Learn How to Become a Professional Trader

Becoming a professional trader is challenging but can be hugely rewarding. Professional traders work for financial institutions, hedge funds or proprietary trading firms, aiming to generate consistent profits in highly competitive markets. Success requires a wide range of trading skills and qualifications, market knowledge, discipline and resilience.

This article explains step by step how to become a professional trader, covering the following sections:

1. How to start your journey in trading
2. Professional trading strategies 
3. Creating a trading track record
4. A day in the life of a professional trader
5. Staying resilient and disciplined
6. How to measure success as a professional trader

1. How to Start Your Journey to Becoming a Professional Trader

Do you possess the right skill set for a trader? Is professional trading right for you? Only you can answer these questions. The types of basic skills and characteristics you’ll require include:

• • An analytical mind
  • Literacy and numeracy
  • Resilience
  • Confidence
  • Discipline

Decide Who You Want to Work For

Make sure you’re familiar with the various types of companies and financial institutions that populate the professional markets. These include:

Investment Banks

Investment banks employ proprietary traders. “Prop” traders trade using the bank’s capital, and often specialise in a particular asset class like equities, metals or FX.

Pension Funds

Pension funds tend to invest relatively conservatively with a medium to long-term time horizon. They’re not seeking “fast bucks” but rather place their funds into relatively stable investments offering a reliable return.

Hedge Funds

Hedge funds use the capital provided by investors to trade in the markets, which can be anything from Fixed Income to Credit to Commodities. They can specialise in a specific part of the market or be more “global” in focus.

Industrial Companies

Industrial companies may also employ traders and dealers. Oil firms may have teams of dealers specialising in energy markets, while multinational producers of processed goods may employ commodity traders. Such examples offer interesting opportunities for aspiring professional traders.

Specialist Trading Groups

There are also specialist trading groups that employ professional traders who focus on specific financial instruments like options. Often, these areas require a more specific skillset, and in the case of options, a higher level of statistical ability.

Decide What You Want to Trade

Professional trading comes in all shapes and sizes. Are you best suited to short-term trading or longer-term investment? Do you want to trade simple, linear instruments like futures or more complex, non-linear instruments like options?

Which markets and asset classes do you favour? An asset class is a group of tradable products with similar characteristics. Some of the best-known and heaviest-traded asset classes include:

• Equities and Stock Indices – individual shares and stock indexes like the S&P 500
• Foreign Exchange, aka Forex – currency pairs such as GBP/USD
• Fixed Income & STIRs – bonds and Short-Term Interest Rate products
• Commodities – hard (metals) and soft (agricultural, fibres, etc.)
• Energy – oil, gas, emissions, etc.

There are more specialist classes and sub-classes, but this covers some of the most significant groups of products traded in the financial markets.

Understand What Makes Prices Move

Prices in financial markets move in response to numerous factors, including supply, demand and sentiment. Professional traders have come to analyse the markets in two basic ways – fundamental analysis and/or through technical analysis.

Fundamental Analysis

Fundamental analysis involves studying real-world factors that impact supply and demand. For financial asset classes, these factors may be predominantly macro-economic things like economic data or Central Bank policies. For products like commodities and energy, factors such as weather and seasonality may be significant.

Technical Analysis

Technical analysis (TA) involves the study of market price action, usually through charts. Within TA, there are a huge number of techniques and studies that can be applied, but all with the same aim – to predict where the price is going. Many professional traders, particularly shorter-term traders, are purely technical.

If you want to learn how to be a professional trader, you need to develop an understanding of these forms of market analysis. Different approaches suit different people – you need to build an idea of which best suits your character and skillset.

Trading for Yourself

Many aspiring professional traders start by trading in relatively small amounts with their own capital. This is a way of getting used to trading before entering the competitive world of professional markets.

Discipline and objectivity are still essential, even with relatively small trades, but valuable lessons can be learned from mistakes at a relatively low cost. Accounts can be opened with modest sums, but be aware that losses hurt, regardless of size.

