The first thing to note is that making a living on day trading is perfectly viable, but it is not necessarily easier or less work than a normal day job.
The benefits are fair that you are your boss and can plan your work hours as you desire. Trading on your laptop also means you can do it anywhere, anytime.
Beware of those who come to you claiming to make a ton of money on day trading. Generally, these people are trying to sell something to you. Dismiss the hype and never believe that there is something like “easy money”.
There are ways to make it easier though, like living in (or moving to) a cheap, low-tax country. Cutting down living costs can also make a large difference.
If you’re considering whether or not to be able to make your income entirely from trading alone, this post summarizes five crucial considerations you need to make before quitting your day’s job.
1. Are you adequately capitalized for trading full time?
The first Consideration you want to make before deciding to quit your day job to begin trading full time would be the aspect of capitalization. Do you have enough funds in your trading account to allow you to rely solely on trading alone for your recurring expenditures and livelihood?
Common mistake traders make is ambitiously quitting their jobs simply to later find out they can’t make enough gains to make them endure as a full-time trader. And these are of course the more intelligent traders who have a very strong grip on their emotional states and can execute their defined risk measures even when their fiscal conditions demand more.
It’s generally a good idea to be trading with enough capital to survive at least three months of trading conditions (or results) without creating a major effect on the trader’s livelihood. If you have been trading for a while (which you ought to be if you’re thinking of going full time anyway) you’d understand the timing and frequency of this ‘slower’ or ‘unsuitable’ marketplace conditions that normally yield below normal gains. Make sure to factor in these drier periods before quitting your day job.
2. Do you have a good knowledge of the market?
Knowing the profitability cycles of your trading method in effect stems from the trader’s understanding of the markets, which in itself is a major consideration if you’re planning to go for full-time trading.
Does the market Surprise you frequently with motions you can’t give a good explanation about? Are you caught off guard frequently when taking or handling trades? Are your trading results still inconsistent? If your answer to any of these questions is yes, then your market evaluation skills might still require more fine-tuning and experience.
Being able to understand the different trading rhythms of the market is critical in allowing you to exercise emotional control. This is especially significant when trading full time. Are you disciplined enough to be able to sit through tough market conditions without feeling the stress of ‘missing ‘? By all means, know the market very well before attempting to rely on investing full time for a living.
3. Do you understand your trading method well enough?
If you’re trading full time, you need a reliable trading system that you can use to produce potentially consistent results year in and year out. You have to factor in rougher periods that can range from weeks to even months.
However, drawing this conclusion isn’t a simple objective task. You’ll need to tweak entrance or exit criteria or experiment with different trade management styles including breakout strategy, trading longer or shorter timeframes, candlestick price action strategy, and more. You do need to be well versed with different trading methods and be fully confident in implementing them daily for consistent results if you want to trade full-time.
4. Do you have consistent trading outcomes?
Many traders get excited with a couple of months of constant positive outcomes and they mistakenly jump the gun and begin trading full time without enough sample data to prove they have it all.
It’s natural, especially for newbies, to think that a limited period of very good trading outcomes can be replicated over a long time. It doesn’t happen like that in reality. Market rhythms can vary regularly. Present correlations could be changed or new ones are found. Market volatility and volatility consequences can also drastically vary from a single period to another.
For you to be truly confident with your trading method and trading skills, you will likely need data spread across several years that accounts for all the above-mentioned change factors and much more.
5. Lifestyle considerations
Most people love the freedom that comes from being your boss and having more control over your life, including family, leisure, and private life. Also, the extra benefit of being at home is attractive for individuals who want to avoid the morning traffic rush hour and transport costs.
While trading full time provides all these advantages, several accomplished traders never have to leave their job because they cherish the benefits that come from being in an office around their coworkers. Driving through town or interacting with individuals is a significant need for some people who don’t like being confined inside their homes so that they don’t miss the next trade prospect.
Some folks enjoy a day job that utilizes their physical capabilities and possibly will not do well sitting in a chair staring at a glowing screen all day long to spot the next trade or manage an existing one.
Finally, some folks simply don’t want to rely solely on trading as their only source of revenue and wish to invest their financial resources and time in multiple income-flows to diversify their wealth generation.
Do an honest evaluation of your skills and assess your lifestyle considerations to decide whether trading full-time is the best way to go. It’s a highly personal action that can vary from trader to trader. However, that does not eliminate the fact that ultimately, full-time trading is a choice that demands a lot of responsibility and accountability. If you believe you are prepared, then why not. However, be aware that futures trading comes with a substantial threat of loss. Past performance is not indicative of future results.