7 Steps to Become a self-employed Trader

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An astronomical salary, fancy sports cars, and extravagant cocktail parties… People have long fantasized about the (salaried) trader profession, which up until now has lacked an essential ingredient that would make it truly perfect: freedom.

Far from being glittery and grandiose, the days drag on in the trading rooms, the Big Boss is not always in a good mood, and the suits and ties, or the pantsuits, are sometimes a little restricting!

The new holy grail of self-employed traders is finding a way to enjoy the benefits of an institutional trading career without the drawbacks of being a salaried employee. But is this really a reasonable dream?

While the idealized image of the stock trader needs to be tempered a bit, a select few succeed at the game and hope to one day join the very exclusive circle of legendary traders.

Would you like to try your luck? Here are the key steps to becoming a self-employed trader.

WARNING

Trading exposes you to the risk of losing more than your initial investment and incurring financial liability. Trading is suitable only for well-informed, sophisticated clients able to understand how the products being traded work and having the financial ability to bear the aforementioned risk.

Transactions involving foreign exchange instruments (FOREX) and contracts for difference (CFD) are highly speculative and extremely complex. As such, they are subject to a high level of risk due to leverage. Please keep in mind that CDF trading is banned in the US.

Information published on the NewTrading.io website is for educational purposes only and should not be construed as offering investment advice or as an enticement to trade financial instruments.

#1 Do Not Confuse Dreams with Reality

To beat the market, a trader must be pragmatic. 

Opening an online trading account in a few clicks and calling yourself a trader doesn’t mean you can generate the income required to make a decent living from trading.

If you hope to earn money in the stock market, you have to look reality in the eye and separate the slick advertising image of the trader (often exploited by brokers and trainers), from the trader’s real-world, day-to-day experience. It’s not as snazzy as it is cracked up to be. It’s much more down to earth.

You have to remember that the overwhelming majority of individual traders lose money, and the few who escape the clutches of the market are often light years away from striking it rich. So, let’s be very clear: making money through trading is the exception, not the rule.

In addition to the difficulty of making a living as a trader, you have to consider the investment and sacrifices required to pursue such a goal.

Are you willing to put in the necessary effort over time and accept the inevitable financial losses while meeting the constant mental challenge inflicted by your own cognitive and emotional biases?

The self-employed trader’s adventure is not smooth. You have been warned!

#2 Take Stock of Your Goals and Decide on an Action Plan

Money, freedom, social status, intellectual challenges, adrenaline. Why do you want to devote your resources to trading? What are you looking for in this quest?

Stop for a moment. Now, analyze your deepest motivations and write them down in your trading journal. You will experience trying times in your early days as a trader. When that happens, looking back at your journal and the reasons you chose to make this journey will help you through that stage. 

Also, take the time to formulate specific goals using the SMART method.

Each of your goals will be:

  • Specific. What exactly are you trying to achieve?
  • Measurable. How will you know if you have achieved your goal?
  • Attainable. Is your goal realistic?
  • Relevant. Does your goal make sense?
  • Time-Bound. Specifically, when will you reach your goal?

Noteworthy

The goals formulated by beginning traders are often unrealistic. It is not reasonable to want to earn $5,000 per month with a $10,000 account. Remember, the best speculators get a return of “only” 10% per year!

Once you have clearly defined your trading goals, it’s time for an action plan.

In concrete terms, what actions will you take to achieve your goals?

Ray Dalio, one of the world’s top speculators, likes to remind us that “beating the market is harder than winning an Olympic medal.” Sleep, nutrition, and physical exercise are important. Like a top athlete, you must pay great attention to your lifestyle.

Examples of concrete actions to implement in your trader routine:

  • Get up at regular times and go to bed at the first sign of fatigue
  • Adopt a healthy and balanced diet
  • Hydrate constantly throughout the day
  • Eliminate all harmful substances (alcohol, cannabis, cocaine… 🤔)
  • Exercise for at least 30 minutes a day
  • Meditate before and after each trading session


Examples of skills you will develop and enhance: 

  • Resistance to stress
  • Decision making
  • Concentration
  • Responsiveness
  • Ability to learn

Similar to gambling, trading exposes you to a real risk of addiction. Adopting a balanced lifestyle will make you less vulnerable and make it easier for you to follow your risk management rules.

#3 Start Small

Trading is a risky business.

To avoid being swept away by the market when you first start out, it is strongly recommended that you first train with a no-obligation-risk-free demo trading account.

Once you have a handle on the trading platform and have mastered placing your orders, you can consider getting started (trading) with real money.

But no matter how strong your desire to become a self-employed trader, never risk all your trading account assets at once. Always start by building up precautionary savings.

Once you have stabilized your overall financial situation, you can then set your trading budget. 

Although a large amount of money is needed if you hope to make a living from trading (from several hundred thousand dollars to several million, depending on your risk profile), with twenty-five or so dollars, you can open a trading account and place your first trades.