Know the Costs of Trading

All trading comes at a cost. There are obvious costs, such as brokerage fees, and less obvious ones like bid/offer spreads. Brokerage and trading fees vary, but generally, economies of scale apply to trading just as to any other area of business.

Trading costs tend to be relatively large when trading in small sizes – and vice versa. One of the key advantages enjoyed by traders is that companies can negotiate competitive fees, reducing the crucial “tick to cost” ratio.

Another key consideration is the competitiveness or width of the bid/offer spread. If the prices you’re entering and exiting trades at are uncompetitive, you’re paying another cost, albeit one that may not appear immediately obvious. Again, professional traders tend to focus on markets where the bid/offer spread is competitive and narrow, usually because the contract in question is popular and highly liquid.

Develop Key Skills

Numeracy and literacy are critical skills for traders. Simple arithmetic numeracy is essential for all professional traders, and if you want to become an analytical trader, employing statistical and perhaps algorithmic techniques, a higher level of mathematical knowledge is required.

Literacy may not appear as important, but remember that reading and analysing reports and articles will form an important part of your daily routine. The more efficiently you can take in financial information, the better. Fortunately, anyone can practice this skill. Reading the financial press, looking online for interesting articles and consuming relevant media will help.

Keep a Trading Diary

Professional traders approach the market in a structured and methodical fashion. They have a plan and stick to it. As a neo-trader, you’ll be experimenting with different approaches. Make sure you keep a detailed record of your thoughts, ideas and actions.

Create a trading diary and fill it with anything that’s relevant to your trading. This will include:

• • Entry and exit prices
  • All information relating to trades you execute
  • Reasons for trading
  • Choice of instrument

These details are all important for future reference.

It’s also worth recording your state of mind, mood and energy levels – all of these can be invaluable in helping you determine the best approach to the markets.

Above all, be honest. Making mistakes is inevitable – the key thing is to learn from them. Don’t rewrite history to make yourself feel better. Being objective and analytical will serve you best.

2. Professional Trading Strategies

Every professional trader’s approach is unique. Each has their own way of analysing data and distilling it into their strategic approach.

It would be impossible to list every factor that enters the strategic thinking of professional traders, but below are some of the better-known strategies employed in the markets. As you build experience, you’ll also learn important lessons, allowing you to hone your technique.

Day-Trading

Short-term professional traders are often known as “day-traders”; traders who tend to enter and exit positions over short timeframes and “flatten” their open positions overnight. Getting into and out of positions quickly and frequently is known as “scalping” – exploiting short-term trading opportunities.

Just like other types of professional traders, day-traders are likely to use TA to identify key price levels, trends and price patterns. Charts can be used for any timeframe, and day-traders will use charts for relatively short timeframes, perhaps hourly or daily.

There are many different types of price action that are significant, but key ones include:

1. Breakouts – these occur when the price breaks either up or down after a period of sideways movement. Traders often look for significant volume to accompany a breakout – the volume is viewed as a confirmatory factor.

2. Price reversals – traders look for specific patterns to suggest a change of market direction is imminent, such as double tops (or bottoms) and head and shoulder formations. Again, the accompanying volumes will be carefully studied for confirmation.

3. Retracements – when a trend reverses, traders often look for key percentage retracements of the original move. Both 50% and 61.8% (known as a Fibonacci retracement) are of interest.

This is a small selection of the techniques and signals available to day traders. As ever, do your research, listen to more experienced traders and find out what’s right for you.

Everyone is Different

Different strategies appeal to different traders, and different types of analysis will suit different mindsets. Everyone has their own tolerance to losses, their own level of risk aversion. It’s critical to be honest with yourself, especially about your weaknesses.

Do your research. For example, futures trading and options trading are very different disciplines that demand different skillsets. One isn’t better than the other, but recognising the different requirements is important. Trading comes in many shapes and forms – find what’s right for you.

Plan to Reach Your Goal

Professional traders approach the markets in a planned and structured way. Apply this to your goal of becoming a professional trader.

