In a follow up to the series started yesterday (see part 1 here) we go over emails and questions that are asked about trading for a living from those looking to learn. We see common questions and mistakes new traders make and we know its not their fault, its just the false online narrative they have been fed where trading is made to look easy and you can live a baller life when that’s not what it truly is.
So, lets continue…
QUESTION 3: What amount can I start trading with and become profitable?
This is an oxymoron if you think about it. On one hand they’re asking how much they should start with, on the other, they’re saying when I can become profitable.
Becoming profitable starts first with learning basic price action, having a reason to enter a trade, and knowing what your risk limits are on the downside FIRST! It doesn’t matter if you’re trading one contract or one share of stock. The end result will be the same. The only difference is the profit achieved as you trade more.
For a second lets just pretend that the core foundations to trading are in place and you’re ready to trade with real money. How much should you start with to not blow up if everything else is in place?
We tell individuals first that $5k-10K is the bare minimum you should have. Why? Well if you trade futures during the US trading session intra-day margins on futures contracts vary in price. Some are as low as $500 and some are as high as $10,000 or more. That means you need to have two things.
- Enough money in your account to hold that contract and take advantage of the price swing (hopefully in your favor).
- Close that contract at the close or you will be subjected to overnight-margin which usually is the full contract amount you have to put up. You can see margins on the various futures markets here: http://www.cmegroup.com/search/?q=margins
With options contracts the concept is the same. The only difference is if you buy a contract for say $1.00 the most you can lose is $100. But you still need to have the money in the account to put up for margin.
Those who come to trading when starting out because they saw some penny millionaire trade a few thousand bucks and think they can do it too is not living in reality. There is a lot of bullshit online from fake-traders who tell you if you want to make millions like me all you need is a couple hundred bucks. The fact is if they're legit they didn’t start out with a few hundred dollars, but lost thousands of dollars prior learning how not to trade before maybe catching a double and saying it was a homer.
So, in summation if you’re looking to trade and become proficient by growing your capital in a slow consistent manner and not some “all-in” praying mentality you better be trading with at least $5k-$10k.
QUESTION 4: What are your thoughts about trading around the clock?
This I see especially from the FOREX crowd. I get that most people when the US markets are open are at work themselves and maybe not able to trade when its volatile. But they make the mistake of thinking I can just trade around the clock and make consistent money. The fact is this rarely if ever works out. Let’s say for example someone decides to go long a currency pair (FOREX is 24hours a day 6 days a week trading) when the markets are between US close and Japanese Open. And let’s say that while the market is dead this currency pair is trading in a tight range doing virtually nothing but minor moves. Two things usually happen with new traders who always have the urge to deal.
- They go long the currency pair hoping it will go up. Few minutes later after talking with their family about their day’s they come back and the currency pair is down. They freak out like crack heads and go short the currency pair. They see it go back up like they originally thought and say I am going long now and holding my original conviction. This overtrading losing small amounts is happening all while that particular market is still in a tight range and has done nothing. But like crack heads they need their fix so they churn the account flipping positions and rack up small losses.
- While they're doing this they neglect to remember that every time they open or close a trade they’re paying a spread or commission to their broker TWICE! What was a small loss on crack head trades has turned the account into larger losses because they also racked up commissions to. Your broker thanks you for that…
When is the best time to trade then? There are three answers to this:
When the US market opens usually the first 30 minutes is when volatility is highest. And when the market is closing usually 30 minutes into the close when volatility is also high to get in and out of day trades.
If you work and are not trading for a living then using options trades where a market move materializes in a few days works as well and you set LIMIT orders to get out if you’re not in front of your computer. This means on the downside and upside.
You don’t trade. Cash is an asset too that people forget. Waiting for setups or breakouts and having the margin waiting is always optimal. Don’t be that guy who is trading odd exchange hours and wondering why you’re not seeing volatility moves. Its because the dealer banks, active traders, hedge funds, and other participants are not active at these times.
If you're looking to start trading part time before making the transition someday to part-time trading, then join us this Friday where one of our students talks about how he is able to generate income while maintaing a career.
Free Webinar Registration: How I Made 20K Trading Part-Time While Maintaining A Career.
Trading For A Living Part 3
And if you have a friend who does these habits mentioned above, save him and his brokerage account a lot of hardship and pass along this article and webinar invite.