What is the right way to think about day trading for a living?
It is a fantastic pursuit and a challenging one. Let’s attempt to shed light on it in the same way a bucket of cold water refreshes – fast and effective. It’s not all roses but it will be much better advice.
Many traders aspire to start day trading for a living, and that’s awesome.
I made the move to day trading for a living over 10 years ago and had a lot of help along the way. Now I’m in a position where I can give back as well, so I love coaching others to get to the Promised Land.
The truth is that there are some harsh realities that come with the territory. The best time to create a map for your success in this career is before you wander into the market jungle. So here are 5 questions to ask before shifting from daydream to living the dream.
Day Trading For A Living Question #1: Do you really love it?
Is trading something you love to do, or is it an escape?
This list of the benefits and perks of day trading for a living could be pages long (and my personal one is).
It’s important to have a strong grasp of why you want to do this. Knowing why you are trading for a living will serve you in the beginning and over the long run.
There are two types of benefits and perks…
Type #1: Working from home. Ask yourself how much you value:
- Having a 10-step commute to work each day,
- Being your own boss,
- Setting your own hours,
- Spending more time with family and friends,
- The ability to set your own vacation time.
Type #2: Trading for a living. Now, ask yourself how much you value:
- Doing a challenging job that keeps you mentally engaged all day long,
- Feeling connected with financial markets on a daily basis,
- The challenge of making money by placing trades in the market,
- Testing, practicing and refining different trading strategies,
- Interacting with financial markets and making a living through strategic trades.
What it all means…
Being honest with yourself is important. There are many ways to work from home and make respectable money doing so. Day trading ranks among the most difficult so give the matter ample thought.
If you value all the first set of benefits, but very few or none on the second set, this should give you pause.
The planning stage is where you want to make a list of the benefits you are seeking to answer the question:
“Is day trading for a living something I would love to do or is it a way to escape my current reality?”
It’s easy to tell what your answer is.
Does enjoying the challenge of day trading itself show up on your list? If not, you should seek another kind of work-from-home job.
Being attracted to only the fringe benefits is a trap that catches many people.
Lots of day trading sites feed the illusion of carefree finances. Ignore them. There is real challenge involved in trading for a living.
Make sure you are up for both the challenge and the fringe benefits. You will be certain that this is the career path for you if you want both.
Day Trading For A Living Question #2: Are you prepared to make the switch?
The move to day trading for a living is a major career change.
You need to determine your answer to this question before you actually set things in motion:
“Are you prepared to make the switch?”
This question is so important because making the transition to trading for a living is a big deal. You will go from a paycheck to an unstructured environment. Pandora’s Box or the proverbial can of worms lurks behind this question.
“Don’t make the switch to trading for a living until you are 100% prepared.”
Here are some focusing questions to help you figure out if you’re ready: :
- What are my current lifestyle costs?
- Are they covered with my trading performance?
- What happens to medical insurance?
- How will it affect my credit?
- Will it affect my family?
- How will this impact future job prospects?
- Am I mentally prepared to switch to a situation where I am my own boss?
The more answers you have up front, the better your transition will go. Much like in day trading itself, you should never have to come up with an answer while in the moment.
Pros pre-plan their strategy and then execute in the field to the best of their ability. They also plan their transition strategy. You should too.
Day Trading For A Living Question #3: Do you have a career stop-loss?
Stops aren’t only for live trading.
Having a stop loss plan for your trading career as a whole is one of the most important preparations you can make. It’s true in day trading itself, and it also applies to day trading for a living.
A trader has a $50,000 account and averages $2,000 a month in profits. That’s a fantastic result in a job where most will fail to produce any profit at all. Our successful trader decides to day trade for a living and quits his job.
He knows that he’s short of the $3,000 he needs to cover his bills, but he expects to make more with the extra time he has to trade.
His stop loss plan was to leave on good terms with his old workplace. That way he can pick up his old job again if things do not go as planned after the first year of trading.
Before you take the plunge into day trading for a living make yourself a career stop-loss plan. I hope you’ll never need to use it, but it is a smart and essential preparation to make.
Day Trading For A Living Question #4: What is your transition plan?
What is your transition plan to full time trading?
Your answer to this question helps for when the rubber hits the road. Details included with should involve day to day considerations. Get specific.
Many traders forget to consider the most elementary of things. Some have not figured out where they will be trading. Others don’t think of methods to reduce distraction in their home work environment.
When you trade for a living from home, there is no employer to provide you with the things you need. You will need to buy your desk and your computer and set up your office.
“Plan your transition to full-time trading and you’ll avoid most of the stress of a career switch.”
What are your new work hours going to be?
Remember that you’re switching jobs to one that you love. You are not retiring so you can do nothing.
Functional everyday questions like these need answers in a transition plan. Make sure you ask yourself the important transition questions before you start. That way you will know what to expect and how to plan for it.
Day Trading For A Living Question #5: Do your numbers work?
Before you start day trading for a living, ask yourself if your numbers work.
This straight forward question is more multifaceted than most think. On a base level, there is the question like the example in Question #3 above:
Do the profits from trading cover your living expenses with a margin for volatility?
Then also there are situations that need more forecasting and more risk. A trader can save money up to execute a strategy with the expectation of profit in the future.
Trader John has $60,000 saved up. He’s cut his lifestyle expenses down to $1,500 a month or $18,000 per year, leaving him a buffer of over $40,000. John is training to deploy a tested trading edge and has a mentor. He expects that profits should start covering living expenses after the first year.
The reason John’s plan is good is that even if he doesn’t make money in the first year, he has enough to live. He even has money left over at the end of the year. Make sure you plan ahead like this so you can trade stress free knowing that your numbers work.
How It All Boils Down…
There’s a right way to think about day trading for a living… and many wrong ways. The way a day trader trades often reflects how they will perform when day trading for a living. The more pre-planning, the higher the chances for success in both situations.
For more day trading techniques, tools & strategies, check out these articles:
- 11 Things I Wish I Knew Before I Started Day Trading Stocks
- 5 Important Truths To Know When Day Trading Futures
- How Much Money Can You Expect To Make Trading?
Plan your path to day trading for a living answering these 5 essential questions. A little bit of prevention up front can help avoid a lot of pain in the future.
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