Becoming a fulltime trader PART II

July 29, 2008 at 3:01 pm Leave a comment

By FX Insights

Becoming a fulltime trader PART II

ROI:  

I don’t care what anybody says, ROI (return on investment) is king in the FX market. It’s not about how many pips you can make in a day or in a month, it’s all about ROI, and how you trade your account to achieve that ROI… 

In the world of investing, if you can beat the S&P/500, which is making about 15% ROI annually, you are pretty much a trading god. The key is how you arrive at your ROI, which goes back to risk management and not over leveraging your account. 

Every once in awhile a retail broker will have a trading contest to see who can gain the most ROI in a month. Those contests are a joke and are a terrible way to teach risk management, because it causes traders to over leverage… 

When it comes to ROI, I suggest setting a monthly goal for yourself… if you want to do 20% ROI per trade month, you need a game plan to safely get you there… you can even break this down to daily ROI goals. For me, I try do 1% ROI per day… some days I do more, some I don’t meet the goal, but I’m not going to go crazy on my accounts to hit that goal… 

If you are going to trade fulltime to support your lifestyle you absolutely must know how much ROI you’re going to need to make on a weekly or monthly basis and then you have to trade your account in such a way to not only meet your ROI goal, but so you can safely withdraw funds from your account without putting any open trades in jeopardy of a margin call – not very easy to do!

You could have a balance of $50,000 but have 10 open entries that have sucked your usable margin down to $5,000, and a situation like that keeps you held hostage to the market… you’d not be able to remove funds because your usable margin will not allow… this is a critical factor when it comes to trading fulltime and trying to live off of your trades!

Not trading with your wallet:

There’s two ways to trade this market – either with your wallet or with risk capital. Trading with your wallet causes you to be emotional, take make dumb, emotional decisions, to over leverage your account, to over trade your account, and to take unnecessary risks. Trading with your wallet basically means trading with money you really can’t afford to lose – trading with rent money, trading with mortgage money, trading with food money, trading with your kid’s college money, etc. 

Trading with your wallet is going to put so much stress on you that you’ll end up trading like an idiot and you’ll make idiotic decisions… it prevents you from seeing the market clearly and from making smart trade decisions.

In a way, trading fulltime for a living is like trading with your wallet, however, your account should be funded with risk capital… using risk capital keeps you in a much better psychological state of mind and it keeps your emotions from getting the best of you… 

How much money should a fulltime trader have in their account? My opinion is a minimum of $50,000 to $75,000 to get started. It really depends on what kind of returns you need your account to give you to support your lifestyle. But I think any less than that will keep you held hostage to the market… 

And please don’t get tripped up on account size… percentages are always the same… a 1% used margin entry is the same on a 5K account and a 50K account… percentages never change! 1% is 1%, no matter what… 

If you have to take out a second mortgage on your home, or you have to get a title loan, or if you have to borrow cash from a credit card to fund a fulltime trading account, I can pretty much guarantee you’ll crap it out within 6 months and then you’ll be really screwed. 

Continuing this point… I suggest you have set aside at least 6 to 9 months of living expenses before you go fulltime. In the event you can’t pull living expenses from your trading account, at least you have your bills covered for 6to 9 months while you get your account in shape to make withdraws. Don’t leave anything to chance!

Pick a broker:

Bottom-line – most retail brokers suck… they stop hunt, they manipulate prices, they play games, they take the opposite side of your trade, they don’t educate traders, etc. So you have two choices, go with a typical retail broker like FXCM, IBFX, Oanda, DBFX or go with an ECN like Hotspot or MB Trading or whatever… 

There are advantages and disadvantages to a retail shop or an ECN, but you have to decide what works best for your needs and for your trading style. If you use stops and keep your trades exposed to stop hunting, you might do better with an ECN… if a feature like a user-friendly platform is more important, you might do better with a retail broker as opposed to an ECN. 

Once you decide what type of brokerage you want to run your trades through, then you need to pick your broker. Trust me, some are worse than others… FXCM has the most user-friendly platform on God’s green earth, but of course they play typical retail broker games… an ECN like Hotspot is not known for stop hunting and they have lower pip spreads, but the platform is atrocious… 

Talk to the brokerage, talk to their customer support, to their tech support and get a feel for how friendly and helpful they are… talk to other traders who use their services to see what kind of issues they might experience. Our community is a great place to do this… 

Do you want to go with a U.S. broker or a Swiss broker? There are advantages and disadvantages to both… again, you have to weigh the pros and the cons, but I recommend you really take the time to figure out who will work best for your fulltime trading needs. 

Suffering pain:

No trader wants to lose money, no trader wants to get margin called, but I honestly think every trader needs to feel the pain and wrath of this market… we trade in a beast of a market and no trader will ever respect this market until it beats them unmercifully… it’s pretty easy to suffer at the hands of this market, so if you’ve already been down that road, don’t make those same mistakes when you go live to fulltime trading… 

Trading the spot FX market is like guerilla warfare… at any second you could be attacked… the whole market is against you… in order for another trader to win, you must be the one that looses, that’s how it works in this game… the market will use any and every opportunity to take your money, it shows no mercy, no remorse, and it’s unforgiving… 

When I hear about these companies like 4xmadeeasy, it makes my blood boil because there’s nothing easy about Forex and there’s nothing you can do to make it easy… how dare those people even call it that? It blows my mind that they manage to sucker so many people, but it happens… I don’t know how they sleep at night knowing they’ve duped so many people, but I guess they don’t have souls… 

Trading FX fulltime is one of the hardest ways to make money and requires the most time, energy, and focus… if you’re not willing to put in the work and the efforts it takes to trade fulltime, don’t do it… stick with your day job and do this as a hobby… 

Resources:

Yes I might be biased, but I truly believe the FXI community provides everything a trader would ever need to be successful in this market… I think the principles we teach are solid and proven and tested to work… our community is helpful and kind and giving and serious about seeing traders succeed… 

We are 100% committed to only providing accurate and helpful information and not filling your head with crap that doesn’t work and that would lead you down the wrong path… 

Point being – fill your trading arsenal with good resources that will help you be the best trader you can be… trading FX fulltime can be so lonely, which is one reason we started FXI in the first place… take advantages of the good resources out there to help traders… 

I always get asked what books a trader should read – I don’t have much to recommend… I’ve never read a book on Forex except for Forex Revolution and I never finished the whole thing, to be honest… I’ve never read a book on how to trade, I’ve never read a book on economics, and I’ve never read a book on using indicators… I can’t help you there… there are probably some good resources, though, so ask around… 

If I did have to offer a recommendation, I’d probably say to read Jesse Livermore’s stuff… he’s an old school price action trader who made millions in the equities markets in the early 1900’s, but lost his millions because he broke his risk management rules… Livermore’s principles are timeless, however…

Consistency:

One thing Cisco has always drilled into our heads is staying 100% consistent in all that we do… consistency is one of the keys to being a successful fulltime trader… 

Once you develop your risk management rules, your trading style, your rules for trading, etc., you must stay consistent and stay consistent with your game plan… 

I could go on and on about consistency, but this point is pretty cut and dry and I’m sure you understand… 

Conclusion:

Those are my thoughts on trading fulltime… that’s who I see it… I’m sure there’s more that could said, but I think this covers the basics… there’s a lot here so read it a few times if you must… after reading this feel free to find me in the chat if you want to discuss any of these points further…

I hope this helps, and like I said, we’re here to support you 100% in your pursuits of being a successful FX trader… 

–END OF PART II–

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Becoming a fulltime trader PART I Trade Team Update – – 7/29/08

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