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4 Common Questions From New Traders, Answered

Discussion in 'Forex Discussions' started by painofhell, Aug 28, 2015.

  1. painofhell

    painofhell Content Contributor

    Jun 24, 2015
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    Most new traders starting out have similar 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? And how does one get started? These questions are answered below.

    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.

    Here are the questions I was sent. I thank this reader, and all my readers, for your comments and questions. Keep ’em coming.

    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?

    While trading is welcoming, in that it’s typically easy to get started (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 and for a time after. When something 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–that’s never easy. Very few new day traders who saw a brief period of success during that time where 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. Where 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 (see Short-Term Trading Success Rates).

    With a sound trading method, volatility (or a global crisis) isn’t an issue. A trader learns to adapt to changing market conditions, including changes in volatility, volume and direction. These topics were addressed in How to Day Trade the Forex Market in Two Hour or Less. While the article discusses day trading the forex market, the concepts discussed are applicable to longer-term trading and other markets as well.

    2. Other than welcoming, does it allow for a mid-high quality lifestyle (or free of economic pressure at least) if one sets himself to it?

    It depends. Like anything, in trading you’ll face your own personal glass ceiling(s). For example, you may have a $5000 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 (all covered in the book). 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. 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, but can slowly grow daily/monthly income. Whether the income provides a high quality life is up to the person. I know many people who make lots of money, but spend even more. I live in an affluent city, but there are many very wealthy people living pay check to pay check. So money doesn’t determine quality of life…choices do.

    Trading can produce a great income trading/working only a few hours a day or less, but how the extra time and money is spent/not spent is the true determinant of quality of life.

    Of course this is for the people who actually become successful. Overall, less than 5% of men who attempt trading will be able to make a living at it. Women, your chance at trading success is much, much higher–about 25%+.

    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 belief systems and possibly their strategies, risking what they already have. Trading is about life style, working less, enjoying what you do and having enough money to enjoy your other interests.

    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, in how long would you see a beginner become an independent trader with the necessary tools to also make auto-improving assessments (I.e. recognizing mistakes and creating a successful strategy on its own)?

    6 months to a year. Including putting in some time on weekends during this initial phase. In other words, put in 14 to 20 hours a week for at least six months. When I first started in 2005 (no prior experience) I went all in. I worked on my trading about 7 hours a day (during the week, no weekend work usually), was profitable after four months and was getting regular checks in month 5 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 whats 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 (or for swing trading, look for your trade setups at the same time each day–takes about 20 minutes a day), and develop consistency.

    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 (this way you can see what your trading income is based on real market conditions and with the psychological stresses of trading real capital). See the 5 Step Plan For Forex Trading Success. This plan can be used for any market, not just forex.
    The “self-assessment” part of your 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 and provides you with a probabilistic edge. Is what you are doing working? Are you seeing improvement? Why, or why not? If you aren’t, you need to continue working on 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 an “academical 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 covered right at the start of the book (and 5 step plan mentioned above). Pick one or two strategies you like. Develop a trading plan–how you’ll trade the strategies (time of day, which pair,(s) position size, etc). Then start practicing in a demo account. Before switching to real money, you should be 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. I post on all sorts of topics and markets, but you should only be focusing on a couple strategies. The trades I post on the site and on StockTwits are related to one specific strategy, that is it. Unless a trader has learned that strategy, they shouldn’t be taking those trades or reading those posts. The posted trades are meant as a guide to help traders see some valid setups for that strategy. But I only post a few of the signals, so if a trader only takes the signals I post the results will be somewhat random. I want people to learn to trade, not rely on me.

    Once you’ve picked a couple strategies to focus on, and are building your trading plan, you’ve created your 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.

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