days. It can be as simple as focusing on deep and slow breathing, while you visualise your trading success each day. Once started, you will never give up. Check out meditation and mindfulness exercises. What you do outside the chart to calm your mind can have a big influence on how you read the chart.
- Grow. You need to build a better, more effective brain by committing to continuing education. Build the equivalent of muscle memory in your brain. You never know when you might need it.
- Keep learning. Keep on learning to trade and you cannot fail; it becomes nearly impossible. Plus, learning has numerous side benefits. The more you learn, the easier it becomes to make a decision. It’s important to keep on growing and remain open to change to become a consistent trader. The more effort you put in, the better your chances of succeeding.
- Understand that you deserve success. Many new traders struggle with a psychological barrier to making money for seemingly doing so little. But remember, that you have paid your dues. Remember, you have been training all your life, and you have put a huge effort into mastering the complexities of trading. You can feel good about trading because you have earned the right to succeed
- You just passed the test! If you read this far, you are a person who has the odds stacked in your favour. You are determined to study, learn, grow, and win. Keep practicing and learning to advance your trading career. You are embarked on an exciting journey.