A prerequisite of successful trading is specifically defining your style of trading and the amount of effort you plan on devoting to the profession. How you address these two issues directly impacts your results. From a psychological standpoint, the more realistic you are about your potential results, the better you’ll feel since you won’t be continually disappointed when your results fall short of your expectations. Styles of trading usually refer to the amount of risk a trader takes on and the length of time a trade is held; for example, scalper, daytrader, swing trader, or long term investor are the usual ways that styles of trading are defined.
Each style has its advantages and disadvantages. A second issue, however, is the amount of commitment a trader devotes to the profession. Is trading merely a form of entertainment, a part-time career, or a full-time job? There isn’t a “right” way to approach trading, but since the amount of effort and commitment you put into trading has a direct bearing on the results you should anticipate, it is useful to make sure your commitment to trading matches your expectations.
Many people approach trading as a hobby rather than a job. Instead of playing the lottery or gambling as a form of recreation, they trade a small account. There’s nothing wrong with approaching trading from this point of view, as long as you are realistic about the potential profits you’ll make. In reality, you may make relatively few profits by approaching trading as a hobby. Indeed, some trading experts warn that you’ll lose money unless you put in adequate time and effort.
First, if you’re like most recreational traders, your account size will be small. It will be hard to cover commissions with a small account. Second, because you approach trading as a hobby, it will be difficult to find profitable trading opportunities. It takes time and effort to find such opportunities, and it is unlikely that you’ll put in the adequate time if you treat trading as a hobby. So if you approach trading as a hobby, your profits may be limited.
At a minimum, it is wise to treat trading as a part-time job, a job where you put in at least 30 hours a week. This is the optimal approach for most traders who use trading as a secondary source of income. By putting in a relatively large amount of effort, you can find profitable trading opportunities and hone your trading skills until you become consistently profitable. It is necessary, however, to also have a relatively large trading account to make sufficient profits, and cover commissions and drawdowns. It doesn’t matter how much time and effort you put into trading if you just don’t have enough capital to trade. It is important to realize that profitable trading requires both adequate commitment and money.
A very rare group of traders are full-time professionals. They devote a substantial amount of their time to trading and must continually search for new methods to stay profitable. Full-time professionals tend to trade institutional funds or have large personal accounts. It is essential to realize that full-time professionals, though, tend to devote over 40 hours a week to the profession. Not everyone is willing to make the personal sacrifices it takes to trade like a professional. But those who do put in the effort and achieve consistent profitability can reap large rewards from trading. So if you are seeking huge returns, you may want to get the proper training and backing to trade as a full-time, active professional.
It is useful to match your expectations to your commitments. The number of profits you can expect to make is directly related to the amount of commitment you devote to trading. If you have a small account and put in little commitment, you shouldn’t expect to make large profits. But, on the other hand, if devote enough capital and commitment to trading, you’ll achieve significant success.