This article on Trading Full Time is the opinion of Optimus Futures.
One of the main goals for most traders is to be able to earn their income entirely from trading alone. This post outlines five critical aspects that you should consider before quitting your day job to start trading full time.
Are You Adequately Capitalized for Trading Full Time?
The first consideration you need to make before deciding to quit your day job to start trading full time is the aspect of capitalization. Do you have enough capital in your trading account to allow you to rely solely on trading alone for your recurring expenses and livelihood?
A very common mistake among traders is to ambitiously quit their jobs only to later find out that they can’t make enough from profits alone to survive as a full-time trader. And these are of course the smarter traders who have a very strong grip on their emotional states and have the ability to execute their defined risk measures even when their financial conditions demand more.
The vast majority of traders who prematurely transition into trading full time as a career with an inadequately capitalized account can easily succumb to the pressures of having to make consistent profits on a monthly basis in order to pay their bills. From over-trading, taking lower quality trade setups to ramping up the risk appetite for a larger anticipated gain – making all these mistakes is a genuine possibility for undercapitalized full-time traders.
A better approach for such traders is to continue to trade part time and, if possible, keep plugging back the profit made in profitable months to gradually increase the account size to a point where the trader would not feel pressured to dip into their account during a bad period of trading.
It is generally a good idea to be trading with enough capital to survive at least three months of poor trading conditions (or results) without creating a major impact on the trader’s livelihood. If you have been trading for a while (which you should be if you are thinking of going full time anyway) you would understand the timing and frequency of the ‘slower’ or ‘unsuitable’ market conditions that generally yield below normal gains. Be sure to factor these drier periods in before quitting your day job.
Do You Understand The Markets Well Enough?
The last point we made will help us build further on a similar aspect. Knowing the profitability cycles of your trading method in effect stems from the trader’s own understanding of the markets, which in itself is a major consideration for the case in favor of full-time trading.
Does the market surprise you often with moves you cannot explain well enough? Are you caught off guard often when taking or managing trades? Do your trading results still leave more to be desired in terms of consistency? If you answered with a ‘Yes’ to any of these questions, your market analysis skills may still require more work/experience.
Being able to understand the different trading rhythms of the market is critical in allowing the trader to exercise emotional control – more so when a trader is trading full time and may feel an additional burden to produce results. Are you disciplined enough to be able to sit through tough market conditions without feeling the anxiety of ‘missing out’? By all means, know your market like the back of your hand before attempting to rely on trading full time for a living.
Do you understand your Method Well Enough?
It should come as a given that if you are trading full time, you need a reliable trading method that you can use to produce potentially consistent results year in and year out (note we did not say month in / month out – you have to factor in tougher periods that can range from weeks to even months).
However, drawing this conclusion is not a simple objective task. Traders are often looking to tweak entry or exit criteria or experiment with different trade management styles. They may also be considering adding or subtracting the elements their method requires to take particular trading actions.
A breakout trading strategist could be studying elements of strongly trending or sideways markets to extract some gains from these typical market conditions. A higher time frame trader could be experimenting with the application of the method on a lower time frame. A trader who strictly trades only price action candlestick patterns could be researching on taking ‘blind’ trades off crucial support and resistance levels…the list goes on.
The point is, trading full time requires a trader to already be well versed with his or her trading methods and be fully confident in applying them on a daily basis to thread a consistent set of trading results – at least on the primary trading account.
Full time traders – like other traders – should also continuously invest time in research and development to further hone their skills, but this is usually the case with separate smaller ‘R&D account’ or demo accounts with little to no impact on their primary trading account that they trade on with a proven trading methods for their living.
If you have a trading method that you believe still needs to prove itself over time or across different market conditions, or there are certain elements that you think needs to be tweaked to perfect the method further, DO NOT attempt to go full time just yet, unless you can afford to maintain a separate R&D account for that purpose only.
Do you have Results to Show for it?
This is a tough one, and often hard for traders to answer honestly. Many traders get excited with a few months of consistent results and often when acquiring the right amount of capital is not a major problem, they jump the gun and start trading full time without enough sample data to prove they have it all.
It is natural, especially for newer traders, to assume that a limited period of good trading results can be expanded to span over the long term with the same consistency. Facts however denote that that may not be the case. Market rhythms can change regularly from range bound to swinging to long term trending. Existing correlations can be altered or new ones found. Market volatility and liquidity implications can also drastically vary from one period to another.
For a trader to be truly confident with his trading method and trading skills, he or she will likely need data spread across multiple years that account for all of the above mentioned change factors and more.
Finally, we come to the some other indirect considerations too, namely lifestyle considerations in deciding whether to transition to a full time trading career.
Most people are drawn to the freedom that comes from being your own boss and having greater control over your life and all its aspects including family, leisure and personal. The added advantage of being at home often gets even more attention for those who dream an escape from rush hour traffic and fuel costs.
By all means, trading full time does indeed provide all of the above mentioned benefits which is why it is such an exciting prospect for every trader. However, there are quite a few accomplished traders that have proven trading acumen and methods and are adequately capitalized and yet NEVER transition into full time traders. Why?
Being in an office around colleagues isn’t as dull a reality for some who perhaps don’t dread their day job as much as others. Driving through the city or interacting with people is an important need for some people who do not enjoy being confined within their homes so they don’t miss the next trade opportunity. Some people like a day job that utilizes their physical capabilities and perhaps won’t do well sitting in a chair staring at a glowing screen all day long to spot the next trade or manage an existing one. Finally, some people just do not want to rely solely on trading as their only source of income and want to be invest their financial resources and time in a host of different income streams for a diversified personal wealth structure.
Consider a trader who has found a comfortable sweet spot between a 9-5 day job and a higher time frames-based trading strategy that does not create a conflict between the two different work commitments. Perhaps deciding to quit the job to still trade full time might be a whole different ball game for this trader as opposed to another trader who has found considerable success day trading a certain trading session that runs directly conflict with his or her day job.
From an honest evaluation of your skills, resources to lifestyle considerations, deciding whether trading full time is the way to go is a highly personal action that can vary from one trader to another. However, that does not take away the fact that in the end, it is a decision that demands a lot of responsibility and accountability. If you believe you are ready, there will perhaps be no other time more exciting for you.
There is a substantial risk of loss in futures trading. Past performance is not indicative of future results.