Is it possible to Day Trade for a living?

In this week’s post, we explore the reality of being a Day Trader.

Before we start off with today’s post, let us ask ourselves an honest question. What is it that attracted you to day trading? Is it the freedom that it allows you to be with your love ones, or is it because of a particular lifestyle post on social media that you came across where some “successful” day trader is showing off his latest fast car? 

The appeal of being a
successful day trader is there but is it just a marketing gimmick?

Is Day Trading Success Just a Myth?

How do we determine the pinnacle of success in day trading? Of all the people that you are surrounded with, have you heard of anyone that can make a living through trading and live the lifestyle that they want? Is it even possible to be consistent in this career week in and week out with all the turbulent and uncertainty news in the market place? How is it that there are traders who are able to adapt to new market nuances and volatile trading environment?

The Real Question no one want to ask: “How Much Do You Need to Make to Make a Living from Trading?”

Let’s work back for now, instead of dreaming of the big new shiny car that you want to drive in, what is realistically a comfortable amount of money for yourself and your family every single month?

Remember, when you choose to embark on this journey as a trader, there is no certainty on the amount that you will make every single month, given that you put in the same effort and hours every day. Markets go through different cycles every now and then, by that it will bear the results that come with how well you adapt to all of the changes.

As with any enterprising businesses, there are also expenses to consider, although day traders do not have a huge overhead that you need to be bothered with every month, there are also commissions involved paid to brokerage houses, software and data fees to consider which directly affect your revenue per month.

Therefore, it is important to also take into the following questions into effect, such as:

  • How much capital are you able to risk at the moment?
  • Will there be any other savings that you can tap on if this risk capital was used up?
  • Will losing all of your risk capital affect your quality of life?

If you are looking to earn $10,000 a month as an example, how much capital would you need to achieve this? What are the risks involved and how you are able to contain the risk as minimal as possible, we should always have a realistic target to go for rather than a moon shot that will eventually drain your perspective away that turn into a major disappointment. Everything is possible if we set ourselves up with continuing milestones that helps to grow our ability to achieve.

So with all this risk involved, what are the benefits one can look forward to?

Having the flexibility to trade at your comfort – home!

The best part about choosing your home as your office is that you get to save those commuting hours to and back from the work place! Think of all those hours that you get to save and using them for your personal or family time. The draw of being able to work at home is definitely attractive.

However, there are some disadvantages that include unnecessary distractions (friends/families around) to the ability of keeping up with a routine schedule. It is pretty common to be laidback once awhile when there are no bosses behind your back to check on your every movement!

Therefore, it is very critical to set up a proper working desk that is truly meant to take care of your trading decisions. Once you have set up your trading desk, you can now work on the work hours that you will like to have to concentrate on your craft.

The best time recommended to be around to start a trading session is when the U.S. market and the European markets are open at the same time.

Dependent on your preference, you can also stick to just one key market session as well.

Note that as with any businesses, you will need to have a business plan as well as a day trading rules to follow rigorously.

Who do I answer to?

Aside from yourself. The market is still your boss. Without proper direction in this demanding business and oversight, failure rates are as high as 90%. To have the convenience of trading from your home, if one is not able to separate business from leisure, bad habits will drown you eventually and turn your trading performance to become inconsistent.

Lack of consistency is the downfall of many traders.

Although we are responsible to our own decisions, most often than not we do not make the best out of them.

As an example, the consumer debt levels have been ever increasing over the years. Notwithstanding economic issues, the fact is that we choose to overextend ourselves for the immediate gratification by:

  • Choosing to impulse buy a big ticket item using a credit card.
  • Having an exotic vacation when bills at home have not been paid for yet.
  • Getting the newest phone even though the current phone you are using is perfectly fine.

As a day trader, you can’t afford to slack off or put things off until tomorrow when things are required for attention NOW.

With such short attention span and the need for instant gratification, we need to highlight the importance of psychology that plays a big part for Traders.

Basic Psychology of Trading

One of the most important component of becoming an elite trader or remaining as a mediocre trader is accessing your trading psychology. Which unfortunately is often overlooked but the importance of this variable should be taken seriously and looked into. When our hard earned money is at stake, we have identified three basic trading habits that are not helpful to have if you wish to remain in the trading business.

So how do we determine and identify the bad tendencies in just one day-trading session?

  1. When our position is in the green and we choose to cut the trade short without realizing the intended target profit and prefer to keep the small gains in fear of giving back too much to the market.
  2. Holding our losses way longer than we should even after it have pierced through your stop loss. Now you are sitting at a loss that is many times than your intended risk.
  3. Doubling or tripling your position size when you have multiple losses thinking that the next trade and the next trade that you take will eventually cover back all of your losses.

What we have highlighted here is just the tip of the iceberg.

When we choose to ignore the little snippets of our bad habits, it will eventually cause more biases in our judgment in the market.

So how can I Become a Successful Day Trader?

The first step in the right direction in taking the plunge of starting a trading business, is to have realistic expectation of what you are capable of bringing forward. Understanding that psychology and the personality of our nature is also another important factor to have. Once we are able to address the variables that we have mentioned heads on, our trading journey may begin if you are able to answer to the following:

  1. A pool of risk capital is available to you that you can set aside after you have methodologically testing the trading strategies on a trading simulator.
  2. You will not be distracted and be impulsive in your trading decisions and will follow through a well thought out trading plan that is executed on a rule base system instead of relying your raw emotions as and when you like.
  3. No temptation shall be given in no matter how rewarding it might look to you. You need to understand that the greatest enemy that we have that will distract you and make you fail in day trading is ultimately yourself.
  4. Do you know the dynamics of your day trading strategy in an out whereby each market scenarios are factored in so that you can execute based on the forecasted outcome? What is your so called trading edge? Is your strategy based on a trading indicator or a mechanical strategy that is reliant on news or fundaments?

The beauty and challenging aspect to trading is that there is no right answer nor a proper method of trading.

We just need to understand that the method we trade needs to fit our personality and understand clearly how being disciplined plays an important role in allowing us to scale to greater heights.

“Sometimes the simpler the trading strategy, the better it is, as it brings away unnecessary distraction from your focus.”

Are you able to articulate your method clearly to your friend who have no background in trading? Here is some advice we find helpful when identifying if our trading strategy is too over the top.

  1. Ensure that the setups you take are clear and do not have any conflicting signals. It’s either a setup or it simply isn’t.
  2. Do you know where your profit targets as well as stop loss are before you take a trade?
  3. What trigger the price action? Do not take a trade just because the picture fits into our description. Understand why and how a set up happens.

Just like any aspiring start-ups who base their viability and vision for their company on a clearly articulated business plan, as a successful day trader, you will need a detailed trading plan that mark out the do’s and don’ts that you will need to adhere to. You need to be level headed in every trading decision that you take so that you are able to quantify the bad traits that are preventing you from becoming successful. When you are unclear of your trading plan, there are no statistical evidence that you can use to guide you closer to your goal.

Putting it all together

When we hear about trading success, it can be so unclear without a clear guideline of how success should be measured.

However, when it comes to day trading, treating it as a business, there should be no uncertainty. You will need to know how much you required to target every single month so as weather the storm when you go through a rough patch in the market.

We should all take Trading seriously, just like any athletes who perform in a professional sports or an entrepreneur starting out a new enterprise. Having good work ethics and mental resiliency plays an important role in helping us build a successful career.

Do you really love Trading or do you love the money and lifestyle that comes with it?

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June 20, 2019

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