This is an essay of getting started in trading, regardless of the types of financial instruments you are trading. Trading is trading. The general ground rules remain uniformed across all platforms. The reason I write this essay is hopefully helping newcomers going into trading to prepare themselves for becoming successful traders. Most new traders fail to survive beyond three months into trading. The main reason can easily be attributed to poor planning, unrealistic expectations, inadequate self-discipline as well as absence of money management. Certainly, there are other non-behavioral factors but these are the prime ones that plagued the newbies the most, at least on the outset. Let’s get down to some of the major factors I regard as important to successfully get through the many hurdles in trading.

Learning Comes First

Most people can relate their experience in their first trade. More often than not, their stories are very identical: They bought their first stocks (or futures) on advice by friends, family members, relatives, stockbrokers, etc. The outcomes are also very similar: I lost money in the end. All these stories will continue to repeat themselves in the future. Although I do come across some people who actually started learning first prior to putting their money in the market, they are usually influenced by their wise family member who had already learned to start their investment in the proper way.

Learning to trade is more than just learning the proper method to trade to win. Rather, it is also about uncovering your own mistakes, bad traits, false expectations, and general misconceptions of what trading is all about. It is through correcting all the falsehoods of trading that one can become a better trader and start to make money on a more consistent manner. Consistency in trading successfully is the key to building a career in trading and to generate passive incomes over time. Seasoned traders do understand that a few good trades – no matter how remarkable the profit they are – don’t mean anything or achieve anything as a trader. If consistency is the goal, education becomes the necessary investment.

When I say learning, I don’t just mean attending seminars or reading some books. Learning is about knowing yourself, too. Your style of trading and your determination in this activity must match your expectation of a lifestyle you desire. If you are a person who want to see result immediately, trading can be too boring an activity to you. A sales job can be better suited for you, instead. Therefore, you must consider what you like about trading before embarking on the journey of trading. Time is essential in learning. You have to allow yourself that time to learn. Usually, it takes about 2-3 years to become a full-fledged trader. For a beginner, he should aim for the goal of breaking even in consecutive six months. During this time, try to find a mentor to help you get acquainted with all the technical terms and general market behaviors of trading. There are many nitty-gritty of trading that can only be learned from experienced traders. Yes, the conventional ways to acquire knowledge by reading good investment books and attending seminars are still paramount to trading success in the shortest time. Nevertheless, nothing beats your actual trading in real setting to gain your practical experience. I do believe every trader is different. You must know yourself by yourself.

No matter what, jumping straight into market without any form of learning is suicidal. You will lose your entire investment fund in the end and pack up for good very soon. Those people who are adamant about saving time and money in trading are usually gamblers. Gamblers never invest a single dime in education. They depend on luck. They usually fail. Luck only goes to those who are prepared and learned in real life.

Where to Start

Starting can be difficult for some people. I won’t blame them. It is difficult especially when you have to deal with the horrendous stress inherent in trading. Any slightest movement against the direction of trade can immediately send a chill down your spine. It is normal for most people to hesitate in the first trade. However, until you begin to bet your money on a trade, you have not started trading and certainly you have not actually learned anything.

My advice is that you treat your first few months of trading as learning period. Every trade you do is just a learning lesson. Your objective is not to make money but to learn. That way you can reduce your stress in starting. Of course, you are not going to bet your entire life saving on each trade. You should be wise enough to understand without prompting from me that each of your trade is going to be small in fund size. This way you wouldn’t have to worry about losing. And, frankly, it is not surprising you can actually make some money. But again, that was not the guidepost for success in trading. What you really need to learn is to identify as many trading traps that caused you to lose money as possible. Then, find ways to eliminate those possibilities.

Granted, it is futile to just trade to lose. There must be something that we should look for. The most practical way to start is to look for one or two systems to begin with. These systems are usually hard to come by and are usually obtainable only by attending trading courses. There are people who sell these systems on the Internet. You need to study their systems carefully if you wish to buy them. Anyway, once you have identified the method or system you want to rely on, you stick with it for some time. Learn as much as you can about what the system can and cannot do. Study or back-test the historical charts for history that this system work effectively. In circumstances where they fail, ask why. And find out how to reduce the loss associated with the failed setups. Also, ask yourself a very pertinent question after many trials: How much confidence do I have to continue to use this system? You must develop the feeling of a good probability of winning that trade every time. When the next setup appears again, you must have that feeling of confidence to win. If you don’t have that feeling for ANY reason, you pass up the trade. Remember, this feeling can only be acquired after many trials. You may want to “waste” some trades to get this experience. No short cut to it.

In addition to sticking with certain trading systems, you may want to limit just a few stocks or indexes to trade for a start. Changing too many stocks or systems will only confuse you. For me, I still stick with a few trading systems that I know and I stay with a few indexes for options trading but I rotate the stocks to suit my hit & run system. Nevertheless, I do not open many trades at a time. In many situations, I do not open more than 3 new trades a day. In fact, I don’t even trade in many days.

Early Expectations

There are many novice traders who get attracted to the trading game by some training programs advertising and promising huge returns. While it is not entirely impossible to make 1,000% profit in one trade of just a few days, it is highly unrealistic to expect this rate of returns to be consistent or even probable in any trading situation. To a professional, a return of 50% per annum is considered an extremely well managed trading portfolio. Many people would want to give away their first-born son just to achieve that goal. Even with this high rate of return, the professionals had spent many years of trading and battling with the markets to reach this level of excellence. What can you expect from a novice?

For beginners, after about six months into trading, they should only expect their profitability to be in the neighborhood of 5% in average return a month in the best of time. This may not be too difficult to attain. But what derails your goal over time and makes even 5% return a daunting task is your unrealistic expectation. The more you expect, the less you are going to get. It is the ability to go slow and steady that differentiates a professional from amateur. But is 5% per month all we can get? No, it is possible to obtain much more without too much of an effort. The answer does not lie in pushing yourself hard in the sphere of trading. It is about finding the most advantageous moment to strike at the lowest risk possible every time. Let me just tell you that I have known people who achieved an average of over 10% per month in options trading. But in order to get there, it is important for you to learn the rope first. Gain as much experience as possible. Keep your expectation low in the beginning.

There is a vital advantage in expecting a lower return. Keeping a low profile return of 5% will help you manage your emotion better. The 5 percent rate of return is certainly not a difficult goal to achieve especially in options trading. With this in mind, you can be more contented. This will prevent you from over trading to try to push yourself to reach the higher target which, frankly, can be quite impossible for the new kids on the block. Over trading is the biggest sin of trading, which I will discuss more later. It is really a different mindset when you think that you have already reached a target of 5% in mid-month and then only trade more when you have the best deal given to you. What do you think of your probability of success in the long run? Compare it to expecting a 50% per month – which is also possible in options trading, how much effort and how much more risk you need to take in order to maintain that goal over time.

To be continued…

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