The myth – In your work-cubicle fantasies, the life of a full-time day trader may seem exciting and glamorous. You could work at home making millions in t-shirt and jeans, barefoot, sitting at your desk next to a window with a view of a tree-filled back yard. You are surrounded by your children and pets, and there is a smile on your face as you type an order into your laptop.
You pause, watching the screen, and suddenly, your smile turns into a celebratory laugh. You stand, do a satisfied stretch and with a quick, sure movement, you snap your laptop closed, grab your little daughter and swing her around. Fantasy. That’s what it is.
Trading is certainly capable of making you wealthy as long as you have the skill, knowledge and temperament.
The reality – The real truth about day trading is much less fanciful, though definitely exciting and certainly capable of making you wealthy if you have the skill, knowledge and temperament. It is a 24 hour a day highly stressful job, and many day traders wouldn’t dream of doing anything else. It gets into your blood.
When you think about trading full-time, you may be planning to try for a job as a professional trader in London’s financial district or on a Wall Street trading desk. Or, like your fantasy, a wealthy person trading for your own account. Both are possible, and both take effort and time to achieve. As an idea of what it takes, consider the career path of a trader in a bank or finance house.
In the beginning They start out as trading assistants, filling out trade tickets, keeping records and settling trade problems for the pros – doing things that can’t get them in too much trouble.
The junior trader After a year or more the assistant is allowed to fill a few small orders and, if all goes well, is promoted to a junior trader position on the odd-lot desk where the small orders are transacted.
Again, these jobs carry almost no chance of big losses. Junior traders who exhibit consistent profitability over a couple of years become traders.
Trader They still work under the supervision of senior traders and have limited discretionary trading authority, but if they continue to show consistent trading profits, they eventually are given more discretionary authority and after a few more years, become senior traders.
If you want to be a full-time trader, trading your own position, it will take years to develop the experience and skill you need to do it successfully as a way of making a living.
Unfortunately, what paper trading doesn’t do is prepare you for the mental challenges of trading with real money.
Day Trading: The Learning Curve
Yet not all traders possess degrees in finance or economics. Actually some of the most intuitive traders lack any formal qualifications at all. The “barrow boys” who filled London’s trading floors in the 80s and 90s – making millions – mostly started as poor, street smart kids who just had a knack for understanding the markets.
They were some of the most profitable traders around and contributed to making London the hub of global foreign exchange trading it is today. In fact, much of the market slang we still use today came from them.
However, with rapid computerization and the move from floor to screen trading, the trend has been towards recruiting traders who have more analytical skill sets. Nowadays most banks recruit traders directly from university.
If you want to learn to trade, take advantage of the tutorials offered online or by your brokerage firm.
When you have thoroughly mastered the information they provide, you will know enough to choose the type of advanced classes at colleges and trading academies that you will need to fully understand the market sector you intend to trade. Trading is not investing. An investment is a long-term hold for substantial income and profits over time.
A trader holds a position for a few minutes to a few weeks at most. The goal is to make a small amount of money on each trade, limiting the risk by selling out as quickly as possible.
As the SEC warns, “Day traders typically suffer severe financial losses in their first months of trading, and many never graduate to profit-making status.” The best way to avoid becoming the unfortunate part of this statistic is to paper trade for several months to a year. Paper trading provides the market experience that, combined with the skills and knowledge from your studies, will improve your chances of becoming a successful trader.
Most major online brokerage firms offer paper-trading programs (often called practice or demo accounts: more about brokers), which clone the activities of trading, including registering profits and losses.
Unfortunately, what paper trading doesn’t do is prepare you for the mental challenges of trading with real money. These challenges should not be underestimated. Many traders who’re highly profitable on demo accounts fall over as soon as they switch to real money.
If you think trading a demo account is too dull, there are numerous paper-trading contests that pay cash prizes large enough to give you a good start on a portfolio, and will add a little excitement to your paper-trading exercises.
Find a Mentor
Whether you take the long route to developing the skills and experience to be a successful trader or take a short cut and start trading as soon as possible, one of the most important and beneficial things you can do is to find a trading mentor and work with that person daily.
Staying up to date – Professional traders watch the market openings on the financial news stations and monitor the markets all day on their trading terminals.
They talk on the phone and via electronic messaging with other traders constantly between making trades. Most traders have trading partners who critique their ideas and try to help them avoid making trades based on impulsive wishful thinking rather than skillful calculations.
Social trading platforms like Etoro, Myfxbook and Forexfactory offer online traders a similar support network.