Alvin Chow writes informative articles on themes of interest to investors. He is the founder of BigFatPurse.com , loves the financial market, and curious to find out what work and what doesn't work in investing.
Is trading suitable for you?
I have met many people interested in trading and I have also met equal number of people give up trading. Many people dream of getting rich and trading seems like an activity that does not require much work, yet has a possibility to double or triple your money. It would be unlike investing where a lot of time is required before one can see results. People are generally impatient and want to see gains fast. Trading seems to promise that. However, it is rather a perception that trading is a get rich quick avenue. There are indeed successful traders that make a lot of money. Statistically, this applies to a small group of people. They may be talented and genetically wired for trading, but they also need to gain experience over time to be good in the game. Probably for the average people who have a day job, it is difficult for most to sacrifice free time to learn trading? It is possible but it is going to be very tedious.
Of course, the best way to learn about trading is to go full time, and treat trading as a profession. Your odds of success would be higher than someone doing part time. But for some of us who have a family to feed, we would still need to rely on a dependable income. It is likely that you would not make money from trading in the initial years. It is still possible to trade part time, but this would mean that you have to choose a time frame that is longer, from days to months. This would require more patience and in addition, the profits will come only in certain months. The fluctuation of the market would increase the uncertainty, and you would not know what your pay check from the market would come.
Nonetheless, if you are trading part time and you still have an income, it is still nice to have supplementary income stream from trading even though it is irregular. But do not expect to get rich by trading part time. All the professional traders who really earn millions from trading do it full time. Their psychology is able to withstand large drawdowns on their capital and handle huge losses. As a part timer, you cannot risk so much and hence, you do not make big trades that make or break your account. In other words, part time trading is can be a good side income but it is difficult to become rich from it.
If you are interested to trade part time, go for a longer time frame. Do not do intra-day trading as you would not have the time and energy to focus on the screens. Trade a time-frame that does not require constant monitoring, and you can place or adjust orders once a day or once every few days.
Below are some of the questions that I think would help you understand yourself better and find a trading method that suits your personality and ability. I have provided some answers in italics for illustration.
Why do you want to trade?
I find financial markets intriguing and I have a genuine interest in it. I enjoy trying to understand how markets work. I also see trading as another source of income. I believe in having multiple sources of income and hence, trading is one of them.
I find financial markets intriguing and I have a genuine interest in it. I enjoy trying to understand how markets work. I also see trading as another source of income. I believe in having multiple sources of income and hence, trading is one of them.
The reason must be compelling and you must feel strongly about it. If you do not really enjoy trading, find other things to do.
How much time can you devote to trading?
I have a day job and I can only spare about 2-3 hours a day for trading.
I have a day job and I can only spare about 2-3 hours a day for trading.
This would suggest your trading time frame. For me, I would look at the market at the end of the day and place/adjust orders for the following day.
How much money can you afford to lose?
I can afford to lose 20% of my capital comfortably. As a young person with no financial burden, I can even afford to lose my entire trading capital in order to learn to trade properly.
I can afford to lose 20% of my capital comfortably. As a young person with no financial burden, I can even afford to lose my entire trading capital in order to learn to trade properly.
Losing is a requirement in trading. Every trader loses. But every trader needs to carry on after losses. If you cannot handle the emotional loss, you are not suitable to trade.
What is your personal character with regards to patience and discipline.
I am considered a patient person, able to wait for things to happen. I do not particularly like fast paced activities as I am not a reactive person. In terms of discipline, I can follow rules pretty well as long as I find it a point to follow them.
I am considered a patient person, able to wait for things to happen. I do not particularly like fast paced activities as I am not a reactive person. In terms of discipline, I can follow rules pretty well as long as I find it a point to follow them.
Trading requires both patience and discipline. Patience to wait for the right signals and not be trigger happy. There are times where you have to do nothing at all. Waiting for things to happen is harder than you think. Discipline is required to stick to your trading method through thick and thin in the market. You need to do the right thing at the right time.
Are you a big picture or detailed person?
I am definitely a big picture person. I can see how things connect together. I always think strategically, to an extent that I am unable to go to the details at times. I am not a meticulous person.
I am definitely a big picture person. I can see how things connect together. I always think strategically, to an extent that I am unable to go to the details at times. I am not a meticulous person.
This would suggest whether you should use a bottom-up or top-down approach. A big picture person is more suitable for top-down approach, looking at the economy and major markets, and make trading decisions. If you like details, you can follow a few counters and be very familiar with them. You only trade this group of counters as it becomes your circle of competence.
What is your attitude towards money?
I believe money goes to the person who has the ability to command it.
I believe money goes to the person who has the ability to command it.
Your mindset towards money is crucial to money management in trading. You cannot risk money unnecessarily.
What are your beliefs about market?
Market is not a get rich quick avenue. Most people lose money in the markets but it is possible to make profits if I can find and apply my edge. I believe it is all about managing risks, instead of looking at how much potential profits I can earn.
Market is not a get rich quick avenue. Most people lose money in the markets but it is possible to make profits if I can find and apply my edge. I believe it is all about managing risks, instead of looking at how much potential profits I can earn.
Likewise, your beliefs of the market would shape your trading methods. Adopting the right beliefs is essential to trade successfully.
Can you handle more losses than wins, even though the wins are bigger than losses?
I prefer small consistent wins to big profits.
I prefer small consistent wins to big profits.
If you want more profits per trade, you need to trade a longer time frame and you can be wrong most of the time. If you prefer to take small wins, your trades would be smaller and shorter.
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