The Step-by-Step Path to Make Serious Money from Trading

The roadmap to financial freedom...

Jan 21, 2023

Throughout your trading journey, you’ll suffer inevitable hardships that will make you question your choices, with thoughts like:

“What’s the point of this?”
“Am I just wasting time?”
“I’ll never make it, it’s all just a scam”

Many traders give up after experiencing failure, as they did not anticipate the level of difficulty. They saw trading as something easy and lack the motivation to continue. If you don’t have a clear goal when it comes to trading, you won’t have the drive to keep trying. It can feel like straight-up insanity sometimes.

The first thing we need to do is define our purpose to trade. Is it to have some extra income? To replace a job? To have the freedom to work from anywhere? Are you just passionate about financial markets? We need to find our “why.”

If someone starts trading because they expect fast money and aren’t willing to invest time in learning, they’re guaranteed to fail. Even serious traders can lose sight of their goals after difficult periods - an amateur has no chance.

An Alternative to Passive Investing

Investing in an index fund is great. You get an average annual return of 7-10%, which compounds greatly after decades. You’re investing in a basket of stocks in many different sectors, so you’re well diversified.

Considering the stability of these funds, why don’t we leverage them so we can make more money? If we have $10,000 to invest, we can borrow another $10,000 to double our return. Why not leverage it 10x to have a $100,000 position? We’ll be making a return of 70-100% per year on only a $10,000 initial investment.

This would never happen because the market does not move in a straight line! A return of 7% is not guaranteed, it’s just the historical average return over the last century. There was a lot of variation in these returns. In some years, the market increased by over 50%, while in other years went down by 35%.

What Prior Market Crashes Taught Us in 2020 | Morningstar

If you’re leveraged 10x and have a $100,000 position, it only takes a 10% drawdown to wipe out your $10,000 investment. This is why we don’t really use leverage.

We also see huge periods of sideways movement. The 1930s, 1970s, and 2000s were decades where the market was flat, and you wouldn’t have made a penny, let alone 7% yearly. Investors are well aware of these risks, and that’s why they often invest in less risky assets like bonds, despite the lower return.

So why do we trade? In the past, it would’ve been difficult to become a trader unless you had access to a lot of money. Even just a few years ago, commissions were often $10 per trade. Today you can trade with any amount with $0 commissions, it’s more accessible than ever.

The main reason we trade rather than invest passively is because we control our own risk. We decide which opportunities to take and which to avoid. This way, we can be profitable whether the market goes up, down, or sideways.

Using Leverage

The first step in the roadmap to financial freedom is developing and mastering a strategy. Try to keep it simple by focusing on one setup on one or a few instruments. Do not rush this process. If you’re not completely sure that you’ve mastered a strategy, then you haven’t.

Once you finally do, it’ll click. You’ll have a sense of confidence when you look at a chart, rather than confusion. You know your edge and how to execute it. Now, you’re ready to use the secret weapon: leverage.

We couldn’t do this with passive investing, as the market is too volatile for leverage. You have no control over what the market will do, so you can’t risk losing more than you put in.

However, you now have control over your profit/loss and risk tolerance. There are many ways to leverage. You can leverage a certain amount with your broker. If they offer you 2:1 leverage, it means you need a $10,000 deposit to trade $20,000. You can double your gains for the same amount of money.

You just need to make sure you find the right balance, where you’re not over-leveraging and blowing up your account with a few trades.

Prop Firms

Another option is using a prop firm, which is becoming increasingly popular. These firms will give you five and six-figure accounts to trade with - if you pass their tests. They will take a percentage of your profits as a fee, usually around 10-20%.

You’re using the same strategy you’ve always used, except now your profits are 10x because you’re trading with a $100,000 account. Even if your return percentage is lower than the market's, the dollar amount you earn can be larger.

If you trade conservatively with a prop firm and get a 5% return while a market investment would’ve earned 10% - you’d still earn $5,000 compared to $1,000. If you’re a disciplined trader with a proven strategy, there’s no reason you can’t achieve significant profits.

This is how you turn trading from a hobby to a source of income. There are huge amounts of capital available for those who have the knowledge and expertise to acquire it.

Trading is a challenging but rewarding endeavor that requires a clear purpose and goal. By mastering a strategy and using leverage to increase returns, you have a roadmap that leads you to financial freedom. When you inevitably suffer losses and blow-ups, don’t lose sight of the path you need to follow. It won’t be easy, but for most, it’ll be worth it.

- Tradewriter

The Tradewriter Report

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