When you come to think about it, trading is going on all around the world 24 hours a day. The Asian markets are already open while some Americans only go to sleep. When they wake up, the Europeans are already half way through the day. There’s so much trading going on, no individual has the ability to keep track of all this activity. While some gifted individuals adopted trading as a full time profession, most of us only trade in our spare time.
When these traders go to work early in the morning they trade, that’s what they’re hired for, that’s their life. They are well qualified for a trading job, which includes reacting to various events simultaneously, and they have to do that under pressure. Most newbies I know always brag on how they could’ve been much better traders then the ones doing it as a profession, they are smart people indeed and I truly believe them, nevertheless, they seem to complain too often about their silly mistakes. They can make a killing at the beginning of the week, but then lose it all later. They’re always performing the right actions… until they don’t.
Part Time Traders and Professional Traders
Let’s think about the similarities between us – part time traders, and the professional traders who are trading for a living. For this discussion, let’s assume that unemployed individuals who trade for a living, but not as certified traders hired by a trading company- are professional traders. Just for the record, I would like to add that I don’t believe any person who has a regular job should quit his job to become a full time trader. Too many people actually ask me the question; “Should I quit my job?” “Can I make a living out of CFD, Forex or Binary Options trading?” etc. This is driving me crazy. If the question even pops out, you’re not ready for it. If you know the answer, I won’t be the one to stop you, neither to pick you up if you fall.
Back to similarities. We are all good traders in potential, we are all smart people, and we could all succeed. That is the reason why we are trading. But that doesn’t make us professional traders. We could all learn trading, from tools to strategies, practice all day and finally get used to it. We all understand basic events and their effects on the markets; we can all handle the pressure. Yet, that’s not full time trading. The most basic difference between a full time professional trader and a part time/newbie trader is that the professional does it for a living. If his trades are off track, he could lose his job. We part-timers might be losing some extra cash, we might lose and forget about upgrading our second hand car or go out only 2 times this week, but our lives would keep on going. If you’re a part time trader and you’re trading with your rent money, you’re in the wrong business mate. Stop now before you lose it all.
There’s a big difference between what we do as a hobby and what we do for a living. The lucky ones among us are those who work doing what they like, most of us would just have to keep doing their hobbies in the evening or on weekends. Unfortunately for us traders, there’s no trading on the weekend, so all the time we have for trading is early morning or on evenings, some of us even wait until late night to trade. Professional traders, when they wake up, start trading and keep trading until the day is done. Then they trade again. They trade out of instinct, just like a doctor treats a patient or a chef makes his dish. We part-time traders only have a limited time-frame to try and fulfill our dreams of getting rich, yet it seems like we try too hard. Instead of generating profits in our spare time, lots of newbie/part-time traders suffer losses. It’s not the quality or potential of the new trader, it’s the uneven equation between expectations (=profits) and resources (=time). I decided to exclude the money on the resources side since I don’t see any real difference between the money available for full-time traders and part-timers. The major difference between those two types of traders is time. We don’t have as much time to trade as the full-time traders do.
Trading in the Age of Globalization
Time was never in our favor, neither is it when it comes to trading. When a full-time trader who lives in London goes to work, the Asian markets are already half day finished. After his lunch, the American markets open up. He has the whole day to monitor worldwide events, and to use this information to enhance his trading. On the other hand, when an American part-time trader finishes his daily job at 5pm, the Asian markets are almost closed. Europeans are getting ready to close and the American markets have a few hours remaining. These time differences limit his trading time frames and therefore limit his resources. That’s the point where the proportion between expectations and resources lean towards the expectations side, causing much disappointment for newbie traders. Unfortunately for us part time traders, we cannot create time, we must make the most of the time we have. How do you do that? Simple. By adopting habits and methods, creating natural instincts for a limited time frame and setting the expectations to correctly match our resources.
Time Management is the key. Better and more efficient time management could eventually turn losses to profits, turning sloppy traders into consistent performers. When time is limited, the only possibility is to make trading more effective. Just like farmers use better fertilizers and more modern agricultural methods on their crops to increase production, we could make our trading hours more effective by managing it better. Also, another positive side effect of setting up specific trading hours is limiting the variety of assets being traded which means you will specialize in a smaller number of assets, hence you will trade those assets more profitably.
5 Rules for Better Time Management
Managing your time is no less important than managing your risks. As I said in Part 1 of this article, part time traders usually have a limited time to trade, it might be in the morning before work, in the afternoon or at night. When it comes to online trading, anyone can trade 24 hours a day, meaning that it’s possible in theory, but it’s not humanly possible and this brings me to the first step of time management: Setting up trading times.
Establish a specific time to trade daily
That’s the most important part of time management. There are two variables to consider when setting your trading hours.
A. Setting Trading Hours – and only your free time could become your trading time. Trading demands focus, especially when trading in short time frames. You can’t help your child with their homework while trading. That would be gambling. Ask yourself: what time do I finish work? What do I usually do after? Don’t just delay other tasks because you want to trade. Consider trading as a task, a daily after-work job. If you say “I’ll trade between 8 pm-11 pm” than those hours will be your trading hours. Don’t do anything else except trading during those hours; make sure to complete your other tasks before and after trading time. Consistency is key.
