Trading Forex For a Living

I often get the question can you trade forex for a living？ The short answer

is yes. However, as with all professions, the key to success is effort and

experience. There is an overwhelming amount of material on the internet. There

are also lots of quick win schemes around trading on financial markets. Most of

these are scams or bogus and will end up in you losing all your money. If you

want to trade for living to keep it simple and treat it like a job.

The first step is education. This does not mean signing up for expensive

courses online. You can buy a few books about online trading for less than $40

each. I have listed a few of my favourites at the end of the article but the key

is to keep a sceptical attitude and read a few for balance. Look for books on

trading strategies as well as successful traders. Get familiar with simple

technical analysis strategies such as moving averages. Everybody is looking for

the holy grail that will give you a big win. Yet, the key to trading for a

living is “steady as she goes” and managing your money. This sounds easy but the

biggest pitfall is human psychology.

Human psychology

There is an old Wall Street saying, financial markets are driven by two

powerful emotions – greed and fear. This is as true today as it was when it was

first coined in the 19th century.

I see it over and over again where emotions cause traders to do all the wrong

things. You can be an intelligent careful person in all other respects yet still

be swept up in the emotional bubble that is trading. Dont get me wrong, trading

is an exciting and interesting activity. It can connect you to the global world

in the way little else can. Yet if you want to trade for a living, we want to

reverse your natural instincts and manage your emotions.

The successful traders take emotions out of their trading decisions. This

means planning the largest amount you are happy to lose on each trade. Once you

have this amount, set a stop order and limit order at the same time as opening

your position. The famous American investor Warren Buffet once said, Be fearful

when others are greedy and greedy only when others are fearful. This is a great

mantra to follow when you are trading.

But I hear you say I need a trading strategy that wins. Yes, you need a

strategy but even if you only get your trade right 5 times out of 10 you can

make money if you manage your money. The key is making sure you minimise the

loss on the losing trades and maximising the gain on the winning trades. That is

where human psychology becomes your enemy.

Fighting your demons

The tendency will be to close winning trades as soon as you have one. This

makes sense, right？ Lock in your profit before the market turns？ No, we need the

winners to compensate for the losers so keep tracking up until the market turns

and then sell.

The other tendency is to let losing trades ride. You might say to yourself it

will turn around. After all, I spent time deciding on this trade and I am now

invested, psychologists call this cognitive bias. Unfortunately, it might but

it is as likely to go against you and you increase your losses. Do you have

enough capital to keep holding this position？ Remember when trading CFDs you pay

swap every night for the privilege. This is a tiny amount and most times you can

ignore it. But if you hold your position long enough this becomes a problem.

When you have emotionally invested in taking a trading position It can be

hard to admit it was wrong. The key is to set your largest loss before you open

your position. Put in a stop order at that level and then walk away from it.

For winning traders use trailing limit order if your trading platform allows

that. This means that you lock in profits but let the position ride until it

starts to come back. You wont get the highest price but you can extract a good

return.

Getting started

Trading Forex or CFDs is not a “get rich quick scheme”, no matter what you

might see on the internet. If you want to make a living trading, then treat it

like a job. That means learning how to trade and practising with real money.

• Educate yourself - read about successful traders and trading technique

• Find a strategy – make sure you are comfortable with it and practice

  trading

• Develop a money management plan – this is key to long term success and always

  stick to it



Say you wanted to be a skier？ Would you expect to strap on some skies, go to

the top of the mountain, do some jumps and come to beautiful hockey stop at the

bottom？ No, you would expect to start on the lower slope, fall down a lot and

spend a lot of time practising. A teacher or mentor helps as learning from

others is a great way to get ahead. But you still need a lot of practice and

discipline. Trading is exactly the same.

Once you have a feel for trading, and you still enjoy it, then comes the time

to start. You will need:

• Capital - depending on your desired income to go full time you should have

  about $50k of capital to start.

• Discipline – you have your money management plan. you put in stops to limit

  you greatest loss on every trade. Each trade uses less than 5% of your capital.

  Some of the more seasoned traders even have this as low as 1% of your capital.

  That might seem a tiny amount, but we are dealing with a leveraged product.

• Realistic expectations – If you can get a 30% return over a year on your

  capital you are doing well. This is a process of grinding it out, not the big

  wins. You might get some big wins on the way but thats a whole new

  psychological challenge.

Good traders

The most successful traders I know trade almost like robots. They dont let

their emotion come into their trading decisions. They are disciplined in their

planning and execution. Emotions are your enemy in trading and quick win gut

feel traders rarely last the distance.

A big win is great, but it has its own problem. You can become overconfident

and start over-trading and taking an ever-increasing risk. Rudyard Kipling in

his famous poem If say

If you can meet with Triumph and Disaster

And treat those two impostors just the same;

That is a good way to think about big wins and helps you manage your emotions

about losses.

