This is the question that everyone wants to know the answer to. In this article we are going to dive deep into this topic. We are going to research if you can trade for a living. And if so, how can you? What are the things to consider when trading for a living? Excited? Ready to get started? Let’s go.
Why trading for a living?
Trading for a living is usually the goal of most people I speak to that want to become a trader. They want to decide when they work and from where they work. They want more freedom than the standard 9 to 5.
Trading for a living allows you to:
Work from where you want
Work when you want*
Schedule your own days
*Of course, you need to be trading when your edge is evident in the markets, so you are not 100% free to decide when you work. However, it’s way more flexible than most standard jobs.
These are the reasons why most people want to trade. And of course, you can make a lot of money if you are good at it. And that’s exactly what you need to think about: are you good enough to trade for a living?
Reasons most people fail at trading for a living
Trading for a living is only for a small group of traders. Why? First of all, the success rate in trading is very low. This is because of a few reasons:
Low entry barrier
Wrong expectations
Not enough knowledge
Anyone can start trading. Anyone can call themselves a trader. This means that people who know absolutely nothing about trading, can start trading. Also, most people have wrong expectations when it comes to trading. They think they can make a lot of money within one year. The reality is that it is going to take multiple years to become a profitable trader.
Think about it: you have the potential to earn more money than average, you can work from anywhere in the world and you can decide when you work. Do you really think it’s going to be easy to get good at? The benefits are huge, so the struggle has to be huge as well.
Also, a lot of people that are trading just don’t know what they are doing and therefore lose money.
What to consider when trading for a living?
Trading for a living is possible, but you need to consider a few things. First of all, you need multiple income sources. Why? If trading is your only source of income and you have a down month, or two down months, how are you going to pay your bills? And don’t think this won’t happen to you, because it will happen to every profitable trader. During this period, you will probably feel stressed and you will force trades to make up for the losses. This makes you lose more money. It all ends in tears.
The solution? Multiple income sources. Make sure that you have a steady income source that you can use to pay your monthly expenses. Even if it’s just 1000 euros a month, that can really help you to stay sane and focus on your trading. It allows you to pay your bills even if you have a losing month, which is a great feeling.
Drawdowns are very real and not enough people speak about the downside of trading for a living. Most profitable traders have a few losing months per year. You need to be able to live your life & pay your bills.
How to make a living trading?
You make a living trading forex or stocks, or any other instrument, by knowing your goals and your edge. It’s simple. You need to be absolutely sure that you can make money in the long run. So, have your back tested results. Have your track record. Be 100% sure that you can make money trading, otherwise you will probably quit your job too early. This is a mistake so many people make. They think they are profitable, when they are not. Or, they just got lucky for a short period of time. So, be 100% sure. Other points to consider are:
Your monthly expenses
The profitability of your edge
Worst case scenarios
These are three very important points to consider when you want to make a living with trading. You need to know what your average monthly expenses are. For example, if your monthly expenses are 1000 euros, that’s 12000 euros a year. You really want to be able to make more than this before you decide to begin with trading for a living. I would say, make 20000 euros a year. That way, you are safe.
How to calculate it? Let’s say you trade a 50000 euros account and you want to make 20000 euros a year. That’s a 40% gain. This means you need to make 40R if you risk 1% a trade. That means on average 3.33R a month. Can your edge provide this amount of return? You really want to be safe here. So, if your edge on every makes you 40R a year, that’s too low. You need to think about the worst-case scenario. Also, if you risk less per trade, you need to make more R.
This also immediately shows you why people who claim to make 200R per trade are lying. If you make 200R per trade, that’s 200% when risking 1% per trade. That’s just insane. Making 4R per month is enough to make a great living from trading. So, focus on your edge. No need to guess and hope for these high R trades. Create an edge that allows you to make a few R per month and usually, you are good to go and trade for a living.
The last point to take into consideration is the worst-case scenario in terms of edge. Your edge might go away. What is your backup plan? What can you do to prevent your edge from going away? These are real things you should be thinking about before you decide to trade for a living. You can prevent your edge going away by always improving. Journal your trades and look for ways to improve. Test new things out. Test different markets. Maybe build a new strategy so that if one stops working, you can trade the other one to make money. I have 2 strategies for FX and 1 strategy for indices. This way, I’m diversified. If my FX strategy stops working my indices strategy might provide me with income.
It's the same as with investing: diversification reduces risk. In this case, there is a risk of losing your income from trading.
Conclusion
Can you make a living trading stocks? Can you make a living trading forex? You now know the answers. How to make a living trading? You also know the answer to this question. So, do you want to start trading for a living? Then start taking action now. Think about what you need to work on so that you can start with trading for a living. It takes common sense, realistic expectations, edge, hard work and discipline. But it is possible.
Need help? Schedule a free call and we will help you out.