When you ask people why they trade, 90% will say it’s because it gives them freedom, independence, and the chance to make a lot of money while working from home. But does this really show what it’s like to trade as a full-time job, and what should a trader think about before giving up his day job to trade?
People often think that trading is a hard job to get into, but that’s not true in today’s economy. Nowadays, if you have drive and patience, you can trade for a living, even if you don’t have much or any money.
Changes in technology and more trading on the exchanges have led to a number of trading jobs that are easy to get into. In some cases, no personal capital is required. In other cases, you will only need a small amount of money to get started.
The question now is “What does it take to be a full-time trader?” We’ll find out in this article.
1. Knowledge And Expertise
In trading, everything depends on how much you know. There are a lot of people who want to be traders, and in a bull market, many of them make money more by luck than by having good knowledge.
To trade full-time, you need to know a lot and have a lot of experience. Without these two things, your chances of long-term success are very low. When you quit your job to trade full-time, you no longer have a steady income. This means that your focus is often on making money on every trade so you can pay your bills.
Because of this need to stay alive, traders often try to trade more to make up for trading losses or because they can’t pay for their day-to-day needs. So, a spiral of increasing stress starts, and the trader has to take more risks to get back on top. Many people end up back at work because they don’t know enough or have enough experience.
2. Capital And Percentage Return
Another important thing to remember is that you should only take on as much risk as you need to reach your goal(s). For instance, if you have $100,000 to invest and need to make $10,000 a year, you only need a 10% return. In a good market, this kind of income should come from buying the best blue-chip stocks over the medium to long term.
If you only have $50,000 to invest but still need to make $10,000 a year, you will need a 50% return on your capital. So, you’ll either need to trade shares that help you make this return or use leverage in your trading plan.
If you want to trade full-time, you should show yourself that you can trade and make the kind of money you want from trading while you are still working. You should do this for at least six months, but 12 months would be better.
If you can replace your full-time income with trading while you still have a full-time job, you will not only feel more confident, but you will also have saved money for when you decide to become a full-time trader.
Having this “safety” margin is one of the best ways to build wealth and one of the smartest things you can do.
3. Portfolio Set-Up
If you want to trade full-time, the best way to set yourself up is to follow the four golden rules for investing. This means putting 90% of your money into a medium- to long-term portfolio that would do well yearly and putting the other 10% into short-term trading to make money. This protects your capital because you won’t be putting most of it into high-risk trades.
For example, if you have $200,000 in capital and need to make $50,000 in cash flow, your investment strategy would be $180,000 in a safe, medium-term portfolio with an average trade lasting between seven and 18 months.
If you averaged a 12% return on this portfolio each year, including dividends, you would get $21,600. This implies you only have to make $28,400 from your short-term trading. So, your short-term trading needs to make an average of just over $2,366 per month from the $20,000 you put into it.
This strategic approach is not only easy to do but also easy to do again and again if you have the proper knowledge, skills, and experience.
4. Fail-Safe
What does a “safety” margin mean? It’s just a plan in case something goes wrong. For instance, if you use leverage to invest, you don’t have to use all the money the lender gives you.
If you would like to become a full-time trader, having a safety margin implies having enough money in the bank to support your standard of living for at least 6 to 12 months. If something does go wrong, you will have more options if you do this.
Too often, people who want to trade full-time but don’t have enough money to do so end up trading short-term and taking increased risks. But this means that trading decisions are based on the need to make money instead of how to trade well.
So, they end up getting out of trades when they should have stayed in or getting into trades in hopes of making a quick profit. But you should never put yourself in a position where you have to make decisions based on your emotions. This is a trader’s biggest mistake.
People often think that if you want to trade full-time, you have to trade in the short term. If you can only trade in this timeframe because of how much money you have, experts suggest you go back to the original suggestion, which was to trade while working full time. If you don’t do this, you have a high chance of losing your money and returning to work.
5. Consider Part-Time Trading First
People mostly want to begin trading the stock market because they are tired of working full time and want a change in their lives. Not much is fun about getting up at 6 a.m., especially if you work for a company that doesn’t pay well or recognize your hard work. If you want the money you make from trading to pay for your life, experts suggest you work part-time while switching to trading full-time instead of giving up work altogether. This is very helpful because it will help your mind get used to being less reliant on a steady income.
Working part-time will also help you prepare for a life in which you trade for a living. For some reason, people find it funny that they want to work again after they leave.
It’s important to note, though, that trading for a living isn’t for everyone. It can be lonely since you’re alone at home while your friends are at work, making you feel bored. Before deciding on a significant change, you should think about how your life will change. Even if you believe you’re confident enough, and you want to take the risks, it’s important that you have something to back you up in case you don’t succeed the first time.
