How To Be A Trader - Part 1

Today’s guest is Markus Heitkoetter, CEO of Rockwell Trading and author of “The Complete Guide to Day Trading.”  Today Markus is going to share with you Part 1 in a series of articles on what he believes it takes to be a trader.

According to Google, "how to be a trader" is one of the most active search terms. It seems that these days many people are interested in becoming a trader.

But what does it take to become a trader? What are the steps?

In this article series you will learn how to be a trader.

 

The Mindset of a Trader

Many people are intrigued by the idea of "making millions in minutes" while working from home or any place they want. No commute to work, no boss yelling at you, no deadlines, no annoying coworkers, no cubicles, no demanding customers.... and the list goes on.

Often people dream of living in an exotic location, trading for a few hours in the morning and then enjoying life.

And although this might be reality for some traders, the vast majority of traders have a different reality. They put in a lot of time and money, spend countless hours in front of their computers (often more than they did while they still had a "real" job) and yet their account is not growing. In fact, it is said that the majority of traders LOSE money.

If you want to become a trader, then you MUST be willing to invest the time, money and effort to learn how to be a trader.

You won't become a trader overnight. In the beginning, trading can be grueling and frustrating. Your results will not match your efforts. And this is why many traders give up.

However, if you do follow a structured approach and understand that trading is not another "get-rich-quick-scheme", then there's a chance that YOU might achieve your goals.

Do You Really Want To Be a Trader

Trading is a business. It's a profession. And it takes time to learn how to trade.

Anybody who tells you differently, is a liar. Sorry for being harsh, but it's the truth.

You can't just buy "the magic system" that automatically puts money into your bank account overnight. It doesn't exist!

Realistically, it can take you several weeks and and often even months before you have your first profitable trade. And in the beginning you might even lose some money, no matter how well you prepare. Because when trading, there's always the risk of loss!

But here's an approach that can increase your chances of making it as a trader:

Step 1: Setting Realistic Goals

Here's the problem:

Many aspiring traders have unrealistic goals. They start with a $5,000 account and expect to make $5,000 in their first month of trading. No wonder many traders fail.

Focus on small, but consistent profits!

Trading is a function of risk and reward. The more you risk, the higher the profit potential. Or in "traders language": The larger the stop loss, the higher you can set your profit target.

Let me give you an example: A good reward/risk ratio is 1.5 to 1. This means that you are willing to risk $100 trying to make $150. If you start with a $5,000 account, your stop loss of $100 would be exactly 2% of your account. I'm sure you already heard about the "2% risk rule." It's widely used and many trading experts recommend it.

Now let's say you are right every other trade, i.e. your trading system has a winning percentage of 50%. This means that in the long run you can expect as many winning trades as losing trade.

For our example, let's say you place 10 trades - 5 of them are winning trades and 5 of them are losing trades.

So you would make $750 on your winning trades (5 * $150), and lose $500 on your losing trades (5* $100). Your gross profit after 10 trades would be $250. You now need to deduct your commissions, which should be around $50 - $70 for 10 trades, depending on your broker and the markets you trade.

Therefore your net profit after 10 trades would be around $180-$200.

Now the question is: How many trading signals does your system produce?

If you get 10 trading signals per week, then you can expect a weekly return of $180-$200 on a $5,000 account.

Which is a phenomenal result!

Think about it: With a simple trading strategy like this you could expect $720 - $800 per month on a $5,000 account. That's a whopping 14% - 16%! Per month!

Now, keep in mind that there's also the possibility of LOSING money.

So let's talk about losses:

If you had 10 LOSING TRADES in a row, then you would lose $1,000, since you are risking $100 per trade. That's 20% of your account. Ouch!

But honestly: If you manage to have 10 losing trades in a row, you should stop trading immediately. Because the chances of getting 10 losses in a row when trading a strategy with an expected winning percentage of 50%, is less than 0.1% (!!!)

Summary Of "How To Be A Trader Part 1"

Before you even start trading, you need to know what to expect from trading.

Have realistic expectations, and understand the risks of trading. Set small goals. Don't shoot for the stars. Try to make $100 per week on a trading account of $5,000. That would be $400 per month, or 8% based on your capital. Per month!!!

You might not achieve your weekly goal every week. There might be some weeks when you make less. Or you might even lose some money. But in the long run you should be ahead and see your account grow. And with proper risk and money management, you should be able to control your risk while growing your account.

So the key is to find a trading strategy with a winning percentage of 50% while achieving a reward-to-risk ratio of 1.5 to 1.

And that's what we will cover in the next blog post "How To Be A Trader - Part 2"

Markus is CEO of Rockwell Trading and author of the international bestseller “The Complete Guide to Day Trading”. For a limited time INO Blog Readers can download his book free here.