One of the earliest steps you must take as a trader is one that many traders overlook. You must specifically define your trading style and the amount of effort you plan on devoting to the trading profession. The way in which you address these two issues directly impacts your results. You have to be realistic about your potential results. You cannot afford to fall victim to the get-rich-quick schemes that abound in this business.
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, day trader, swing trader, or long term trader are the usual ways that styles of trading are defined. Each style has its advantages and disadvantages, but assessing risk is always the most important first step.
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 decide the amount of commitment, 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. Some trading styles, for example day trading, require a much greater time commitment than do spread trading or option trading.
Many people approach trading as something they'd like to learn rather than as a job or a business. 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. In fact, some trading experts warn that you'll lose money unless you put in adequate time and effort.
If you're like many casual traders, your account size will be small. It will be hard to cover commissions and margins with a small account. Second, because you approach trading as something you would like to learn, 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 adequate time if you treat trading as something you'd like to learn more about. So if you approach trading casually, 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 may be the optimal approach for most traders who use trading as a secondary source of income, but would like it to become their main source of income. By putting in a relatively large amount of effort, you can find profitable trading opportunities and develop your trading skills until you become consistently profitable. However, it is necessary to also have a relatively large trading account to make sufficient profits, cover commissions and drawdowns, and cover margin to the point that most people could "make a living." 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 adequate money. It takes money to make money.
A very rare group of traders are full-time professionals. They often 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, may devote over 40 hours a week to the profession. Not everyone is willing to make the personal sacrifices it takes to trade as 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 amount of profits you can expect to make is directly related to the amount of commitment you devote to trading your chosen style. If you have a small account and put in little commitment, you shouldn't expect to make large profits. On the other hand, if you devote enough capital and commitment to trading, you can achieve significant success.
Commitment and Expectation
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