How to Make Money Trading
Making money from trading is no easy feat. In fact around 96% of traders fail and lose money when battling with the financial markets. Whilst this is not meant to put you off, it is meant to help you understand how difficult trading is and why not everyone does it.
Chances of Success
So if such a low percentage of traders are successful, what are your chances?
You have to look at yourself before you start trading. You need to be able to face the fact that you WILL LOSE. That is guaranteed. No trader has a hit rate of 100% (meaning that every trade they take it successful).
Can I Make Money Trading Realistically?
Making money trading the markets is tough and requires lots of focus and education.
If you are completely new to trading then it will likely take a year at least before you begin to be confident in your ability. If not longer. And again, this is not to put you off trading but to make sure you understand what you are getting yourself in for. Yes you can make a lot of money but you need to put the work in before you get to that point.
Steps to making money in trading
These steps are not short steps, they take dedication and will vary between traders.
- Technical analysis: It is the easiest way to quantify trading and making money through trading. Understanding the principles that markets repeat themselves and can be predicted can be very beneficial. One of the most important reasons you should understand technical analysis is because it explains the ‘long game’. The theory behind technical analysis is that if you take the same trade 100 times, you will be successful a certain percentage of the time. If the strategy is good, you may well have a 60% hit rate. But understanding that you will lose 40% of the time is half the battle.
- Fundamental analysis: The markets move according to the fundamental news that is constantly going on in the world. Reading about why markets move will give every trader a better insight into the market. This analysis will help you form a judgement on the direction of the market.
- Losing: We’ve touched on it already but understanding that you WILL lose money some times, this is simply part and parcel of being a trader. If you cannot accept losing money, then you should stay well away from trading.
- Strategy: Once you have an idea about how to trade and analyse a market, you must come up with a strategy to stick to. Every time you see a set up for your strategy you must take the trade.
- Risk: Understanding risk is imperative to making money as a trader. You can have the best hit rate of any trader but if your risk is not correct you can still lose money. For instance, if you win 75% of trades but every trade you win, you make £10 but every trade you lose, you lose £1000, then you are going to find yourself out of pocket very quickly.
- Psychology: Risk and psychology often go hand in hand. You must not get carried away with anything nor take anything personally. The market is not against you personally but it can feel that way. The two problems people face when trading is when it’s going well, they increase their risk because they’re confident (a psychological state). If a person is losing, they might also be inclined to increase their risk because they want to make their losses up quickly. This is a notorious cause of accounts being blown, do not fall into that trap!
- Demo: Before you go live, it is always advised to hone your skills in a demo account first. Getting used to the platform, how to manage your risk, and how to apply your strategy is massively important before putting your money where you mouth is. The area that won’t be tested in a demo account is your psychology, which is why it is highly recommended that when you do go live, you go with a small account, one that you are happy to lose. Once you begin to see how you react in certain situations and you are successful, then you can begin to add more funds. Most brokers now offer demo accounts to practice in before you go live.
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