How To Learn Trading and Become a Professional Trader

Three Steps On What, and How, to Learn

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Become a Professional Trader. Tetra Images / Getty Images

Become a professional trader by learning trading basics and advanced basics. The next step to learn strategies and gain experience implementing them. 

Unfortunately, the path to becoming a professional trader isn't a straightforward one. There is a significant amount of incorrect and misleading information on the subject of trading. Sometimes new traders mistakenly believe some of the incorrect information, and unless they rectify the issue may never become a professional trader.

Or the new trader believes there is a perfect method of trading out there which produces only winning trades. Searching for such a thing is a fruitless endeavor and may mean the trader wastes valuable time when instead they could be learning to trade a more realistic yet still profitable system.

Sometimes new traders realize which is the good information and which should be avoided, and eventually become professional traders. This can take months or even years. As a general guideline, to help avoid wasting time on incorrect or faulty information, upon reading about a strategy pull up multiple charts and see if the strategy has potential to be profitable. This approach requires personally verifying all information. Doing this will quickly eliminate a lot of useless information out there, leaving you more time to focus on the information which you have found relevant.

What is the most efficient method for learning to trade and becoming a professional trader?

Outlined below is the process that successful traders go through.

Trading Basics

First, focus on learning market and trading basics.

A good understanding of the basics of trading provides the foundation that will support a trader's entire trading career. A knowledge of the basics is required before more advanced trading information can be successfully implemented.

The basics of trading include all of the factual information about trading, such as: what markets to trade, how prices move (bid and ask prices), order types and how to place them, risk management, trading hours, how to monitor trading performance, and how much capital is required to trade efficiently.

Trading basics are typically factual in nature. Order types are what they are, and there isn't any subjectivity in that. The same goes for most other trading basics. There isn't a lot of subjectivity, and if there is it is relatively minor. One information source may say to start trading day trading forex with at least $500, while another source may say to start with at least $1,000. One source isn't necessarily right or wrong. The information from multiple sources is just telling you that you should definitely start with at least $500 and ideally with $1,000 or more. 

Trading books at your local book store, or reputable trading websites provide you with all the trading basics you need at a relatively low cost, or no cost. The exchanges themselves provide most of the markets basics traders need. For example, the New York Stock Exchange and NASDAQ stock exchanges provide educational resources on how the stock market operates via the main menus on their websites.

The Chicago Mercantile Exchange does this for futures and the Chicago Board Options Exchange does the same thing for those wanting to learn about options trading. 

Advanced Basics

Learning trading basics gives new traders an opportunity to learn about various markets and determine which one they want, and are able, to trade. 

When learning the basics traders determine if they want to trade stocks, futures, options or forex. Upon making this choice they can then delve deeper into the trading basics specific to that market.

For example, a new options trader needs to learn about option Greeks which help determine the price of an option. Those interested in futures trading needs to learn about ticks, points, and the various specifications for each futures contract they may want to trade. Stock traders need to learn how to short sell, how dividends work, and the differences between pre-market trading and trading during normal hours.

Forex traders need to learn about pip values and daily rollover rates.

Trading Systems and Techniques

Upon learning trading basics, and then learning more about the market being traded, the next step is to learn strategies that will produce a profit in that market. Such strategies are subjective, which means the source of the information matters. Free resources may provide generic strategies that worked at one time, but no longer work. Finding viable strategies requires much more research and verification than learning trading basics. As discussed above, when learning strategies, open up charts and look for examples of the strategy at work. If it seems like it could be profitable on your own little real-world test, then continue investing some time in the method. If not, leave the method alone.

The best method of learning a trading technique is to find a professional trader that will teach you their trading technique. Some professional traders offer websites or books highlighting their methods. They may also provide personal mentoring, which is the most direct approach for learning how to trade.

It is also possible to learn a discretionary trading technique without any form of instruction. Self-learning is fine, but it may take longer to come up with a profitable system when compared to learning a system that is already profitable. Many professional traders develop their own trading methods by looking at charts, noticing certain patterns or tendencies, and then developing a system that exploits those tendencies. This may take months or even years of testing before the trader finds a viable method which produces profits consistently. 

Gain Experience

Practice doesn't make perfect. Perfect practice makes improvements. In trading we will never have perfect results because we will never win all our trades. And that is okay. We don't need to win every trade to produce a good living. What is required, though, is implementing our method nearly perfectly. This is within our control, while results are not. If we do the right thing, favorable results are more likely. Doing the right thing is following the methods we have learned and opted to use. 

When first learning a method it may seem very easy. When we go implement it, though, it may be harder than we anticipated. Most traders quit at this stage and seek out another strategy. Unfortunately, these types of people rarely become successful. Even a simple trading strategy often requires at least several months of hands-on experience before the method starts producing profitable results. 

As a trader progresses, and gains more experience, they will likely find ways to improve their strategies or notice other market tendencies that can be exploited if another strategy is formulated. A successful trader may also find that a strategy that once worked is no longer performing as well. In this way, a trader is always learning from their experiences and trying to find better ways of doing things. They are simply adapting to changes in the market which may make current strategies obsolete but opens the door for a new strategy to be deployed. 

Edited by Cory Mitchell, CMT.