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5 Steps to Trading Your Way to Financial Freedom

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TopstepTrader’s mission is to empower anyone to earn the financial freedom to pursue their dreams. That’s a lofty goal – but it’s about providing opportunity. It's up to individual traders to earn the results. 

As we’ve said 1,000,000 times, trading is about money management. If you are looking for a vault of gold or to ditch your full-time job within months, you are (probably) looking in the wrong industry. Instead, if you are looking to regain some of your freedom and to spend your day doing something you are more passionate about, then you have the right attitude to succeed.

Work hard and take these five steps towards trading your way to financial freedom.

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Start with Realistic Trading Goals

At its most basic, financial freedom is having enough wealth to live the life you want. For some people, that means a condo on Park Avenue, New York. For others, it’s replacing your salary and breaking the chains of a 9-5. Either way, you have to decide where you are going before you can get there.

Unfortunately, some people see nothing but dollar signs when they start trading, and those unrealistic expectations wreak havoc on their ability to trade effectively. You’re better off starting with smaller, more achievable goals. That way you can develop the risk management skills required to succeed.

For a closer look at how to set realistic goals, read “The Dos and Don’ts of Trading Expectations.”

Design a Trading Plan and Stick to It

Knowing your destination isn’t enough; you also have to map out your journey. That’s where your trading plan comes in. You want to create a trading plan that defines your trades day-by-day, week-by-week, and even month-by-month.

Your plan doesn’t need to set financial goals. Instead, describe things like your:

  • Trading style
  • Markets
  • Risk exposure
  • Risk management plan

Having a trading plan is important, but sticking to it may be even more so. If you consistently follow your plan, you get valuable data and an ability to determine if your trading actually has edge. If you trade by the seat of your pants, you’ll never know the results you are going to get.

Start Building Your Trading Account

When you first start trading, you’re mostly paying for your education. You’re learning as you go. But if you follow the first two steps, then you’ll be able to maintain and build your account. You’ll see more money going in than coming out.

This is the point where some traders can get off course. They’ve done better than most of the people who get in the markets, and that can make them a little cocky. Remember, however, you got here because you followed your plan. Stick to it, and watch your account grow.

Increase Your Leverage Responsibly

If you’re reached this step, you’ve done some good work and seen some success. Now you can increase your leverage. But you don’t want to be doing anything that damages your positive state of mind. An increase in leverage is a jump in risk, and that can make it difficult to maintain the decision process that got you here. Start with minor increases so you can adjust.

If you are used to trading with a $500 daily loss limit, increase that by 20%, instead of jumping from $500 to $1,000 or more. Before you know it, that 20% increase compounds – and all without putting your future in danger.

Staying in that sweet spot between cocky and timid is a delicate balance. For a detail discussion on how to do it, check “This is How to Master the Trader’s State of Mind." 

Pay Yourself from Your Trading Profits

Once you’re consistently profitable, pay yourself about half of what you make in a month. This way you:

  1. Have to manage risk. The bigger your account, the more tempting it is to abandon your risk management plan. Cut that amount in half and you have a better chance of staying on track.

  2. Make the money real. Money in your account is great. But when your effort turns into the things you want, your respect for the business and your hard work grows.

Your reward may be something tangible, like a new car or a dinner out with friends. However, you might also want to consider investing the money you make trading into another revenue stream. Putting your money towards something like that brings in additional cash, like an investment property, supports your financial goals and your trading.

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Posted by TopstepTrader on May 18, 2018
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