Advantages and disadvantages

Trading can be an exciting and interesting activity and there are a lot of

advantages:

• You are your own boss; you dont have to report to anybody

• You can trade from anywhere as long as you have a good internet connection.

  Fancy living by the beach in the sunshine, no problem

• You set your own schedule, markets trade 24 hours a day if you prefer to

  trade in the morning or the evening you decide. You can work around your day

• You dont have to manage any people or rely on anybody outside yourself

• You dont need much time. If you have a good plan, all you need is an hour or

  two per day to scan the markets. Once you have your trading opportunities and

  set and forget them.

• Put your money where your mouth is. There is nothing more satisfying than

  showing people you were right by actually taking a trade and making money from

  it.

As with all activities, there are also some disadvantages.

• Like any activity, trading takes time and effort and educatio

• It helps if you enjoy the markets. Most traders are news junkies and trading

  connects you to the world in a way no other activity ca

• There is a no quick win, if you want to make a living from trading you have

  to treat it like a job, slow steady returns over time. Try to get 6 out of every

  10 trades to make a profit and have a percentage return target for the year.

• It can be very lonely. The last point might seem trivial but is the one that

  affects most traders the most in the long term. You might be the only person you

  know who trades for a living. There is no need to talk to anybody when trading

  its you and the market. Keep in contact with your family and friends. Make sure

  you balance your trading with other social activities in life.

The pitfalls to avoid

Losing all your capital. Financial regulations in Europe require brokers to

provide the “percentage of people that lose money” trading on their web site.

You often find these in the disclaimer section, here is a typical example from a

UK based broker:

This brokers in its disclaimer say that 75% of retail investors lose money

when trading. Why is this the case when if traders had no system and traded at

random you would expect that to be 50%？ This is the psychology of trading. The

emotions make people do the opposite of what they should, and this is the

result. Controlling your trading is a key to be in the 25% of traders that make

money.



Use a reputable broker. There are hundreds of brokers in the world. Many

operate with no regulation, operate from tax havens or are scams. Do your due

diligence. Find a broker based in a reputable country that holds a proper

license. Avoid slick web sites and give away offers. The old saying if it is too

good to be true then it probably is never truer than with brokers. The licensed

brokers have a lot of regulations they must meet. When dealing with a regulated

broker the account opening process will be more complex. This is because they

have to meet regulations and means that they are following the rules which are a

good sign. Be sceptical when deciding who to entrust your money. Things to ask

include

a) do they keep your funds secure

b) do they hedge with a reputable liquidity provider themselve

c) have they got enough capital to make sure they can payout when you wi

d) are they really regulated by a financial regulator that monitors their

activity？

Last thoughts

Trading like any activity has its positives and negatives. It is possible to

make a living trading CFDs, but you need to treat it like a job. Educate

yourself, set realistic goals, select a good broker and manage your instincts.

It can be a great way to make a living particularly if you enjoy the financial

markets. Perhaps you are a news junkie and love to know about the world. Even

better if you have contrarian views but be aware of the loneliness of

trading.

Trading for a living is a game of turtles do not hare. Are you a turtle？

Booklist

• The complete turtle trader, by Michael Covel – fascinating story how 23

  Novice Investors Became Overnight Millionaires learning to trade.

• Market Wizards by Jack Schwager – Interviews with top traders that gives a

  great insight into trading psychology

• Reminiscences of a Stock Operator by Edwin Lefèvre – written back in 1923 as

  a first-person by a character inspired by the life of stock trader Jesse

  Livermore. Still a great read and still relevant today.

• Technical Analysis of the Financial Markets: A Comprehensive Guide to Trading

  Methods and Applications (New York Institute of Finance) by John Murphy – great

  reference for the concepts of technical analysis.

• Technical Analysis for Dummies by Barbara Rockefeller – good way to

  understand simple technical strategies like moving average

• CFDs Made Simple: A Beginner's Guide to Contracts for Difference Success by

  Jeff Cartridge(Author), Ashley Jessen (Author) – great beginners book trading

  CFDs co-written by an Ashley Jessen an old colleague of mine.

• Japanese Candlestick Charting Techniques: A Contemporary Guide to the Ancient

  Investment Techniques of the Far East, Second Edition, by Steve Nison –

  understanding how to use candlestick chart

• Liar's Poker: Rising Through the Wreckage on Wall Street by Michael Lewis –

  great story about trading in general, a must-read for all budding trader

• Barbarians at the Gate: The Fall of RJR Nabisco – not directly related to

  trading but a great story about financial markets in the 80

• The Big Short: Inside the Doomsday Machine by Michael Lewis – about

  contrarian traders during the GFC, was turned into a movie but still a great

  story.