I know that you’re thinking:
“If I were a day trader, I’ll definitely be that day trader to make it big.”
“If I just have a day trader strategy that wins all the time, I can get my first Lambo in no time.”
Because you’ve seen many others dive straight into it…
And they’re having a happy time popping champagnes, splurging their profits on new watches every regularly.
But that’s not the reality.
If you want to learn the truth, then today’s episode is for you with regards to day trading for living.
- This big ‘E’ that you must have to survive the reality of day trading
- This destroys your account without you even realizing it
- Does your trading account size matters?
- This practical tip to retain your sanity when you have a crazy drawdown (hint: it’s not meditation)
- The real cost of day trading most newbies never find out
So listen to this episode now…
Hey hey, what’s my friend!
In today’s episode…
I want to talk about day trading for a living.
The reason for this is because I see traders getting lured into day trading because of the “freedom” it promises:
- the lifestyle
- the fast cars
- the babes
- the trading by the beach
But to be honest, to me that’s BS.
Because that doesn’t exist in reality.
Especially day trading strategies that win every single damn day.
And in today’s episode, I want to break it down to you on what it takes to day trade for a living.
Are you ready?
Then let’s move on…
1. You must have an edge in the markets
Traders often want to day trade for a living because they are sick and tired of their full-time job.
They hate the boss, they hate the politics, they hate everything!
And they want to day trade for a living.
At one point in time, they have probably experienced trading on higher timeframes…
But they’re not making money.
So their mindset is:
“It doesn’t matter.”
“If I become a day trader, I’ll have a better chance of success because I have more trading opportunities.”
“Because I can watch the markets longer, so I can make more money!”
It doesn’t work that way.
If you’re not making money on the higher timeframe…
Then when you go down to the lower timeframe, you’ll crash and burn even faster.
If you can’t master driving a Toyota car at 70 km/h…
What makes you think you can drive a Ferrari at 300 km/h?
You’ll probably suffer.
You’ll crash and burn at an even faster rate.
This is the same for trading!
If you can’t do well on the higher timeframe…
Chances are when you come down to the lower timeframe, you’ll suffer a worse fate.
So, you must have an edge in the markets.
And having an edge in the market doesn’t stem from spending more time to watch the markets.
Your edge comes from two things:
- Your win rate
- Your risk to reward
Combine these two together and that will define your trading expectancy.
If you have a positive trading expectancy, then you have an edge in the markets.
Like the coin toss example that I spoke about previously.
2. Transaction cost is a killer
Let me explain.
Let’s say every trade you put on is $10 dollars, and let’s say you put on a hundred trades a month.
And in a year, you have 12 months, so that’s about $12,000 in transaction cost.
Let’s say you start off with a $50,000 trading account.
On a $12,000 transaction cost…
You’re looking at 24% a year just to breakeven on your day trading account.
This means you don’t make a single cent after taking into account transaction costs.
This means that day trading for living means commissions eating up your trades for a living.
That’s why as a day trader, you’ll need to find the lowest-cost broker.
Because the lower your transaction cost, the faster you’ll get to profitability.
The higher your transaction cost, the more it’ll erode your edge.
3. You must have adequate capital size
It baffles me how traders think that they want to trade full-time on a $10,000 trading account.
It doesn’t make sense.
On a $10,000 account, if I make $5,000 a month that’s a 50% return a month.
Do you think you can make 50% every single month?
You must be dreaming, it doesn’t work that way.
If you want to trade full-time, you must have adequate capital.
Well, let’s you’re a pretty good day trader with good day trading techniques.
For example, you get 50% a year on a $10,000 account, that’s $5,000 a year.
It’s not really much to start with.
You probably can’t survive with that amount in most countries.
But now, let’s say you have a $100,000 account.
That same 50% is now worth $50,000!
And let’s say now you have a $500,000 account.
50% on a $500,000 account is $250,000 a year
Can you see how capital size plays a huge role in your trading career?
It’s like poker.
The one at the table who has the highest dollar value of chips will have an edge over the other players.
Because he has a larger capital base!
It’s the same for trading.
The larger your capital base, the more money you can make and the better your chance of survival.
All that is assuming you have an edge in the markets.
With a larger capital base, the transaction cost will now become a smaller percentage of your returns.
4. You need to cover at least 12 months of living expenses
Let’s say you need $3,000 a month to survive.
Ideally, you want to have $36,000 set aside that doesn’t come from your own trading account.
Because the market moves in cycles.
When the market is favourable to you – you’ll make money.
But when the market changes and your strategy can’t adapt to it – you’ll go into a drawdown.
And when you’re in a drawdown, you’ll lose money.
How do you survive?
The last thing you want to do is to take money from your trading account for your livelihood.
When you take money out from your trading account, you’ll reduce the capital size.
And it’s even more difficult to make money when you have a small amount of money to start with.
To help you ease your trading psychology, have a pool of money set aside.
So no matter what happens over the next 6 or to 12 months, you know you’re covered.
You don’t have to touch the money from my own trading account.
And that, my friend, is how to day trade for a living, as having emergency funds will help your trading psychology immensely.
5. Opportunity cost
What do I mean by this?
Let’s say, you make $50,000 a year day trading.
But you have to also take into account the opportunity cost of day trading.
Let’s say, you make $50,000 a year day trading.
And maybe you trade 12 hours a day.
But well, you could be working for someone else full-time 10 hours a day making $70,000 dollars a year.
That’s the opportunity cost to you as a day trader:
It’s the amount of money that you could have made elsewhere.
This is something that most traders don’t think about.
But it’s something you should consider.
- Have an edge by taking care of your win rate and risk to reward
- Transaction cost is a killer, reduce it as much as possible
- Aside from good day trading techniques, you must have adequate capital size – the larger your capital base, the better you’ll survive
- Have at least 12 months of living expenses covered
- Think about the opportunity cost that you are missing out as a day trader
With that said…
I’ve come towards the end of this episode and I’ll talk to you soon.