This past Sunday, Norman gave us Part 1 of "Becoming a Full Time Trader" and many of you enjoyed it, and helped with other Trader's Blog readers' comments, questions, and needs. We hope you'll enjoy Part 2 of Norman's series just as much. He as also just recorded a few 3 minute audio nuggets about trading discipline, which you can check out here.
Consider the following: if a trader is successful 65% of the time with an average profit of 6% per trade and losing trades are stopped out at 5% loss, then over 100 trades, there would be a cumulative annualized gain of over 26%. Real dollars would, of course, depend on the value of each trade. Another way to look at
it is if a trader averages just a 3% profit margin each month that translates into an annualized 36%.
Here's the big kicker...
If you make a deposit of $20,000; add $5,000 each year and can generate a 36% average annual return, the power of compounding profits would get you up to over $1,000,000 in less than 15 years compared to taking over 25 years at 12% average annual return. For those of you aspire to be lounging on your yacht, I know of some traders who consistently produce over 15% per month; yes over 180% annually! It can and does happen with more regularity than you would imagine. But if you plan to produce those kinds of profits, don’t expect to have many opportunities to dive off the side of the boat. At that level, trading can become a full time, high pressure business.
If you are a person who sees some middle ground in that your current job would allow you to keep an eye on your investments and have the freedom to trade actively without interfering with your job performance, then consider the following:
1) You will need to become an expert on trading the investment vehicle of your choice. There are several ways to do this. First, spend years reading and trading a paper account; this ability is a fantastic opportunity that is central to the learning process.
Brokerages realize that happy clients are winning clients and brokers not only can help educate but allow clients to trade their platforms on trades that include every aspect of trading except the money. It’s fantastic in that even if you spend several years trading phantom money, the experience and knowledge gained is incredible and your chances of becoming successful are greatly enhanced.
2) You can hire a trading mentor. This is becoming a popular but expensive option. However, it may be money well spent and the argument can be made that the shorter time to acquire the necessary knowledge to become a successful trader from an experienced trading mentor can more than offset the costs. It all depends on the level of commitment of the student. Because the internet and VOIP telephony has made location inconsequential, finding a mentor is probably the best choice - if you are serious. I say this because there is much more to becoming a successful trader than just technical information. For example, a trader needs to understand how to handle the pressures and uncertainties of the market. They need to understand how to lose and not have that affect their ego. They need to understand that discipline is essential and many people do not possess the ability to keep on track without a coach.
But How Long?
If you decide that becoming a successful trader may be a way for you to accomplish your financial and personal goals, I suggest that you find a qualified mentor. However, don’t quit your day job just yet. You will need at least several years to become prepared to trade - even on a part time basis. So look at least two years of study and mentoring before “going live”.
It’s not uncommon for a person to spend decades and hundreds of thousands of dollars in the pursuit of education and training to become a professional in any field. Most professionals become salaried employees and have limited incomes. As a trader, your potential income is unlimited. The sky is the limit.
But to think it’s just a matter of opening an account and using your innate intelligence to make money, you’d probably be better off collecting stuffed animals.
Once you make the commitment to put your toe in the water, realize that learning how to develop a skill that has unlimited financial potential is not easy and will take years to develop-just like any other profession. Indeed, becoming a trader is a long term proposition. First step in planning any long term journey is to develop a plan of how you want to get there. In fact, this first step is so important, that we will save the subject for another article.
Also here's the link again for my 3-Minute Audio Nuggets about Trading Discipline.