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In today’s episode, you’ll learn what it takes to become a professional trader (and it’s not what you think).
So listen to it now…
Resources
How to Become a Professional Trader (It’s Not What You Think)
Forex Risk Management and Position Sizing (The Complete Guide)
Trading Psychology: 6 Practical Tips to Master Your Mind and Money
Transcript
Hey, hey, what’s up my friend?
In today’s episode, I want to talk about how to become a professional trader and it’s not what you think.
Why do I say that? Because when you hear the term “professional trader”, I know you’re probably thinking:
“Oh, it’s all about trading for the big boys, trading for the institutions or being a market maker, managing a seven-figure trading account. That’s what professional trading is all about.”
Nope, I’m here to tell you that’s nonsense and that’s bullshit. Professional trading has nothing to do with who you work for or how much money you’re trading. Why do I say that? Let me give you a real-life story example.
In the 90s, there was this hedge fund called Long-Term Capital Management and this hedge fund showed a lot of promise. It had some of the smartest people in finance working in the hedge fund, developing strategies for this hedge fund.
These people were actually Nobel prize winners. They won an award for being smart and they’re hired into the hedge funds to trade the hedge funds’ money. For the first few years, the hedge fund was literally printing money. The money was just rolling in.
Few years into the trading, something happened and eventually, their trades soured and incurred losses in billions of dollars, $4.6 billion (if I’m not wrong) and the Federal Reserve had to bail them out if not the financial system might collapse.
This is why I said professional trading has nothing to do with how much money you’re managing, how smart you are, the trading strategies that you’re using, nor who you work for be it banks, hedge funds or institutions whatsoever.
So what is professional trading all about? If you ask me it’s about 3 things.
1. Manage your risk
You are a risk manager, you manage risk for a living. That’s your core duty as a trader. Think about this, every time you put on a trade, you’ve absolutely no idea whether that trade is going to be a winner or loser.
The only thing certain is where to get out of your trade if you’re wrong. That’s why I say you’re managing risk for a living. You can’t make any promises in terms of the upside. You have no idea how much money you’re going to make.
But one thing you can be certain is how much you’re willing to potentially lose. That’s something you can decide and that’s why you are a professional risk manager. That’s one.
2. Focus on the process
Professional traders focus on the process, not on the results. I know this sounds very cliché and you might have a vague idea of what this means. But let me break it down to you exactly what I mean by this.
Say for example that you’re trying to build muscles and to win a bodybuilding competition. You have two options.
Option 1: You can sit down on a comfortable chair and visualize you winning the competition, collecting the trophy on stage, looking like Arnold Schwarzenegger and stuff like that.
Option 2: You can have a process to follow that increases your odds of winning the competition. And what do I mean by the process? The process can be broken down into something like this:
6 am – You wake up every day at this time
6.30 am – You eat your light breakfast
7.30 am to 9.30 am – Your first workout of the day
9.30 am – Your post-workout
10 am – You’ll take a short nap for the day
11 am – You’ll have your lunch.
1 pm – Second workout of the day
3 pm – Your post-workout meal
5 pm – You go for a light cardio session
6 pm – You go for your dinner
8 pm – You do some light stretching, have another protein shake
10 pm – You’re in bed
You do this day in and day out for weeks and months. And when it comes to competition time, who do you think is likely to win? The one with the process to follow religiously or the one that just visuals on the sofa?
It’s a no-brainer that the one with the process is the one that has a higher chance of winning. You have a process, you have a routine to follow and it’s the same as trading.
You can visualize all the profits you want in the world, but if you don’t have a process, you don’t develop a trading plan, you don’t trade the markets, you don’t review your trades, then guess what? It’s unlikely you’ll make money in the long run.
So professional traders focus on the process, not on the results. I know all of us want the results. The way to achieve the results is not by focusing on it, but to have a process to get you towards the result. That’s important.
3. Protect your mental capital
Professional traders protect their mental capital. But what is mental capital?
You might have a trading account and you might blow up your trading account, but you might have some savings and you can still top up your trading account.
But once your mental capital is depleted, that is pretty darn difficult to get back into trading.
Mental capital is pretty much the energy in your head that gets you going, gets you to persevere through your losing streaks or drawdowns, to place the next trip consistently over time.
And all of us have finite mental capital each day. If you don’t believe me, when you go for a job interview, usually before an interview, you’re really pumped up and energised. But after the interview, you’re like, “Man, this is shag! What’s going on?”
Mental capital. We all have finite mental capital each day and you need to protect your mental capital. As a trader, you cannot let your losses get to you personally. Because if you do, you’ll lose and you lose, and you’ll blow up multiple trading accounts.
Eventually, you’ll get tired of trading, you’ll give up on trading and abandon this entire endeavour altogether. I get it, trading is not for everybody. But if you want to be a professional trader, you must protect your mental capital.
So how do you protect it? By doing the two things I shared with you earlier, manage your risk. Always manage your risks. Have a stop loss, predetermine how much you want to potentially lose before you put on a trade.
Sometimes you don’t even need to use a stop loss. You can use hedging techniques, options or rebalance your portfolio, whatever, but you must be prepared to lose. Be prepared to manage your risk.
And then secondly, as we spoke about earlier, you must focus on the process, not just the results. Focus on the process and that will deliver the results.
This is what professional trading is all about:
- Managing risk
- Focus on the process
- Protect your mental capital
With that said, I’ve come to the end of today’s episode and I’ll talk to you soon.