“How do I get started in trading” is one of the questions that I receive on a regular basis. I’m gonna attempt to answer that by, in large part, relating my own experience. But first, let me tell you right now that if you are looking for an easy path to riches, you might as well stop reading and visit the many websites that will sell you just what you’re seeking. That being said, let’s continue.
One of the first things you’re gonna want to do is determine your objective for trading. Are you trading for the accumulation of capital? Are you trading in order to save for retirement? Are you trading in order to make it a full-time business? And so forth. I’ve encountered people who will trade for a few years, make a large sum of money and never trade again. Then on the other hand, I’ve met individuals who just take small profits in order to put some extra money aside. Then there are those who want to trade for a living and become wealthy in doing so. Everyone’s objective is different, therefore, you must decide your purpose.
After deciding your purpose for wanting to trade, the next obvious step is to educate yourself on the markets themselves. Are you going to trade stocks? Forex? Futures? Fixed Income Securities? Etc. Here’s another article of mine which should give you the rundown on the three most common trading vehicles: Equities vs. Derivatives vs. Forex. As far as HOW to trade and information of that type, I will leave that for you to find on your own. I have my method, you should also develop your own. If I were to provide that sort of information, it would seem as if I were pushing my style on you.
The next step, after you’ve researched the markets and got a basic understanding of how everything works, is to determine your time frame. Are you going to day trade? Swing trade? Position trade? To assist you in reaching an answer to this question, you should check out my article titled Day Trading vs Swing Trading. Determining which time frame on which to trade is vital for the reason that some people may think that they want to day trade, but they have a full-time job which would make day trading a difficult task. The time frame on which you’d trade also takes into account the amount of risk you’re willing to accept and the type of lifestyle that you desire. This is a question that only you can answer.
Now, we’ve come to another common question I receive which usually follows one’s inquiry into getting started. That question is, “how much money do I need to get started?” This again is another personal question which depends on one’s situation. But I’m gonna try to provide a general answer. If you read a lot of the trading books, some authors may tell you that you need anywhere from $50,000 to $100,000 to get started. Let’s be for real — that is totally unrealistic for the average person. Besides, you don’t need that much money with which to trade unless you’re either long-term trend following or you’re into stocks/equities without using margin. IN MY OPINION, if you’re trading leveraged instruments such as Futures and Forex, I’d say that $5,000 is enough. This is granted that you’re either day trading or short-term swing trading. That is enough money for you to take positions and if any position turns out to be a loser, you should be able to trade another day if you’ve learned to keep your losses small. Believe it or not, if you can devise a profitable trading system for the futures and/or Forex market, $5,000 is enough for you to see pretty substantial gains. Whatever sum you decide to start with, make sure it’s money that you can afford to lose. Trading with money that you can’t afford to lose will cloud your judgment and send your emotions into overdrive.
To tie this all together, I’m gonna tell you how I got started. I simply read books that were recommended to me by an already successful trader, thereby picking up the information that I would need. I then began to paper trade and play with a few strategies ranging from day trading to swing trading in various instruments (stocks, futures, Forex). However, I became too anxious to make money and ended up jumping into real trading a bit too early. I was making money at first but then a few catastrophic losses took me out of the game for a while. That is when I came to the realization that I didn’t yet know enough to trade and that my desire for money overrode my sense of logic. I was trading with no plan — just haphazardly jumping into positions, hoping I would make money. There was no plan back of my actions or anything. I was also trading with money that I couldn’t afford to lose. By the way, when you reach a point of HOPING in the markets, that’s a kiss of death.
After I couldn’t take the pain anymore, that is when I decided to step back learn the markets for real this time. That experience taught me to respect the game and not to treat it as some crap shoot in Vegas. At this point, I began re-reading the materials recommended to me by the guy to whom I made mention of earlier. Mastering the markets became an obsession and all I could talk about amongst those closest to me. This obsession lead to me developing a written trading plan which looked good on paper and in back testing. My next step was to find a full-time job which would allow me to earn an income and at the same time, swing trade. I found a job and began to save the money I figured I’d need to get started and eventually began trading Forex and Futures. It was much easier to trade while employed because there wasn’t much emotion tied to the money I committed to my trades. I still had the money from my job coming in, so that freed me up emotionally to make logical trading decisions. My plan was to make small but consistent profits and occasional big winning trades (but never to chase big winners) and compound my returns, which I was able to do.
Conclusion: I may be a bit biased because of my own experience but I honestly feel that working a job, saving your money and trading on the side is the most realistic approach. Without a doubt, there will be some dream sellers who will try to tell you otherwise but when all in all, the only person who knows your situation is you and you should decide accordingly.
Thanks for reading.
Sean T. Carter is an experienced investor, entrepreneur, research and writer for The Opulent Group, a company formed to serve the needs of up and coming entrepreneurs, investors, and scholars who wish to reach opulent goals and stay consciously afloat in these fast changing times.