A lot of people who start trading dream of becoming a professional trader.
Having become one myself, and mentored a fair few people who have succeeded themselves, I have a pretty good idea of what is required.
In this article I’m going to tell you what you need to be considering and and what you need to be doing to become a professional trader.
Let me get this out of the way from the start. If you think becoming a professional trader is easy, or it’s a case of finding some indicator combination or technical analysis setup is the key to success, then you’re mistaken.
If you’re looking for easy shortcuts or to ‘get rich quick’, then you’re probably better off back on Instagram looking at all the scammers posing with supercars they don’t own.
If, however, you’re serious about becoming a professional trader then this is an in-depth, honest and candid article about the realities of professional trading and the routes to get there.
I’ll address this this point that is often raised. What people actually mean when draw this comparison is actually retail vs institutional trader. An institutional trader being one that works for a bank / hedge fund and likes to spend 99% of their time at work (no thanks).
A retail trader can also be a professional trader. A professional is someone who makes their living from an occupation. Therefore people are professional retail traders because they make their living from trading. From now on, when I write ‘retail trader’, assume I mean a ‘professional retail trader’.
I’ll provide some general differences between a retail trader and institutional trader.
Institutional trading has this glamorous image and a lot of people have incorrect ideas as to what institutional traders do. I may be a tad biased, but I can’t think of anything worse than doing what a lot of them do.
A retail trader works for themselves. There advantages of this is they get to be their own boss (something I personally value highly). Someone working for an institution will work in a traditional hierarchy. They’ll have a boss, and their boss will have a boss etc. Of course, depending on your personality type, you may be better off in an environment with a boss and the structure that it provides.
Although realistically if you want to be a professional trader, you’ll need discipline levels that mean you should be able to work on your own without needing a boss or being told what to do.
Forget the image of trading floors like this:
These don’t exist anymore. The romantic roots to the original purpose of trading (people meeting in person to trading goods) is gone forever. What killed these off? The same thing you’re using to read this – a computer (that includes your phone).
That’s one thing the retail and institutional traders have in common. Their whole trading will be done on computers.
The trading methods can be vastly different. Consider that automated / algorithmic trading makes up most of the volume. A lot of institutional traders are allocated to monitor the robots to make sure they’re behaving.
Retail traders will usually be using CFDs of Spreadbets to place their trades.
The major advantage for us is we can be a lot more nimble. If we need to be out of the market we can be. It’s a lot harder for institutions to get in and out of the market given the sizes in which they are invested. The best example is when things go crazy or there’s a major event (like and election). We, if we choose, can sit on the side and not be exposed to major unexpected events.
A major positive for institutional traders is they are usually not trading with their own money. It hurts less when you’re not losing your own money!
Institutional traders are also likely to get a base salary so will earn regardless of how well they do (they may not last too long if they perform poorly, though). This can help reduce the pressure on them.
The retail trader has to trade with their own money (we’ll ignore copy trading for the time being). This can place added pressure on the trader, especially if things aren’t going so well.
An institutional trader will, depending on their role, have a support structure around them. This will consist of risk managers, trading coaches / psychologists, analysts and other people who provide a supporting structure to make sure the trader is at their best.
A retail trader pretty much has themselves to take care of all those aspects. Quite the challenge as I am sure you’re starting to appreciate.
Now this is a big one for me. You can’t buy time.
Institutional traders have to give their soul to their jobs. I’m talking starting work when it’s dark and finishing when it’s dark (and that’s probably in summer, too). This is even worse when you consider the cities banks / funds are within. A commute to central London isn’t quick!
Do you fancy 70 hour weeks? Me neither.
Retail traders have a much better work / life balance. I’m not talking about the ‘trade 30 minutes a day on a laptop’ BS. I, and other professional retail trader do have to work hard and put the time in, but consider this. We don’t have to commute (every professional I know works from home) on the stupid underground in the height of summer / winter.
I can do things like go the gym and actually cook proper food rather than grabbing some manky sandwich from a local shop. For traders who have children they are actually able to see them.
It’s much more flexible and efficient.
Professional traders trade in a way which bring them a consistent income. That doesn’t mean daily or even weekly profits. It means profits over a sufficient time that allows them to make a living from them.
There are three keys to trading along with some other considerations. Let’s explore the three keys first of all.
A professional trader will have profitable trading strategies in order to make money in the markets. They also need a range of strategies for different market conditions. It’s no good having strategies which make money in trending markets but not in sideways markets. If you’re looking for some of the strategies that I use, you can find my breakout strategy, swing trading strategy and scalping strategies.
One of the most essential aspects to a trading strategy is having confidence in it. This is why superficially copying or lifting someone else’s strategy without understanding it and having actual experience of trading it won’t work.
You need to see, experience and feel the strategies making money, losing money, experience draw down with them along with all the other ups and downs associated with strategies. I explain more about strategy confidence this in my articles on signals.
Having great strategies is one thing, but without having the mental and psychological skills to execute them correctly and consistently, they mean nothing.
