Do you think of trading as a side business or a full time job?
Whether you work from home or between jobs, it is definitely possible to earn extra income from trading.
But before you jump in on your head and put your hard-earned cash on the line, you need to remember what defines Consistently profitable Traders apart from those who drain their capital quickly is that they Treat the trade as a business.
Having a business mindset means that you put in the work to create a business plan, make sure it’s properly funded, track your performance, stay aware of costs, and work on improvements.
Here is a quick checklist of the things you need to get started:
1. Choose your market
While there are plenty of advantages to trading forex against stocks or futures, don’t forget that there are other types of markets that may also work for you.
I am sure you have heard about cryptocurrency, commodities, indices, CFDs or options trading, which are interesting and exciting in their own right.
Just be sure to do the proper research to understand the factors that move each market, its active trading hours, and the risks involved.
2. Determine your trading strategy
Once you have decided which market best suits your preferences, it is time to work on your actual strategy.
Of course we assume that you have already read about the trading tools and indicators that you will be working with!
If you plan to trade multiple markets, it is helpful to devise different strategies suitable for each. These usually arise from a lot of trial and error, so make sure you’re ready to put in the hard work.
3. Determine your risk criteria
As emphasized in a lot of my articles on trading psychology, risk management is key in staying alive in the trading game.
It is not enough to simply define the entry and exit parameters for each trade. What makes you profitable in the long run is how you manage your capital and ensure that you can live to trade another day, even if you suffer a series of losses.
4. Set up your workstation properly
If you work and trade from home, you probably know how distractions can come in the form of a barking dog, loud music, or a comfortable couch and TV.
Other challenges for home traders include having a reliable internet connection, adjusting to time zone differences, and having the right trading equipment.
In order to stay in the zone, you need to set up a proper trading workstation that will ensure you are able to stay focused. After all, markets can move truly Fast and the last thing you want when speculating is to get distracted!
5. Choose your broker
Choosing a broker that you trust to properly execute your trades is a crucial decision. You don’t want to fall victim to a scam, do you?
These days, there is no shortage of reviews on most brokers, so there is no excuse for laxity in your due diligence.
Once you’ve narrowed down your choices, open a demo for each and familiarize yourself with their trading platform before opening a live account.
6. Work on your trading psychology
Ah, my favorite part!
As has been said about staying on top of your emotions and having ice in your veins as a trader, this is where trading psychology comes in.
Being aware of your cognitive and interpersonal biases helps you stay calm as an option under pressure. This is useful when trading high-level news events or when deciding to squeeze your profits and cut your losses.
Now this comes with a lot of practice and experience, so don’t beat yourself up for dealing with fear and greed now and then. It happens to the best of us!
7. Know your costs
It’s not exactly the most exciting part of trading, but you definitely need to keep track of related expenses (such as trading equipment, paid courses, electricity and internet upgrades) and pay the appropriate taxes as well.
Treat trade as a business, remember?
Taxes can get really tricky and depend on your jurisdiction, but you probably want to avoid penalties, so be sure to consult professionals when in doubt.
8. Track your performance
Apart from keeping track of your trading related expenses, it is also important to keep a record of your performance through a detailed trading journal.
We have an entire section on keeping a proper trading journal, including five key components to making it more efficient when it comes to developing your trading strategy.
9. Stay informed
“The only constant is change.” – Heraclitus
Wise words from a truly wise man, and they are especially true in the financial markets.
One moment you may think that you have learned to trade and are totally in sync with the markets, but the next moment you might be caught off guard by a black swan!
Staying informed of economic and political news is essential, whether you are day trading or keeping long-term positions open.
The ever-changing dynamism of financial markets is also a good reminder to stay informed and never stop learning. It never hurts to have some additional trading tools and techniques in your arsenal that you can use when the market environment changes.
10. Make adjustments if necessary
In line with the previous point, it’s also important to be on your toes and flexible enough to adapt as needed.
What drives price action today, this week, or this year, may be different next year, next week, and even tomorrow. Take 2020 as an example!
Being a flexible trader does not mean changing your strategies at the first sign of trouble.
It can come in the form of simple things like adapting your entries and exits to the volatility of the pair or switching from trend following to a range bound system when the market environment calls for it.