Millionaire Tradersspouses support them while they learned. Others such as Chuck
Hays, Steve Ickow, and Tyrone Ball set aside savings and lived
quite frugally as they studied the art of the trade. Finally, some
like Indi Jones simply learned on the job while their employer paid
them a nominal salary. The critical point we are trying to make is
that if you do not have any other source of income while you focus
on learning how to trade, be sure to have enough capital set aside
to meet your daily needs for at least six months to a year.
Failure to properly capitalize yourself also applies to your trad-
ing capital. Many novice traders, especially in markets with astro-
nomical leverage such as futures or foreign exchange, will abuse
the liberal margin requirements and quickly rack up massive cap-
ital losses. Chuck Hays’s advice to use$10,000 of capital per one
standard futures contract is a good rule of thumb to use. Typically
one standard contract in futures or foreign exchange equals to
approximately$100,000 of underlying, which in turn implies that
traders should never exceed more than 10-to-1 leverage factor.
Of course, it is very important to research the actual value of the
instrument as there is wide room for error. One contract of Great
Britain pounds for example is worth nearly$200,000, while one
futures contract of Dow Jones stock index is worth only$63,000 at
current market prices. Traders should make adjustments accord-
ingly, but keep in mind the need to have ample capital to live on
and keep the leverage limit on the trading account at no more than
10 times the equity. This will go a long way in helping you properly
set up your business.
- Expect to Lose for at Least Six Months
Learning how to trade is like learning how to do many things in life
such as riding a bike, driving, or even cooking. None of us were
successful at these activities from the start. We are sure everyone
has fallen off a bike once or twice, stopped short too abruptly
when driving for the first time, and may have even added sugar
instead of salt while following that new recipe. The same is true
with trading. Don’t expect to be successful from the start. You will
make mistakes and probably blow up your first trading account.