Trading psychology is the most neglected area of trading. Most attention goes towards strategies and things like technical analysis – the ‘sexy’ side of trading. The unique nature of trading requires unique mental skills. Do not underestimate this challenge. It takes huge effort to reduce and remove trading errors. This takes a lot of time and commitment.
Some professional traders will work with trading psychologists and performance coaches. I am not joking. Think of a professional trader like an elite sportsperson. They’re constantly looking to make incremental, positive gains to their performance.
Not only is the route to develop the mental skills required to execute your strategies correctly hard, but having the discipline to remain consistent is a challenge too. It’s hard getting there, and hard staying there.
Try rating yourself as one of the following categories (this is taken from something I do when I mentor students).
Are you a A, B, C or D?
If you are an ‘A’, you are the professional trader. You have the skills and strategy, and you also have the psychology and discipline. The challenges of being an ‘A’ trader are consistency and sustaining performance, and ensuring you remain as an A trader.
If you are a ‘B’, you are an under-performer. This is a positive as it means you have the skill and abilities to be a successful trader in terms of analysis, technical ability and your trading strategies, but you lack the required trading psychology and discipline. You need to work on your trading psychology.
If you are a ‘C’, you are classed as ‘high potential’. This is because you have the right trading psychology and discipline, but you lack the required technical skills, knowledge and strategies. You need profitable strategies.
If you are a ‘D’, you are a beginner at trading and need to develop your psychological abilities along with obtaining profitable trading strategies. You can still be a beginner even if you have been trading for a long time. There are people who have been trading for years, and have not developed their strategic or psychological skills to move to any other classification.
This is the reason I produced 50,000 word, scripted, 7-part trading psychology course.
Want a break from reading? You can watch this related 15-minute video if you want to listen to me rant for a bit.
A professional trader treats trading like a business. Some people write out business plans. I’m not overly bothered about having my students write-out a business plan.
What I am very bothered about are student having a comprehensive trade log. We use EdgeWonk which is the best one out there.
It looks like this when you complete it:
That is just three pages of the log. There is much more to it including journaling and recording emotions, progress and much, much more (download the demo of it to see for yourself).
So why do professional traders go through all this work? Because our memory is flawed and our judgements are subjective.
I usually ask my students what they think is their best strategy and market. I then get them to complete a trade log and more often than not, the strategy and market they thought was their best turns out not to be their best.
A trade log and journal provides with objective information and data to see how we are performing.
That leads on to analysis. Once you have a good amount of data you can see which are you best strategies. What is making you money? What is losing money? What needs work? Could you run your trades long? Do you make more money in the morning or afternoon?
A professional trader has a huge interest in their development and is looking to continuously improve. It’s that mindset and determination that makes them successful.
So the three keys. Strategies, psychology and recording and analysis.
There’s a bit more I need to tell you about. Stick with it they are practical life considerations that professional traders need to consider and deal with that you may not have considered before.
I’ll quick fire them:
The less you have to pay out the better. Ideally you don’t want more than a mortgage, essential bills and life’s essentials (such as food).
Debt is the enemy of people trying to create wealth and the full-time trader. Paying interest adds up and the more outgoings, the more pressure a trader is faced with.
Avoid credit cards and unnecessary debt. It helps create a solid, less-stressful foundation to trade from.
If you’re trading for a living then it helps if your partner, if you have one, brings in income to the home. If the partner’s income covers the debt and outgoings then this is even better and relieves the pressure even further.
The last thing you need is to feel the pressure to take trades. There are often times when there is no trade to take or periods where there is draw down / a sideways equity curve.
You have to be able to let these periods play out naturally without undue pressure.
It’s always good to have ‘rainy day’ contingency funds. An ideal minimum is to have 12 months of living money (covering debt and outgoings), which again takes some of the pressure off you. 24 months is better but that can be a stretch for most and arguably the money could be doing something better (i.e. invested).
This covers some of life’s unexpected events like being sick or periods where your mindset may be affected and place you in a position where you are unable to trade. A death in the family (sorry for being morbid) being an example.
Related to a partner’s income, if you have your own ancillary income it can greatly support trading. That could be a part-time job (you can still be classed as a professional trader) or something like a pension if you’re retired. If this covers debt and outgoings that’s even better.
Last and not least, a big one. You can’t make a living from a £/$/€ 1000 account. You need 10s of 1000s to have a trading account where you’re going to make good money from sensible risk-management and sensible leverage relative to your account size.
Quite a lot to take in! Thanks for sticking with me.
So to become a professional trader you need profitable strategies. You need to put in lots of time and effort developing your trading psychology and discipline. You need to get obsessed with your recording and analysis to make improvements.
Other factors to consider are you ingoings and outgoings. The smaller the outgoings the better. The less you have to rely on your trading income the lower the pressure.
If you’re interested in what we do check out our live trade room page to see how we help people become professional, independent traders.
If you want to talk to me about professional trading and the route to get there then feel free to contact me on WhatsApp or Telegram below and I’ll do my best to help.
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