I started trading/investing approximately 15 years ago, and, during the first couple of years, I probably made every mistake possible. But I never quit and I always strived to learn from every painful experience. Still, I try to improve every day and to adapt to always slightly changing markets.
Here are my five steps to become a profitable trader:
1. Be aware that trading is a craft like any other profession.
For example, an electronics technician apprenticeship in Switzerland takes 4 years. After this learning period, you would have built enough knowledge and practice to work for a company and earn a living. If you want more responsibility and earn more money, then you have to take further education. Maybe a university degree which, costs you a lot of money and takes another 3-5 years.
Trading is no different. It takes on average 3-4 years of hard and smart work to get profitable. With an experienced mentor and the right working attitude, it is possible to become profitable in 2 years. If your motivation is to get rich quick without working hard, trading is the wrong way to go.
2. Getting some good books is the easiest and cheapest way to start your trading career.
On a beginner’s level, I can recommend “Come into my trading room” from Alexander Elder. This book gives a good overview about three important things: strategy, money management, and psychology. More good reads: “Reminiscences of a stock operator,” “Market wizards” (about trading/investing in general), “Trading in the zone” (psychology/discipline) and “Fortune’s formula”(money management).
3. Start with a small trading account and write a journal.
At some point, theory won’t be helping much, so you’ll need practice. Open a small trading account and start getting your first experiences. Using a paper account is only an option if you don’t have any money. It is always good to get used to the feeling of having “skin in the game,” even if the amounts are just a couple of dollars.
To steepen your learning curve, I highly recommend writing a trading journal. Just write down the reason why you open a trade (your thesis) and the levels at which the action takes place (position management). Review your trades every weekend to see if you’ve executed the trades like you planned and if your trading size was accurate, so you can control it better in the future.
You have to set yourself rules/boundaries to eliminate bad behavior (i.e. breaching risk limits, ignoring stop levels, etc.).
4. Review your strategies and focus on the things that work.
After collecting data from about 200-300 trades, it will be time to review your strategies. Do the analysis and focus on 1-2 trade setups that work best for you.
5. Work on your trading size.
You have the knowledge, the routine, and you already had some success trading the markets. The next step is to increase your position size. Incremental steps are probably the best way to do this without feeling uncomfortable.
✓ Former hedge fund portfolio manager/trader
✓ 15 years of experience in financial markets
✓ Master of Science (MSc) in Business and Economics from the University of Basel
✓ Developed quantitative tools for an asset management