How can you build up enough income from trading to eventually make it a major income source? How can you build up a large enough forex trading income to cut down on other types of work - your day job, or another part-time job? Once you've been trading for a while, and you begin to make profit, it's tempting to look ahead: when can you quit that day job? The answer is that there are several things to make sure you're doing first to make your income as secure as possible - use these as stepping stones to build up a major forex trading income stream (so no quitting your job just yet!).
This blog is part of our new Make It Happen series, a series of blogs aimed at total beginners to forex: for people working a full-time job, with little capital to start off with, and limited time to learn how to trade. Sound familiar? Here’s how to get started on your trading journey.
Building up a Major Forex Trading Income Stream
1. Take detailed stock of your trades
Your forex trading income stream is just the other side of the coin from your trading losses. It is a stock or portfolio of all your profitable trades, and it's time to take stock. The key is to look at your overall profit picture, with commissions and random market variations calculated in, and weigh that against how often you're doing the right things.
Are you placing trades that have a consistent expectancy, or are you just killing time? If you study your results carefully, you can figure out if your trading style is realistic for building up an income stream.
You can see what markets are performing the best for you, where big profits live, and what percentage of your trades involve eliminating losers or protecting winners. A clear picture of these trading statistics will help you understand your strengths and weaknesses.
The best traders keep a trading log. At the end of each trading day, they review their performance, ask themselves, "What could I have done better today?" and then make adjustments for tomorrow's trades.
2. Create a trading plan that actually works
Every business needs a business plan to succeed. Trading requires a trading plan. A trading plan lays out what you will trade, how you will trade, and how you will measure success.
Start your trading plan by determining what you are trying to achieve. Trading success is about riding trends and not allowing any emotion to get in your way. A well-defined trading plan helps keep your emotions in check, reduces uncertainty, and increases your performance.
As a trader, your long-term success relies on the consistency of your method. If you're having a bad day, don't take unnecessary risks or follow other traders in the herd. Focus on the biggest opportunities available and those that are most likely to pan out. It's by writing a good trading plan that works for you that you can begin to see your own strengths and weaknesses, failures and successes, to see if forex trading income is viable for you long-term.
Not sure what to include on your trading plan? See the 8-step ultimate trading plan checklist>>
3. Work slowly to build up income
Trading is a marathon, not a sprint! The best way to start with forex trading is to begin slowly. There are people out there that will trade and win big, but they are few and far between. You need to be realistic in your expectations, and if you work at it responsibly and patiently, you can have a good forex trading income.
When it comes to currency trading, most people engage in a battle of the mind. New traders try to trade bigger and more competitive positions but end up suffering set-backs where they lose big. These consistent upsets lead to frustration and discouragement.
Start small, take care of the basics, and build up to larger, more profitable systems and goals. You can use a very small account and work up to bigger accounts as you gain experience with the system and your confidence grows. Don't try to trade huge amounts in your smaller account. The idea here is not to make money fast but to trade safely under all market conditions and get rewarded for your patience. This is how you can tell if you can rely on your forex trading income in the future: is your method sustainable?
4. Work within your skill level
It's tempting, when you first start trading forex, to jump straight into the big leagues. But this is a mistake. If you start by taking on currency pairs or markets that are too large for your skill level, then you will have too much money riding on each trade. You risk under-performing, which could result in your account (and hard-earned income) losing value over time.
Think carefully before risking lots of cash on trades that may not make big profits for you, instead of taking small steps up the ladder. That way, you'll make small profits that build up into major forex trading income over time.
Stay tuned for more in the Make It Happen series for practical tips on learning forex as a total beginner and getting your head in the trading game...