It may sound like a dumb question – why do you want to start trading?

The obvious answer is – to make money, of course!

Naturally, all traders want to make money, but an individual’s reasons for wanting to do so reveal a great deal about that person.

Your basic motivation for trading will also shape the type of trader that you will become.

In this lesson, we take a close look at the reasons that people want to trade, and how trading psychology influences the style of trading we are most suited to.

How motivation shapes your trading

Understanding your motivation for wanting to trade is an important first step in your trading journey.

It’s a vital journey of self-discovery, akin to looking under the bonnet of your own brain to see how it ticks, if you like!

Using that car analogy, if you don’t know what fuel your car needs to run, there’s very little chance of you becoming a successful Formula One driver!

What are personal motivations?

Our personal motivations are the fuel that drives all our behaviour.

Motivation is what gets you out of bed in the morning (or perhaps late at night, if you choose to trade a market that’s open during your night time zone.)

By understanding your personal motivation, you have a far better chance of aligning the sort of trading you undertake with your personal aims, objectives and ambitions.

Three vital questions

Before we start to look at how our motivation shapes our world as a trader, take a minute to think about these three vital questions.

Vital questions:

• Why do you want to become a trader?
• How much money do you want to make as a trader in a given period of time?
• How much time are you prepared to devote to learning how to become a trader?

When I was teaching others how to trade, I always started with these simple motivation questions.

It helped me understand why that person wanted to trade, and what style of trading would best suit their needs.

Typical answers

Here are some examples of very typical answers to these questions:

• I want to start trading to make money quickly because I’m in debt, and I’ve maxed out my credit card
• I want to make extra money trading in my spare time because I need a new car, and I can’t afford to buy one
• I want to start trading because I hate my current job and want to quit

Before you start on your own trading journey, you should get clear in your own mind the answers to these fundamental questions.

1. Why do you want to become a trader?

What is your personal driving force or motivation for wanting to trade?

What is the fuel that’s going to keep you going when things get tough, and it all seems too hard?

These are some common motivations for people who have just decided they want to start trading:

Money:

Is your motivation money? Do you want to make lots of money really quickly?

If so, why do you want to make lots of money?

What will you use it for, if you do become a successful trader and make money?

Money in itself is not usually a primary motivating factor; it is what that money will buy which is the real motivator.

Boredom:

Is your motivation boredom? Do you have extra time on your hands?

Perhaps you’ve realised that you spend too much time gaming or watching TV, and think you could use your screen time more productively?

Curiosity:

Is your reason for wanting to trade curiosity?

Perhaps you’ve heard friends talking about trading, and so you want to know what it’s all about?

Or you’ve read a book, or seen a movie which depicts trading, and think you’d like to give it a go?

Necessity or debt:

Do you need additional income to pay the bills, or are you drowning in debt?

Is your credit card maxed out, or you don’t know how you’re going to pay your next rent or mortgage payment?

If you are struggling financially, perhaps now is not the best time to think about starting to trade.

Learning how to trade takes time. Being in a difficult financial situation may lead you to skip vital learning steps that are needed to become a successful trader.

Trading is not a ‘get-rich-quick’ scheme, and should never be approached from this viewpoint.

2. How much money do you want to make as a trader in a given period of time?

Some people approach trading as a hobby.

Their aim is to make a little bit of extra money on the side, in addition to the income they make from their main job or occupation.

Such traders make up the majority of part-time retail traders.

However, for others, learning to trade is a much more serious commitment, which they hope will become their primary source of income.

These people may view trading as a potential full-time primary job or occupation.

For example, when I first started learning to trade in 2008, I had just finished writing a book, and intended that trading would become my new full-time occupation, which it did for the next decade of my life!

Your financial intent and goals will strongly influence how you approach trading, which is why it’s important to think about this issue, and be clear in your mind what it is you want to achieve financially.

3. How much time are you prepared to devote to learning to become a trader?

Your answer to this question will help you see what priority you place on trading, and how quickly you want to move along the trading journey.

Obviously, the more time you are able to devote to learning how to trade, the quicker your journey will be.

All beginner traders have to take the same steps to learn how to trade.

These steps include:

• Learning how to read trading charts
• Learning all about trading strategies
• Writing your personal trading plan
• Selecting a charting program
• Choosing your trading broker
• Setting up your trading account
• Testing your trading system

These are just some of the basic steps required before you start trading.

