In today’s episode, you’ll discover what it takes to become a full-time trader.
So tune in right away…
Hey, hey, what’s up my friend?
In today’s episode, I want to talk about what you must know to become a full-time trader.
1. You must have an edge in the market
Doesn’t matter whether you’re a full-time trader, part-time trader, swing trader, position trader or a day trader, you must have an edge in the market.
What is an edge? Let me give you an example. Imagine you have a coin and every time the coin comes up heads you win $2, every time the coin comes up tails you lose $1. That coin has a 50-50 chance of coming up heads or tails.
Clearly, if you have that special coin, you have an edge in that coin toss. It’s the same for trading, you must have an edge in the markets.
Without an edge, it doesn’t matter what risk management you use or how good your trading psychology is. Because without an edge, you will lose consistently in the long run.
For a full-time trader or someone who wants to transition into full-time trading, you must make sure that your trading methodology has an edge in the market.
And some of you might be thinking, “Well, it’s easy to say, but how do you find an edge?”
I’ve talked about this in a number of episodes.
Backtest your trading strategy
Backtest it, quantify it and see how that trading strategy performs using historical data across different market environments, bull markets, bear markets, etc.
If you don’t how to backtest, you can always forward test it on a demo account or on a small live account to see how it fares in the live market environment.
But the bottom line is you must have an edge.
Don’t make this common mistake
Also, some traders have the misconception that I’m doing part-time trading now and I’m not making money, but if I do it full-time then I’ll have more time to look at markets, I’ll have more opportunities and I’ll be a profitable trader.
No, it doesn’t work that way. I’m sorry, it doesn’t work that way. That’s like saying that you can’t run a full marathon but if you do 100-meter sprints you will be able to make it. It doesn’t quite make sense.
It’s the same for trading. If you haven’t found success in part-time trading or trading off the higher timeframe and if you think that you can find success by making a transition to full-time trading on the lower timeframe trading, then I’m sorry to burst your bubble. It doesn’t work that way.
2. You want to have at least 12 months of living expenses covered (excluding the money in your trading account)
The reason for this is that even though you’re a full-time trader, you’ll not make money every single month. That’s just the nature of this business.
Unless you’re the type of trader who can take 1,000 trades each day and you have a 52% win rate with a 1:1 risk-reward ratio, then it’s possible to make money every day, and even on every month.
But let’s face it, you’re not gonna take 1,000 trades a day, and even if you can take 1,000 trades a day, your commission will probably kill you. Those are the stuff that high-frequency traders in HFT firms do, which is not within your realm of trading niche.
As a full-time trader, whether you trade off the 15-minute timeframe, the 5-minutes timeframe, trust me, you’ll face losing months along the way.
That’s why it’s important to set aside at least 12 months of living expenses. Let’s say you’re in a drawdown, the market environment is not favourable to you, it doesn’t matter. Because you can go 2, 3 months without making a dime and still survive because you have set aside money to live on.
3. It pays to have multiple sources of income
Just because you’re a full-time trader doesn’t mean that trading has to be your only source of income.
There are many full-time traders that I know who have books out there, courses out there, who makes a recommendation to service that they believe in to have some side income besides their full-time trading gig.
That’s a smart move because on certain months they don’t make money but at least they can pay the expenses using this side income.
As a full-time trader, don’t forego the possibility that you can also earn other sources of income besides your trading.
4. You must have sufficient account size
It baffles me, how traders want to trade full-time with $1,000 trading accounts. That’s just, not realistic.
Let’s say you make 50% a month, that’s $500 a month, can you survive with $500 a month? I mean, for most of us in developed countries, $500 a month might be a stretch. For developing countries, maybe yes, maybe no.
But the other thing is that 50% a month is not sustainable in the long run. You’ve got to start with the right expectations and the right account size.
How do what’s the account size for you? Look through your historical records. If you are considering to make a transition to full-time trading, check how much are you averaging per month, 3%, 4% or 5%? Let’s say we take a hypothetical number of 5% a month.
If on a $10,000 trading account, you make 5% a month, that’s $500 a month, is that enough for you?
Well, if it’s not enough, what most traders will do is that they’ll take on more risk like 20%, 30% on each trade, and that’s suicide because it’s a matter of time before you blow up your trading account. Don’t go down that route.
Instead, what you’ll want to do is to increase the size of your trading account, maybe instead of a $10,000 account, could you get a $100,000 so if you make 5%, that’s $5,000 a month.
Can you survive with it? If that is yes, then the next thing is to focus on building an account up to $100,000 may be through savings or through your current job or whatever.
Focus on building up the account size instead of taking excessive risk, which will eventually lead to your ruin. So bear that in mind, you must start with the right account size as well.
5. You must have a routine
Full-time trading is not about having a laptop, trading by the beach, sipping a cup of piña colada. No, it doesn’t work that way.
Full-time trading is a serious business. Do you open your restaurant sometimes at 11 am, sometimes at 3 pm and sometimes you don’t even open your restaurant for the day?
No, your restaurant is a legitimate business you open maybe every day at 10 am and you close at 10 pm and it’s the same for your trading business. You are there in front of the markets before it opens and you leave only when the market closes. You have a routine.
Consistent action leads to consistent results
Let’s say you’re a Forex trader and you only trade the London session, then be there half an hour before the London session opens to mark out your price levels, identify the possible news release for the day and only leave after the London session is over.
When you have a fixed routine that’s when you will be able to exploit every opportunity that comes your way within your session or your time zone. If you start relaxing and coming in as and when you want, leaving as and when you want, then you’ll miss trading opportunities.
And when you miss trading opportunities, you start doing funny things like chasing the markets, taking trades that are outside of your trading plan. And these are disastrous for your trading results.
It’s important to have a routine and stick to it. When you stick to your routine, you’ll be more consistent with your actions. And when your actions are more consistent, guess what? You get more consistent results.
Alright, that’s what it takes to become a full-time trader.
With that said, I wish you good luck and good trading. I’ll talk to you soon