Thinking of trading as a side-hustle or a full-time job?
Whether you’re working from home or in between jobs, it’s definitely possible to earn extra income from trading.
But before you jump headfirst and put your hard-earned money on the line, you have to remember that what sets consistently profitable traders apart from those who drain their capital quickly is that they treat trading as a business.
Having a business mindset means that you put in the work to create a business plan, make sure that it’s properly funded, track your performance, stay mindful of costs, and work on improvements.
Here’s a quick checklist of things you need to get started:
1. Pick your market
I’m sure you’ve heard of cryptocurrencies, commodities, indices, CFDs, or options trading, which are pretty interesting and exciting in their own right.
Just make sure you do the proper research to understand the factors that drive each market, the active trading hours, and the risks involved.
2. Define your trading strategy
Once you’ve decided which market suits your preferences, it’s time to work on your actual strategy. Of course we’re assuming you’ve already read up on trading tools and indicators that you’ll be working with!
If you’re planning on trading multiple markets, it helps to devise various strategies that are appropriate for each. These are typically born out of a lot of trial and error, so make sure you’re ready to do the grunt work.
3. Identify your risk parameters
As emphasized in a lot of my trading psychology articles, risk management is key in surviving the trading game.
It’s not enough to simply define your entry and exit parameters for each trade. What keeps you profitable in the long-run is how you manage your capital and make sure you can live to trade another day, even if you suffer a string of losses.
4. Set up your workstation properly
If you’re working and trading from home, you probably know how distractions can come in the form of a dog barking, music blaring, or a comfy couch and TV.
Other challenges for home-based traders include getting reliable internet connectivity, adjusting to time zone differences, and having the proper trading equipment.
In order to stay in the zone, you need to set up a proper trading workstation that ensures you are able to stay focused. After all, the markets can move reaaally quickly and the last thing you want when you’re scalping is to get distracted!
5. Choose your broker
Choosing a broker that you will trust to execute your trades properly is a crucial decision. You don’t want to fall victim to a scam, do you?
These days there’s no shortage of reviews on most brokers, so there’s no excuse to slack off on your due diligence.
Once you’ve narrowed down your choices, open a demo for each and familiarize yourself with their trading platform before opening a live account.
6. Work on your trading psychology
Ahh, my favorite part!
Much as been said about staying on top of your emotions and having ice in your veins as a trader, and here’s where trading psychology comes in play.
Being aware of cognitive and personal biases helps you stay cool as a cucumber under pressure. This comes in handy when trading top-tier news events or when deciding to press your wins and cut your losses.
Now this comes with a lot of practice and experience, so don’t beat yourself up over dealing with fear and greed every now and then. It happens to the best of us!
7. Know your costs
It’s not exactly the most exciting part of trading, but you definitely need to track related expenses (i.e. your trading equipment, paid courses, electricity and internet upgrades) and also pay the right taxes.
Treat trading as a business, remember?
Taxes can get really tricky and dependent on your jurisdiction, but you probably want to avoid penalties so make sure you consult with professionals when in doubt.
8. Keep track of your performance
Aside from keeping track of trading-related expenses, it’s also important to maintain a record of your performance through a detailed trading journal.
9. Stay informed
“The only thing constant is change.” – Heraclitus
Wise words from a wise man indeed, and it rings particularly true in financial markets.
One moment you might think you’ve gotten the hang of trading and are completely in sync with the markets, but the next moment you can get surprised and whipsawed by a black swan event!
Staying on top of economic and political news is a must, whether you’re day trading or keeping long-term positions open.
The ever-changing dynamic of financial markets is also a good reminder to stay informed and to never stop learning. It never hurts to have a few extra trading tools and methods in your arsenal that you can put to use when the market environment shifts.
10. Make adjustments if needed
In line with the earlier point, it’s also important to be on your toes and flexible enough to adjust as needed.
What drives price action today, this week, or this year, might be different next year, next week, and even tomorrow. Take 2020 as an example!
Being a flexible trader doesn’t mean changing your strategies at the first sign of trouble.
It can come in the form of simple things like adapting your entries and exits to a pair’s volatility or shifting from a trend-following to rangebound system when the market environment calls for it.