Whether you take these steps slowly, over several months, or turbo-charge your journey with an intensive learning program in days or weeks, is entirely up to you and your personal life circumstances.

There are no right or wrong answers to these questions.

However, it is very important to think about these questions, so you understand what your fundamental aims, objectives, and personal motivations are to start trading.

Your answers will also help you choose what type of trading may suit your lifestyle and personal circumstances.

They will also be useful to you when you start writing your trading plan.

How your motivation shapes the trader you may become

To start trading you’re going to need a few basic resources – namely:

• time (to learn how to trade)
• trading capital (the money you’ll use to start trading with)
• determination (to keep going when things get tough)

Now we are going to look at a few case studies to explain how your base motivation (the ‘fuel’ that drives your engine) directly shapes the type of trader you may become.

These case studies are based on my personal experience, teaching a range of everyday people how to trade.

I have not mentioned their names to protect their confidentiality.

Case study 1: The student

A 21-year-old student wrote:

“I want to make lots of money because I’m in debt and I’ve maxed out my credit card.”

This student had spare time during his university vacations.

(He could not legally work for more than a few hours a week during these holiday times due to visa restrictions.)

He had very little trading capital to use, and so trading CFDs was an attractive option for him.

Trading with margin meant he could make bigger trades with less trading capital.

He needed a simple trading method he could pick up quickly and use to trade during his university vacations.

After answering these questions, the student realised that long-term trend or momentum trading were not suitable to his lifestyle.

He wanted to trade quickly and aggressively, so he could build up his trading capital over a period of six weeks.

He eventually decided that day trading commodities using CFDs was the ideal trading option for him.

Case Study 2: The nurse

A nurse answering these questions said:

“I need a new car, and I can’t afford to buy one. So I want to trade in my spare time to earn enough money in a year to buy myself a new car.”

She realised that she had time to learn to trade on her days off, and could check any open positions at weird times of the day and night, to fit in with her shift work.

She aimed to learn to trade on one day of her three days off work, each fortnight.

This nurse had career ambitions in her chosen medical field, so trading to her was a temporary side hustle to help her afford to buy a new car.

Once she had achieved her objective, and her new car was bought, she did not intend to continue trading, so she could concentrate on her nursing career.

She decided that momentum trading gold was the ideal trading style for her, so she could place just a few trades, and keep her positions open for a long period of time.

She was content to watch her gold investment increase in value over the period of a year.

Case Study 3: Made redundant – what next?

Our next case study involves a guy who said he was unhappy with his job and wanted a lifestyle change.

He was made redundant shortly after he made the decision to learn to trade.

He realised his redundancy meant he had the time to devote eight hours a day, six days a week to learning how to trade.

He was in a hurry. He threw himself into his new career and made it his life priority.

He took his trading very seriously, and devoted more than eight hours a day to learning how to become a successful trader.

His motivation was that he had to start making money again before his redundancy pay ran out.

He decided to divide his redundancy pay up into three portions, and only use one third of it as his trading capital.

(He allocated one third to pay for his day-to-day living expenses, and deposited the remaining money in a high-interest savings account, with the intention of not touching it for at least a year.)

He decided that full-time stock CFD day trading was to be his future career.

Just three simple questions

The three simple questions posed above will help you decide what sort of trader you want to become.

These examples show that by answering these simple questions, each one of our potential new traders were able to evaluate their trading motivation.

They were able to think carefully about the time and resources they were prepared to devote to their trading journey.

And they then used their answers to choose a trading type and style that fit in with their available time, financial aims and objectives, and lifestyle considerations.

Only ever trade with funds you can afford to lose

When first starting to trade, it’s worth remembering that good traders only ever trade using money they can afford to lose.

Do not trade with funds that you rely on for your day-to-day living expenses, such as to buy food, pay your rent or mortgage, or pay utility bills such as gas and electricity.

Your trading funds should always be kept totally separate from the money you need to live on.

Final thoughts

I hope that answering these simple fundamental questions about why you want to learn to trade will help clarify what your personal trading journey will look like.

Keep your fundamental motivations in mind as you progress through the steps that you’ll need to take to become a successful trader.

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Till next time,