B. Global but Local – A trader from Europe can trade at noon, both on the U.S markets and Asian. A Japanese trader can only trade on the American markets at night time. So wherever you’re based, you need to understand that you cannot trade on all markets all day. You must focus on markets working on your trading hours; limit yourself to a few assets and indices available to trade on your trading hours. Specialize on these markets. Market opening/closing on your trading times could provide great opportunities.
2. After setting up trading hours, adjust your everyday tasks so they’ll fit your trading plans.
Let’s say you’ve decided to trade between 18-21. Whatever the tasks you have, you must not let them interfere with your trading hours. Finish every task before or after trading hours. When and if you have a new errand to run, something that came by surprise, try and do it on your off trading hours. No matter what it is, unless it’s something really important which has to be done immediately, don’t let it interfere with your trading hours. Your trading hours are no less important than your working hours. Trading is working, a profession, not just a hobby.
3. Now that you’ve organized your day so nothing will interfere with your trading hours, it’s time to prepare for trading.
Before you dive into your computer, exercise a little, pump some blood into the brain. I usually stretch and do some pushups, some people go for a run, some by a punching bag, and others lift weights. Whatever you’ve got to do to make your blood flow, do it. It’s important to be 100% focused before trading, good fitness could help a lot. 5-15 minutes of exercise before trading is all you need, so make sure to include it in your trading hour’s schedule.
4. Trading Specialization – the positive side effect of limited trading hours.
The problem with time is the lack of it. We only have certain windows for trading during our day, and unfortunately, not all financial markets are open when we can trade. On the one hand, we can’t trade all indices and stocks. We are losing opportunities. On the other hand, we could become much more specialized in a few chosen assets. I call it “the positive effect of limited trading hours”. Most people don’t understand that lesser variety is actually better than lots of assets to choose between. When you’ve decided to trade between 5 pm-8 pm, you know the assets available to trade on those hours, so now you can focus on them. More specializing = more profits.
5. When your trading hours have passed, call it a day.
The most important rule of any real trader is setting trading limits, both for-profits and losses. One common mistake done by newbies is to underestimate the market, losing more than you wanted or losing after a winning streak. When on a losing streak, beginners tend to believe that their luck would change at a certain point; therefore they should keep on trading to make up for their losses. The same for winning streaks – if I’m on a roll, then maybe I should keep on trading. Then you lose and lose some more after trying to gain back your used-to-be-profits.
There is a simple solution to this disease – setting goals for profits and limits for losing. Your goals should fit your trading level of course – if you’re a newbie, set a daily goal of 1-4% profits (% of the user’s account total value). When you’ve reached your goal, stop trading. Call it a day, look for something else to do, maybe some exercise. A 1% daily profit (5 days a week) equals 5% weekly profits, which sums to a yield of 20% – 22% per month. Pretty good for 1% a day isn’t it? If you had invested 500$, within a month you’ll gain a profit of 110$. 5% daily, for example, is a 165% yield in just one month.
After setting your profit limits, don’t forget about stop-loss limits. Don’t take luck as an actual factor when trading. That’s casino thinking. Set your limits for losing, when you’ve lost more than your limits, stop trading. No good will come from trying to cover your losses, you’ll only lose more.
Every trading day should be viewed separately. If you’ve lost yesterday, don’t try to regain your losses today. Keep up with your plans, if your goal is 5% daily, reach 5% then stop. Even if you’ve already lost 4 days in a row, stick to your limits. When the end of the month comes, calculate your losses and profits and think of a new trading plan. For example, I know a few traders that increase the limit for losses (say from 5% to 6% loss) after achieving their monthly goals. This allows them another 1% trading volume, a better chance to regain their losses. No matter what your trading plan is, stick by it. Change your trading plan only after a few months of trading.
Another important rule of trading limits – never continues trading after your trading hours have passed. If you plan to trade between 8-11, stop at eleven, no matter what your position is. You might not notice it in your everyday life, but our body and brain adapt to our habits. Some of us are hungry at noon, tired at night or full of energy in the morning, that’s just our biosystem. When we trade on specific hours every day, our brain and body would adjust themselves to the situation, allowing us more efficiency and concentration while trading. When the time is up, we might not notice it immediately, but our body functions would decline, causing us stupid mistakes and losses.
6. Think about tomorrow
Most traders find it very hard to stop trading, even if they have other important things to do or just feeling tired. As much as it’s hard to just stop trading suddenly, it’s necessary. Not stopping, as I explained in step number 5, is nothing but a recipe for self-destruction. Nevertheless, there is one way of trading without trading – thinking about tomorrow’s trading! After your trading hours are through, take a deep breath, empty your mind for 5 minutes. Release your thoughts on today’s trading and start thinking about tomorrow. Check out financial news, try to forecast future breakthroughs, special events, look for anything that might be your next day’s opportunities. Write down the hours and expected the effect of these possible trades; make yourself a list of opportunities. Then, when your preset trading window opens, you’re already equipped with enough information to make the right choice. Some traders take up to an hour reviewing financial news, some 15 minutes, it’s up to you. Don’t forget to include this time on your total trading hours.