The point of research is to figure out which areas of professional trading are right for you. Your goal is to establish yourself in one of these roles.

Once you’ve set that goal, plan for how you’re going to reach it. Put the various stages in place – give yourself time to thoroughly cover all the steps needed to get to your goal. In short, approach your quest to becoming a professional trader in the same way pro traders approach the markets. Make a plan and stick to it.

Keep a record of your progress – honesty and objectivity are key. Accept there’ll be setbacks and use them as experiences to learn. Stay resilient, stay committed to your goal.

At ZISHI, we’re dedicated to equipping you for success in the fast-paced world of trading and financial markets. See how our courses can support you in every stage of your development.

3. Create a Trading Track Record

Professional trading is a numbers game. The ability to make money consistently is a core skill of professional traders. The same principle applies to becoming a trader. The importance of maintaining a trading diary is highlighted above. A key element of that diary is your profits and losses.

Paper Trading

One sensible and practical step when you want to learn how to be a trader is to “paper trade”. Paper trading allows you to test strategies and approaches and keep a performance record.

Paper trading means writing trades down rather than executing them. The obvious advantage is you can’t lose real money, but you must also understand that paper trading is very different from the real thing. It’s far easier to make unemotional decisions when there’s no monetary risk. Nonetheless, paper trading is a useful exercise for anyone learning to trade.

Paper Trading Methods

There are various ways to paper trade. You can simply write potential trades down in your trading diary and track them, such as recording important details like entry and exit levels, profit or loss, etc. This may be your first stage of paper trading, before you start accessing systems and platforms. It’s simple, effective and cheap.

A more advanced paper trading method is to open a “demo” account. Demo accounts allow you to place trades in the market as if they were real. You do everything the same way as if you really were trading – but without the financial risk.

Often, the functionality and appearance of these systems are identical to the “real thing”, allowing neo-traders to become comfortable with systems before committing to the markets. Some systems replicate the market in real-time, while others use historical price data. Trading games and competitions are sometimes staged in this environment, allowing neo-traders to compete and “gamifying” the trading experience.

Various companies facilitate demo trading on their platforms, including ZISHI’s options trading platform – Volcube.

Pros & Cons of Paper Trading

The obvious benefit of paper trading is the ability to trade without real financial risk. It allows developing traders to try out strategies and approaches in relative comfort.

The downside is that paper trading is psychologically very different from the real thing. Taking real losses is harder. Understand that there are real benefits to paper trading, but trading for real is a step up, particularly from a psychological perspective.

Improve Your Knowledge With ZISHI Courses

Your chances of becoming a professional trader are improved by practice and acquiring further knowledge. ZISHI offers a wide range of financial trading courses designed to provide knowledge and experience in this highly competitive world.

Your choice will depend on your existing knowledge and experience. Our trading courses include:

• • Crude Oil & Natural Gas Volatility Trading Masterclass
  • Foundations of Options Market Making: Skills, Strategies & Simulations
  • Introduction to Options (Beginner & Intermediary)
  • Introduction to Commodity Derivatives
  • Level 5 Advanced Diploma in Financial Trading
  • Level 5 Advanced Diploma in Options Trading
  • Level 7 Diploma in Applied Financial Trading
  • Options – Level 1 & Level 2
  • The Trade Life Cycle
  • Trading Fast Track Programme

4. A Day in the Life of a Professional Trader

While there’s no typical trader, there are certain activities in common to most, if not all, traders.

Traders are always on the lookout for significant data and information. Even during downtime, traders identify useful information from the media. This is thrown into the mix, supporting the trader’s decisions in the following days.

Trading days can begin at any time because global markets are open 24 hours, and different geographical markets and exchanges are busiest at different times.

The Asian Markets

In terms of time, Asia is ahead of the UK, Europe and the US. Therefore, Asian markets often give early clues to what we might expect to see during our market hours. Significant Asian markets and exchanges include:

• Hong Kong Stock Exchange (HKSE) – open from roughly 0900-1600 local time, equating to roughly 0200-0900 UK time.

