Becoming a Trader
One of the constant queries I receive from readers is how do they go about becoming a Trader. Where and How should they start, what books to read, do I take classes on Technical Analysis are among the top questions asked. Rather than keep copy / pasting similar replies, I felt that it was time to expand on the same and post it as a blog, so here I go.
What attracts men (very few women) to trading is a question I think has a question that hasn’t been fully addressed despite enormous amount of research on the same. Trading attracts literally everyone, from some one who found it tough to pass his degree exams to some one who may have topped in his Masters. Education in a way is no Bar.
Trading is tough, but if you are able to call it right, the financial rewards are huge. If you analyze business / companies, you shall find that not many provide / generate Return on Equity as large as that could be gained without the need to employ thousands of staff.
The chart alongside for example depicts the returns generated by some one I know purely via trading in 2016. While the returns are volatile, the returns are enormous (especially since the capital employed is pretty large). You can find very few businesses that can generate such returns on capital.
While money attracts, the key attraction I have found for many to try their hand at trading is the challenge it seems to provide and one that is missing in their own work places.
Trading for a living is too romanticized. Unfortunately truth is that more traders fall by the wayside than in any other business. While friends have disagreed with my numbers, the fact is that success in markets is by a very small minority.
Where success is tough, you see ancillary industries prop up that promise you success for a small fee. In the trading business, you have Fee based Advisors who promise to alert you with the best trades, the educators who promise to educate you to ensure that you can find your success and the broker who showcases / talks about great traders and how you too can maybe become like one of them.
I tried to search for Top Technical Analysts in India (since Technical Analysis is often linked with trading) and the names that came out weren’t surprising. After all these names are well known to anyone who watches business channels such as CNBC. But do you know what else is constant among them all? Well, you just need to check their websites to see that they all offer (for a fee) tips both of the Intra-day variety as well as Positional.
If you are a top lawyer, your income is still dependent on how many clients you can attract, If you are a top Surgeon, your Income is directly related to how many operations you make and same is the case with literally all other business / service sectors. But in trading, if you are good, market rewards you. Its as simple as that. You really don’t need to put up a website, have a call center to answer client queries, spend time to advertise on Television among others.
If you succeed in trading, there is nothing equivalent to describe and compare it with in the real world. You are the real Master of the Universe and every dream is out there to make it a reality. But then again, as a saying goes “if it was easy everybody would do it”.
Assuming that you still want to go ahead, how and where should you start?
Well, for starters start with a Billion. Am joking, but you really need some serious capital if you really want to make a career out of trading. Then again, as many a bloke has found out, no amount of capital is enough if you have a crappy strategy – its just a matter of time before you blow it all away. (Related Reading: Post by Nooresh Merani on the same)
Trading is not like any other job and that means that you don’t have a regular income as well. So, make sure that your life is not entirely dependent on how much you can make it in that month. If you do, its a sure fire way to failure.
While much of trading is seen as the hectic / intra-day variety especially in the derivatives segment, if you want to survive and thrive, avoid at least at for the first few years anything close to intra-day or trading in futures and options. As enticing it may seem, its a fast path to disaster for most.
Education is important to succeed in any field and trading is no different. While trading is supposed to be about reading charts, its important that you know anything and everything there is to know about. That said, I am skeptical about the quality of advise provided by Individuals who for a fee promise to help you learn the ropes. On the other hand, I would suggest you attempt to pass the CFA / CMT exams. While they are self study based, the exams aren’t easy and require you to have a deep understanding of the intricacies of the market.
Trading in my opinion is not for everyone, the few who succeed aren’t the ones you would have thought would succeed when they first started. Having lost money in every way you can think of, all I can say to conclude is that Trading ain’t Easy and if you are enticed by the easy money, beware for the bottom may give away faster than you imagine.
In Para 2, When I saw this—What attracts men (very few women)— Then rest of the sentence helped me otherwise I was baffled
Joke Apart, very Well Written, very true, I think You are one of the few Good Technical Traders I know
The Spider and The Fly: A Fable by Mary Howitt
“Will you walk into my parlor?” said the spider to the fly;
“‘Tis the prettiest little parlor that ever you did spy.
The way into my parlor is up a winding stair,
And I have many pretty things to show when you are there.”
“O no, no,” said the little fly, “To ask me is in vain,
For who goes up your winding stair can ne’er come down again.”
