The idea of trading for a living - or having your own trading business - is appealing to many people: you get to be your own boss, set your own schedule and work from home while enjoying virtually unlimited income potential. In addition to these factors, anyone with a computer, Internet connection and a small trading account can give it a try. Unlike many other jobs, no degrees, special training or experience is required.
Steep Learning Curve
Because trading is so easy to get into, new traders may not realize there's a very steep learning curve involved: being successful is difficult, and it takes a lot of time and effort. Here are some quick facts about trading:
- About 90% of day traders fail within the first year
- There is no way to completely eliminate risk in trading
- There is no trading system that wins 100% of the time
- You will always have losing trades, even if you are a rock star trader
- You need money to make money – it will take a long time to get rich with a small trading account
- Successful independent traders can earn a comfortable income, but most do not become millionaires
The ease with which you can start trading (just open a trading account and hit the “buy” button) in no way implies that becoming a successful and profitable trader is easy. Many of the 90% of traders who fail within the first year do so because they start trading without having developed any type of logical business or trading plan. Any business entered into with such a lack of planning is likely to fail. Another common reason for failure is that the trader is undercapitalized; meaning, they don't have enough money to take on the risk and absorb the inevitable losses.
No Easy Button
There is also a lot of deception associated with learning the business of trading. Late night infomercials and hundreds of websites would have you believe that trading is easy and that anyone can generate a huge and consistent income from the financial markets, with little or no effort. While there may be the rare case where a trader manages to make a huge amount of money in a short time, that's not the norm. For most people, trading involves a lot of hard work before becoming successful.
As a business, trading requires constant research, evaluation and discipline. There are no guarantees in the trading business, and you could work a 40-hour week and end up losing money. Anyone considering trading should make sure they have both the personality and financial means to take on this type of business activity.
You might ask yourself:
- Am I driven to succeed?
- How do I handle losing?
- Do I have time to dedicate to learning the business of trading?
- Can I stick to a plan?
- Do I have my family’s support?
- Do I have money that I can afford to lose?
- How do I deal with stress?
- Do I have realistic expectations?
If you want to become a part-time or full-time trader, it's important that you take the time to research and plan your trading business; these are essential steps in your overall success as a trader. This is not a profession at which you will become skilled overnight. Traders who start putting their money in the market too soon or without a well-researched trading plan often find themselves back at the beginning, but with a lot less trading capital. Traders who have realistic expectations and who treat trading as a business – and not as a hobby or a get-rich-quick scheme – are more likely to beat the odds and become part of the group of traders who succeed.
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