One of the most common questions I receive at trading events relates to making that transition from being a part time trader to trading full time and deriving an income from their trading activities.
I know many people think about this - how should one start out in forex trading while still holding down a full-time job? Then, how should one transition from a full-time job to be a forex trader?
This is always a difficult situation to assess and of course, everyone’s situation is very different. It is important that people don’t think they can quit their job on Friday with next to no trading experience and start trading successfully the following Monday. This ambition is farcical.
The reality is that developing the necessary skills and attributes to be a successful trader takes time – a lot of it. We almost need to train ourselves to think very differently and counter intuitively.
When most people start trading, they never consider whether they are well prepared and have the necessary skills and attributes to be successful. This is likely to be one of the last things on their mind. Somewhere along the path of trading, however, most people come to a realisation that trading is probably not as easy as they first thought.
With this humbling realisation comes a search and investigation into what makes a successful trader. They seek out what they need to do and learn about, in order to make all this money they dreamed of initially. They attend courses, converse with other traders further along the path of trading than themselves and make a committed effort to learning this new craft.
There are however significant benefits of remaining part time in your trading endeavours until you have gained the experience and confidence to transition. Having a real job to take you away from trading can be a significant psychological advantage in that it keeps you away from staring at ‘screens’ and being impulsive with your decision making. It also provides less information to cloud your thoughts, preparing you better to pull the trigger and believe in your methodical decisions.
It's Not What You Think
Practically, what can a trader expect from becoming a ‘full time’ trader? The first issue is being a full-time trader can be very misleading as many people would think this means that you spend the equivalent time of a full-time job devoted to your trading activities. For many full-time traders, they don’t spend anywhere remotely near that amount of time trading. They call themselves full time because they derive earnings and a living from their trading activities.
A full-time currency trader actively speculates on FX rate movements to generate profit, and will take losses just as easily as taking wins, however doesn’t necessarily sit in front of a trading screen all day looking for opportunities.
I believe some people view trading full time and looking at a screen all day as the equivalent of shooting fish in a barrel. The marketing from some companies would have you believe how easy it is to ‘extract profits’ from the market on a routine basis.
For many successful traders, ‘day trading’, and intraday trading is the furthest thing from real life trading. Good real time traders don’t sit and stare at trading screens for 8-10 hours per day.
They will avoid the smaller timeframes, as the smaller the timeframe, the higher the intensity in volatility and noise, thus making risk management for most traders a near impossibility. There is an addictive attraction to the short-term movements of price charts, and you should avoid this at all costs.
Higher timeframes (four-hourly or daily) show weighted price data which has more effect on longer term price movements.
To get started, you must first develop a trading plan to successfully engage with the currency market. You need to understand and decide upon your trading universe or the currency pairs you are going to trade, what is your risk reward relationship you are aiming for allowing you to calculate your risk per trade and potential return per trade.
A full time FX trader studies price data to generate trading opportunities and trades with a statistical edge which is pre-defined in the trading plan. With the plan, the trader enters trades without hesitation or emotional distress, and will most definitely ignore the majority of market hype and fundamentals.
In your plan you will clearly define how you define trends and key market levels, the trading signals that work consistently, how you set stops and manage your exits and perhaps a note on how to maintain your discipline in executing your trading plan.
Throughout the process of trading, a full-time trader follows simple and basic trading strategies and will most likely use set and forget orders, adopting a highly effective walk-away approach where you are not in a position to interfere with your open trades.
A good full-time trader will trade methods and styles that work consistently in forward testing and are simple and logical to understand. With their analysis, they will use concepts like support and resistance, pivot points, simple reversal and continuation signals.
Typically, concepts that don’t work are haphazard and complex, and can involve tools like MACD, stochastics, Bollinger bands, astrology and many others.
For most full-time traders, technical indicators and mystical inventions have no place in real world trading. They are simply calculations that are derived from ‘second-hand information’.
Your trading strategy will be finding confluence of different factors to provide you that statistical edge. For example, putting trade signals, trends, levels and patterns together to form a robust trading decision.
A good trader does not over trade or trade for the sake of trading; they wait and wait, remaining patient for the high probability trading opportunities. They use strict stop losses and manage risk well having calculated these parameters meticulously for every trade, and therefore are emotionless in the face of volatility, losses and wins.
The reality of currency trading is that profits of over 100% per year are achievable, however of course, the possibility for high returns and due to the leverage of currency trading, there is increased risk for these possible high returns.
For those who spend more time devoted to trading, you will find that trading is naturally addictive and induces greed and obsessive behaviour, which will be the greatest threat to your trading future. In order to combat this, and to be successful, your trading must be treated as a business.
With treating your trading like running a business, discipline and managing risk is key. You should never focus on the money, you should focus on the markets and your systems for interacting with the markets.
You should avoid thinking of losses and wins in terms of dollars and remove the money factor, and focus more on the process.
What are some of the traps you can fall into by now spending so much time focussed on your trading? One of the most important things to avoid becoming greedy, which can show in trading beyond your risk management rules and parameters, holding onto losing trades too long, letting good profits turn into losses and an inability to take healthy profits.
I firmly believe many people misunderstand the intricacies of being a full-time trader. They see it is a time consuming, all-in activity where you routinely take small profits out of the market during the day and spend most of your day looking at market screens.
I know that full time trading for many is the opposite. It isn’t overly time consuming, and you take fewer and larger profits, rather than many small ones. You most certainly don’t spend all day looking at a screen.
The information provided herein is for general informational and educational purposes only. It is not intended and should not be construed to constitute advice. If such information is acted upon by you then this should be solely at your discretion and Valutrades will not be held accountable in any way.