How to make trading your career
I’m going to break this down step by step, from day 1 of “I want to be a trader, but I’ve never traded, I don’t know markets, who is this Chris guy”
Trading successfully for a living
Scroll along until you find where you are now and jump in there….
Step 1 - Follow and retweet everything I say or do LOL
Step 2 - get your hands on a copy of “Idiot’s Guide to Making Money on Wall Street”
I know it seems old, lame, cheezy, but this book does a great job of explaining the basics if you don’ t know anything
Step 3 - Consume Consume Consume
Your job here is to learn as much as you can, broadly, and focus only on the surface level
Don’t worry about the details yet, just get comfortable with the jargon and understanding what is what
Step 4 - Take notes of all that you are discovering so that you can come back and explore some of those ideas later
By taking notes you can know that any random idea you have or rabbit hole you want to go down will be there waiting for you while you expand your universe of knowledge
Step 5 - Watch YouTube Videos, listen to Podcasts, read blogs, follow people on Twitter, turn on Bloomberg TV, read Reminiscences of a Stock Operator
Whether passively or highly focused, just keep the steady stream of financial content coming your way. The purpose is to increase your vocabulary and understand the general framework of how markets work
From the trading hours/days, to what people are talking about
WARNING #1. You are obviously a very intelligent and successful person at this stage in your life, so you will be tempted to believe that you understand everything and you are smarter than the market
It’s at this point that you might be tempted to fund an account and start taking positions based on news events and all of the happenings in the world
Most people don’t make it past this point
Most people blow up their account at this point
It is the easiest thing in the world to open a trading account, fund it and start taking positions
And isn’t it interesting that the greatest trade ever to present itself just happens to show up the exact moment you are opening your account and the stupid broker is taking their time
This should be a clue
You are nowhere near ready to trade yet
Step 6 - Congratulations. If you’ve made it this far without opening an account and trading real money, you are much further along the path of becoming a professional trader than most people
It’s really that easy to get in to the top 10% of traders, and you haven’t even opened an account yet, where as most budding traders lose a lot of their money here, before they even begin.
By not losing any money, you are far ahead
Step 7 - Now the work begins
Go back to that list of ideas that you had and choose 1, only 1
While before you were focusing on learning the broader subject of financial markets, you are now going down the path of finding 1 subject, the narrowing down path
Unfortunately you won’t be great at this yet, but you will be real soon
Step 8 - Now it’s time to discover what really interests you. From your list do deep dives on the things you wrote down
Likely you will go down a rabbit hole and get bored numerous times and abandon an idea...numerous times
Eventually you will latch on to something and go really deep, or maybe not
Either way you are narrowing your focus and discovering what you are really interested in and what you aren’t
Don’t try to adopt a style or strategy of some famous billionaire. A big reason a lot of those people are billionaires is not because they were fantastic traders of a certain style, but because they have a style and can raise a lot of money and with that money they can outperform the S&P500 by a couple of %
As an individual trader you won’t be managing a Billion where it’s harder to take advantage of short term moves in and out
Making 100% in a year is not unrealistic for an individual trader
So don’t get caught up in trying to be a Warren Buffet or Paul Tudor Jones. We are talking about becoming a full time successful trader here, not a full time money manager
Step 9 - Take 1 subject and go really deep on it
This is the time to become tactical on these subjects, one at a time and in order
- Price Action
- Position Sizing
- Technical Analysis
Seriously if you’ve made it this far and haven’t opened an account and started trading, you are probably in the top 5% of the best traders in the business...and you still haven’t made 1 trade.
It also means you haven’t lost any money.
If you make $1 in profit trading, per year, you are in the top 2%
The top 1% can make millions of dollars per year
You are close, very close
Step 10 - Create a hypothesis around a trading setup - 1 single setup
Only 1, be it a double top, a breakout on volume, a cup and handle, a head and shoulder or whatever. Choose 1 and only 1 so that you can become world class at identifying that 1 single setup
Step 11 - build out your rule set for the strategy
Step 12 - manually backtest those rules, by hand, in excel
Don’t go straight to code or hire a developer to code it for you, this is where the biggest learning curve exists
Manual backtesting is a freaking superpower
With every manual backtest you become better at reading the tape, identifying setups, knowing the characteristics of how an asset trades, and you train yourself to learn how to take the setup
Step 13 - Do 30 manual backtests on that specific rule set
You will identify new ideas, new techniques, new ways to manage the trade while you are becktesting
Don’t deviate from your rule set, write those new ideas down and continue on
After 30 manual backtests adjust slightly to a little different rule set and backtest another 30
Over and over until it’s dialed in
Then do a massive backtest over 100 trades with your dialed in rule set, again don’t deviate
Step 14 - accumulate >1500 manually backtested trades for your 1 single setup
You will be fan-freaking-tastic at this 1 setup
Step 15 - paper trade in live markets this 1 setup
What was easy with static data is now going to be HARD
You will get use to it, keep practicing
If you realize that it’s impossible after about 50-100 live trades, welp, time to abandon and go back to manual backtesting
Remember this, even though you’ve put in 1,000’s of hours of work, spent the last 6-12 months of your life doing this work, that doesn’t mean the market owes you anything.
DO NOT GIVE UP
You are so much closer to a breakthrough now, do the work
This is the hard work that 99% of traders won’t do, keep going, you are closer than ever to your goal
Repeat steps 10-15 over and over until you have a positive expectancy system that you can actually trade in live markets (with paper money)
Step 16 - If you can paper trade your strategy with >95% efficiency then you are ready to go live
What is 95% efficiency?
19/20 trades without a mistake
What is a mistake?
- Entering wrong position size
- Entering wrong direction
- Entering wrong asset
- Missing a setup that fits all your parameters
- Adjusting the trade outside of your rules
Despite outcome...even if it is a winning trade if you make any of these errors above and get a huge winner, it is still a mistake.
What isn’t a mistake?
Following your rules and strategy but losing on the trade
I use a checklist to make sure that I follow all my rules before every trade which helps me eliminate nearly all mistakes
Here’s a link to my checklist
Step 17 - if you are >95% efficiency you are now free to fund your account and ready to trade live
Step 18 - trade with the absolute smallest risk possible
- If stocks trade 1 share
- If futures trade 1 micro contract
- If FX trade $1
If you are >95% efficiency with real money double your position size, and continue to do this in 20 trade iterations until you are ready to size your positions as per your position sizing algorithm
Everything you need to bring your trading to the next level.
If you are interested in this stuff, Have a look at what we have to offer.
And think about joining us in the Lab, we work on these projects every day together
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