• Tokyo Stock Exchange (TSE) – opens from 0900-1500 local time, equating to 0100-0700 in the UK. TSE closes for an hour over lunchtime.

• SGX – the Singapore Exchange – opens from roughly 0830-1700, with an hour lunch break. This equates to approximately 0130-1200 UK time.

The US Market

US financial markets are some of the largest in the world. Depending on the specific time zone, the US is roughly 5-6 hours behind the UK and Europe, meaning their markets open around lunchtime in the UK and run into the European evening. Key American exchanges include:

•Chicago Mercantile Exchange Group (CME) – a long-established and highly significant derivatives exchange.

• InterContinental Exchange (ICE) – “younger” than the CME but hugely important, ICE started in the energy space but now lists derivatives on a wide range of asset classes.

• New York Stock Exchange (NYSE) and Nasdaq – two of the world’s largest and most important stock exchanges.

UK & European Markets

The London markets tend to open between 0800 and 0900 and close around 1700. Key exchanges include the London Stock Exchange (LSE) and the London Metals Exchange (LME). London sits conveniently between the Asian and US markets in terms of time zone: just one of many reasons for their global importance.

Key European exchanges include EUREX, the German/Swiss derivatives exchange and Euronext, the Paris-based exchange. Europe is one hour ahead of the UK – insignificant for UK-based traders wishing to trade European markets.

Choosing the Right Market for You

Different markets appeal to different traders. Practical considerations like trading hours will play their part, but so will less obvious factors like instrument type (futures, options, swaps, etc.) and asset class (equities, bonds, commodities, etc.).

Liquidity is a hugely important consideration for professional traders. How easy is it to get into and out of positions? What about competition? Is there profit to be had in a market – or is it overcrowded? And fees will matter – that critical cost-to-tick ratio.

Your choice of market(s) will depend upon all these factors and more.

Entering Your Chosen Market

Once a trader has identified their chosen market and contract(s), there are several other important details to consider, including:

• Trade or “clip” size – what’s your default trade size?

• Trading hours – not just when the market is open, but also when it’s busy. When do you need to be watching most carefully?

• Liquidity – when is the market most liquid and competitive? Are there periods when liquidity thins or dries up?

• Expiry and contract cycles – are there days or weeks during the trading cycle that are particularly significant? Are the opportunities greatest at a certain time? When do traders start “rolling” their front-month positions forward?

• Data releases – which economic data and information is most significant in the contracts you have chosen? When is this data released?

These are just some of the key considerations when entering a market for the first time.

Regardless of which market(s) you decide to trade, preparation is paramount. Knowing your plan and being informed are important, but so is mental preparation. Having the right mindset and being mentally prepared is crucial. Different traders are at their best at different times – and it’s important to be in the market when you’re at your best.

5. Staying Resilient & Disciplined

The world of professional trading is challenging and highly competitive. Losses are inevitable, so you’ll need to be resilient. Discipline is key, so stick to plans and follow routines.

• Learn from losses – understand they are opportunities to develop and improve.

• Maintain a positive mindset – if things go badly, ensure you have suitable coping strategies.

• Enjoy the wins – live in the moment and recognise when your plans have come to fruition.

Even the most experienced traders can learn something new. Never stop improving.

6. How to Measure Success as a Professional Trader

Trading is a visceral business. It’s all about the numbers. So, what should a trader measure?

For professional traders, performance isn’t simply a question of profit or loss. Other factors, such as risk and opportunity cost, also enter the equation.

Of course, you need to make money. After all, that’s the whole point of being a pro trader. But the relationship between risk and reward is central to everything a trader does. Pro traders are looking to minimise potential risk while maximising potential profit. Traders are judged not simply on their profits but also upon the risk they took to make them.

Opportunity is also important. Traders need to ride out the hard times to ensure they’re ready to take advantage of better market conditions. Pro traders persevere when it’s difficult and “make hay when the sun shines”.

As a developing trader, it’s important to create an honest and objective record of your successes and failures. Seeing what did and didn’t work can provide valuable insight.

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