The right mindset: perspective from a newbie

In our Facebook group, Paul made this post:

Hi all, I am a newbie and this post is directed at people like me and not the more experienced traders out there.

Just read an excellent post on Adam’s blog called “Trading for a living: real talk”. This post talks about the reality of trading for a living and one section really resonated with me. It’s sub titled “You need money to make money”.

The section puts to bed the myth that you can come into trading with, for example, a $3,000 account and expect to make a living with it. There are so many people peddling the myth that you can start trading for a living with a small account. I’ve even seen some indicate that a $500 account is enough. The reality is you do need a decent capital amount if you want to make a living from trading.

I’ll admit that when I first stumbled into the trading arena I was seduced by these siren calls. I had visions of taking my £500 account and making thousands of pounds every month (albeit on a part time basis). This would have meant me making returns of 100’s of % each month. Why would I, as a newbie, expect that ROI when seasoned professionals regard 30% per annum a good return?

Four months on I am much wiser and sadder. I now know that I won’t be getting wealthy on my tiny account. Instead, I view it as an opportunity to learn trading in a live environment with real money at stake.

If, and this is a big if, l can trade profitably on a consistent basis then I will start investing more money into my trading account. Over time, with gains from trading and investment from my salary, l hope to slowly grow my account.

I hope other newbies realise this too. If not, you’ll always be chasing that rainbow searching for the elusive pot of gold. Instead of focusing on one main resource for your learning you well be jumping from course to course, video to video and trying out that new “signal” or robot guaranteed to make you rich in mere months – all on a $1,000 account!

Talking of robots – if someone has developed a robot that makes millions of $ on auto pilot why would they be so generous as to sell it you for “only” $17?? Yet we see these offers all the time. A bit of common sense will help filter out the wheat from the chaff.

I really want to thank Adam for the knowledge that he shares with newbies in this group and on his web sites. I truly believe that, apart from the decision to start trading, joining the Market Life group is the single most important step I’ve taken to getting success in trading.

If l cannot make a success of trading with the resources in this group then the chances are that I am not cut out for this.

I look forward to learning much in this group over the following years and, hopefully, making a positive contribution of my own.

I debated posting this without elaboration, because I think Paul is so very much on target, but let me just highlight a few points.

If you are a new trader, you really can change your world, life, and future with trading. Absolutely. But you are not going to do it by taking a very small account and making a huge percentage return each month–whether you think you’ll do that daytrading, with options, or any other way. The amount you make (on a % basis) is tied to how much you risk. If you risk too much, the “risk of ruin” (a formal concept that means exactly what you think it does) gets much higher. Bottom line: you can make 100%+ a month on an account, but you will almost certainly take that account to 0 within a few months too. Slow and steady not only wins the race, it’s the only way you’ll get to the finish.

Your focus must be on developing the skills of trading. This takes time–probably 3-5 years. Once you have those skills, you can make some decisions. Maybe you do want to take a small account and trade extremely aggressively, knowing that it’s a little bit of a lottery ticket and you will likely destroy the account, but you might also multiply it 100 fold. If you go that route, you’re going to need some help and emotional support; the experience of trading 10,000 shares after starting with 100 shares a few months ago is such a dramatic difference that very few people can handle the transition. I think going this route stacks the cards against you in many ways, but it’s a possibility.

Another possibility is to grow your account through a combination of solid trading and adding money from other sources. Once you see some growth, you can justify pouring more of your hard-earned salary (from other job or jobs) into your trading account. If you do this, you’ll start with a solid focus on risk control from the beginning, and I think you’ll be much better equipped to survive in this business for 10, 20 or more years.

Yet another possibility is to trade OPM (other peoples’ money). Whether that is friends and family, a prop firm, or outside investors in some other structure, this is a time-honored way to build a trading career. It’s also one that comes with its own unique set of psychological challenges, so that’s something you’ll need to face down the road.

I mention those possibilities because beginners need to know there are possibilities. It’s very easy to think “I don’t have much money. This guy says I need a lot of money to make money. I will never have enough money to make money trading so why bother?” That’s a mistake–develop the skills to be a consistently profitable trader, and you will be in the elite of the elite, certainly 1 in 1,000 and maybe 1 in 10,000 who ever try to trade. Once you have those skills, then you have to be smart about it, but you can figure out how to build the future you want.

I think every other point Paul makes in that email is valid, especially his desire to grow to the point where he gives something back, completes the circle, and helps other people. That was one reason I kept teaching as I was starting to see success–I saw very clearly that teaching made me better; it made me more disciplined and forced me to focus on avoiding mistakes.

I, too, look forward to seeing Paul’s growth and his contributions in the future!


Adam Grimes has over two decades of experience in the industry as a trader, analyst and system developer. The author of a best-selling trading book, he has traded for his own account, for a top prop firm, and spent several years at the New York Mercantile Exchange. He focuses on the intersection of quantitative analysis and discretionary trading, and has a talent for teaching and helping traders find their own way in the market.