“I’m sure you must be weary, dear, with soaring up so high;
Will you rest upon my little bed?” said the spider to the fly.
“There are pretty curtains drawn around, the sheets are fine and thin,
And if you like to rest awhile, I’ll snugly tuck you in.”
“O no, no,” said the little fly, “for I’ve often heard it said,
They NEVER, NEVER WAKE again, who sleep upon YOUR bed.”
Said the cunning spider to the fly, “Dear friend, what shall I do,
To prove the warm affection I’ve always felt for you?
I have within my pantry good store of all that’s nice;
I’m sure you’re very welcome; will you please to take a slice?
“O no, no,” said the little fly, “kind sir, that cannot be;
I’ve heard what’s in your pantry, and I do not wish to see.”
“Sweet creature!” said the spider, “you’re witty and you’re wise,
How handsome are your gauzy wings, how brilliant are your eyes!
I have a little looking-glass upon my parlor shelf,
If you’ll step in one moment dear, you shall behold yourself.”
I thank you, gentle sir,” she said, “for what you’re pleased to say,
And bidding you good-morning NOW, I’ll call ANOTHER day.”
The spider turned him round about, and went into his den,
For well he knew the silly fly would soon be back again:
So he wove a subtle web, in a little corner sly,
And set his table ready to dine upon the fly.
Then he came out to his door again, and merrily did sing,
“Come hither, hither, pretty fly, with the pearl and silver wing:
Your robes are green and purple; there’s a crest upon your head;
Your eyes are like the diamond bright, but mine are dull as lead.”
Alas, alas! how very soon this silly little fly,
Hearing his wily flattering words, came slowly flitting by.
With buzzing wings she hung aloft, then near and nearer drew,
Thinking only of her crested head – POOR FOOLISH THING! At last,
Up jumped the cunning spider, and fiercely held her fast.
He dragged her up his winding stair, into his dismal den,
Within his little parlor; but she ne’er came out again!
And now, dear little children, who may this story read,
To idle, silly, flattering words, I pray you ne’er give heed;
Unto an evil counselor close heart, and ear, and eye,
And take a lesson from this tale of the Spider and the Fly.
Hi Mr.Prashanth_admin,Team:Portfolio Yoga
Good Afternoon,
Its a great write up,v well written,v.true,psychologically corrects.Well good to see it. Wish u keeping up the good work.
Sir My name is Amit, a independent research student and a nanotech r&d pro.
Although I don’t have any Eco./Finance education/background but i am having passion for investment management, applied behavioral finance,behavioral science & analytics.
I have a query & i’m sure your answer to that’d be highly beneficial to all guys who are financially challenged today but having a vision of financially better tomorrow by practicing value investing–
Can a lower middle class professional ever think of stp in 2 any Value Investing /Dividend Investing /MicroCap Investing 4 ‘Growth’ & robust financial future ? Pl.Guide
Sir feel free to say no/any reply,i understand the professional/other limitations.
Thank you for your time and consideration.
Please feel free to contact me.
Thanks
Best,
Amit
True Leaders don’t create followers…they create more Leaders – A Wise Man
Hi Prashanth,
CFA/CMT are way too expensive compared to the ones provided by NSE. Is there any advantage over the NSE certifications with regards to material covered and depth involved or simply for bragging rights?
On a personal note are you a CFA or CMT certified and what has been your experience before after being certified?
Its Expensive, no doubt. But then again, these are Internationally recognized and has way greater value than NSE Courses. Again, as I wrote, the best choice would be a MFE kind of move but not everyone can afford or get in, so this is the better alternative.
I have done my CMT and yes, the breadth of reading you need to do is huge. It forces you to learn and understand all aspects of Technical Analysis regardless of one’s own biases. With around 50% success ratio for both CFA and CMT exams, its not a walk in the park though for practitioners its bit easy given ones own foundations.
Bragging rights are there for sure but they also can help you if you are looking for a Job (CFA is much widely known in India than CMT). But if you are a Independent Investor / Trader, the exams are more of a challenge to know whether you really have the understanding required (of course, its one thing to know theory and another to apply) and are a master of things you think you are.
Personally, I didn’t find much change (pre and post CMT). What I have issues with continue to remain while it solidified what I like (Confirmation Bias :P).
Thank you! I love confirmation bias too !!