Advantages of starting with small positions:

  • Reduce financial risk
  • Make multiple transactions to gain experience
  • Learn to manage your emotions gradually
  • Test your ability to beat the market over time

This way, if things go wrong, a patient trader can still stick to their trading budget over the long term. They will continue to learn and develop their ability.

And if the results are good with small amounts of money, this same trader could then leisurely and gradually increase the size of their position to achieve their goals. 

On the other hand, if a trader launches headlong into the markets by investing their full trading budget early on, they will likely be swept away by the first upsurge in volatility and go bankrupt, thus losing their reserves and the ability to try their luck again.

#4 Choose a Secure and Serious Broker

Being able to rely on a professional and trustworthy broker is essential to building a career as a self-employed trader.

There are several good reasons to use a professional-grade broker:

  • Avoid scams. Due to the large sums of money circulating in the financial markets, the trading industry, unfortunately, attracts its fair share of scammers. Beware of overly attractive offers!
  • Protect your funds. A broker regulated by the applicable financial authorities will apply strict security standards to safeguard your most valuable asset as a trader: the funds in your trading account.
  • Get better execution of your orders. The financial markets remain one of the most competitive environments in the world. To stand a chance against the competition, your stock exchange orders must be executed quickly and reliably.
  • Access quality resources. Financial information, advanced charts, automatic trading software… A quality broker, with his staff and resources, can provide much more than just the ability to place orders.
  • Receive responsive customer support. In addition to the inconvenience of not receiving answers to one’s questions, unresponsive customer service can be dangerous in certain market situations (trading suspensions, peaks in volatility, technical failures). Experienced traders know it is priceless to have a competent person on the other end of the line in a crisis situation!

#5 Invest in Your Trading Education

Trading education is vital to building a long-term trading career. Initial training will help you avoid rookie mistakes, and continuing education will help you gain a competitive edge as you grow.

There are many avenues available to develop your trading skills:

  • Trading Courses. High-quality trading courses will save you time and ensure you acquire a solid theoretical foundation.
  • Books. High-quality trading books provide insight into the thoughts of past and present traders and allow you to discover their strategies, learn from their experiences, and be inspired by their stories.
  • Films and documentaries. Whether they are pure science fiction or inspired by real-life events, trading films can reinforce your financial literacy while adding a welcome touch of creativity.
  • News dedicated to trading. Follow the news, decipher the ups and downs of the market, and organize the news you monitor…An integral part of your day-to-day life as a self-employed trader will most likely involve consulting financial news.
  • Social networks. LinkedIn, Twitter, Instagram… Social platforms are a great way to keep your finger on the pulse of the market and interact with other traders, so you are not left all alone with your stock market charts.
  • YouTube videos. YouTube channels on trading offer the possibility to supplement your knowledge for free, at your own pace.
  • Podcasts. Stuck in the car, on the train, or on the treadmill? Why not use this time to listen to some trading podcasts?
  • Newsletters. Trading newsletters deliver general or niche information directly to your inbox.

With this range of options at your disposal, you will be able to develop financial skills (hard skills) and complementary skills (soft skills).

Hard skills for self-employed traders: 

  • How financial markets and products function
  • Financial mathematics
  • Programming
  • Fundamental analysis
  • Technical analysis
  • Behavioral analysis

Soft skills for self-employed traders:

  • Discipline
  • Sense of strategy
  • Creativity

And yes, some companies, such as Goldman Sachs, will recruit former chess players for their non-financial skills!

#6 Choosing a Trading Strategy 

Defining your trading strategy involves deciding how to allocate your resources (money, time, attention) to achieve your goals.

A complete trading strategy has three dimensions: 

  • Your trading style is defined by your time horizon and how you organize your operation. You can opt for scalping (a few seconds to a few minutes), day trading (a few minutes to a few hours), swing trading (a few hours to a few days), or position trading (a few weeks to a few months).
  • Your trading mode is defined by how you trade. You can choose to trade manually, automatically, or semi-automatically.
  • Your trading plan is defined by all your trading rules. Your trading setups (buying and selling conditions) and your risk management rules will be listed in your trading plan.

#7 Keep a Trading Journal

From the first day to the last day of your trading career, your trading journal will definitely be your best ally. In digital or paper format, this “advisor” will provide the hindsight necessary to overcome each obstacle and help you to move forward.

Some use cases for a trading journal:

  • Summarize your knowledge
  • Formalize your objectives and trading strategy
  • List your new ideas
  • Externalize your emotions
  • Keep a history of your transactions
  • Analyze your performance

Following these 7 steps may not be enough for you to become a profitable self-employed trader. But with hard work, discipline, and talent, perhaps you will become the Paul Tudor Jones of the 21st century!

author
Maxime Parra

Maxime holds two master’s degrees from the SKEMA Business School and FFBC: a Master of Management and a Master of International Financial Analysis. As founder and editor-in-chief of NewTrading.fr, he writes daily about financial trading.

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