Let me start off by clarifying.I'm not referring to investing or trading part-time while you do other things (such as hold down a full-time job). I'm talking about those people who want to take a shot at trading for a living, as their primary or only source of income. I'm not only talking about day trading. I've never actually been a day trader. But if you intend on making twenty or so trades a month, you're right where I was six long (and yet so short) years ago.
Let me also say: if this is you, good luck.
Anyway, back to the topic on hand. "So I heard you want to start trading?" This was a question I heard dozens of times from family and friends when I decided to start trading on my own. I even got it long after I started trading, and after I had been successful for quite some time. People don't tend to understand that it's a job, like everything else, and it requires a serious, dedicated effort. It was difficult enough just to convince my family and friends who didn't understand what or why I was doing what I was doing that I wasn't insane. But that doesn't mean the heart of their obnoxious, probing, and doubt-filled inquisitions were without merit.
This post is for those of you who are considering trading and are on the fence. I'm here to tell you it's great, it's horrible, it's easy, and it's impossible. But mostly that it's horrible and impossible, and that's coming from someone who has been successful and full-time for six years. So let's get right into it and delve into what is really behind that dreaded question you will probably hear from someone down the road.
h4>1) What're you worth?
This has to be one of the first questions you ask yourself. Frankly, if you're broke, this isn't for you. I didn't follow this advice, and my life was infinitely harder because of it. I started trading with just under $20,000 to my name (my student loans), and with basically no background whatsoever, poker aside. Would I recommend this? Not a shot in hell. Less than $10,000 and you're just gambling, but even at 20k you have to realize that you're never going to be able to diversify properly, and you're riding that edge where a bad run can basically knock you out. And if you are the type to ride that line, I hope you've got some living money. Because even if you have a great streak and show a 50% to 100% return six months down the line, you've hardly made enough to live on. Not to mention - I hope you weren't planning on withdrawing those initial earnings. If you were, just back away slowly. You don't belong here.
h4>2) Are You Prepared to Fail?
This is a very serious question. Trading is emotionally challenging. You don't go to work and come home with a paycheck. It's a meritocracy, pure and simple. Sometimes it can even feel like there's more luck involved than skill (though if it feels like that more than once in a blue moon you're doing it wrong). I've had days where I "went to work" and at the end of the day I was tens of thousands of dollars poorer. It doesn't matter how much you've got in your account. That hurts. I know, I know, I can hear it already - but the flip side! Here's the honest truth - even enormous gains in a day or two, or even a week or a month, can end up screwing with your head just as much as your losses. It's not just ups and downs. It's all over the place. It's wild. And if you aren't prepared for an emotional roller coaster that you have to fight to keep in check all the time, to find a way to live a life where it doesn't ruin your relationships, or your relationships don't ruin your ability to trade properly, or to face the unknown every waking moment, it's not for you. I mean it. You'll regret it. Because even when you succeed you can often still feel like you're failing.
h4>3) What Makes You So Special?
I know everyone is a unique snowflake because their mommies told them so. That's not what I mean. What I mean is, traders don't have the best record of being successful. In fact, a fairly small amount of them are truly successful, and the more trades and the more frequently they trade, typically the less successful they are. So if you're going to be trading for a living, there has to be a reason you think you're in the top 10% of people who even attempt it. Most people tend to think they are smarter than they are. They also think the average person is an idiot. Well, the bad news is, according to the Dunning-Kruger effect, if this is you, you're probably the idiot. The facts remain that the world works on a bell curve. The average is most people. If you are super confident you're not the average, that's likely more evidence that you are. So really think about it. Take stock of yourself as an enemy would, don't look at yourself the way your grandma does when you have dinner at her house on Thanksgiving. If you can't definitively say you're cut out to be a trading God, it's probably because you aren't.
h4>4) How Driven Are You?
Most people could be more driven than they are. Trading frequently takes a lot of focus, an ability to take in and process a ridiculous amount of information, and a lot of boring research and preparation. It's not as fun as it looks on TV. You don't get to sit in front of twelve monitors and make crazy gambles on things and blow everyone's mind with your latest guess. When I first started, between learning as much as I could, observing markets and trends, tracking graphs and data points, researching companies and data history, following my positions, reading a non-stop feed of financial news, following my potential future positions, and deciding on price points for execution, I literally worked sixteen or so hours a day. It was grueling. Eventually I got it down. I created a system. I had spreadsheets that pulled in data and did a lot of the grunt work for me. I came up with parameters for what things to pay attention to and what things to ignore. But getting there was brutal, and it took nearly a year. Even now, I find myself on busy days spending a solid fourteen hours without getting up. It's insanity. It's beautiful. But it requires dedication.
h4>5) Can You Take the Heat?
This is just an honest question. It's not about the stresses of trading, but rather of being a trader. People will have questions. They will ask who you trade for. They will think you are full of it. I even get called out here on WSO for having no background to justify my comments. It's frustrating. Especially when you aren't yet successful enough to rub it back in someone's face. It's hard being told to get a real job when you're working more hours and more intensely than most of the population. It's hard being told you're gambling when you're steadily increasing your monthly returns. It's hard when you get sick and you have no health insurance and you have to withdrawal money from your account to pay for your doctor's visit (okay, maybe that one was just me). But still, it's no walk in the park. It takes a strong constitution to look at everyone, including me and this post about how you are going to fail, and tell them to shove it.
But it's not all bad. Sometimes it's amazing. I can't remember the last time I didn't wear sweatpants at least
three times in a week. My monitor setup is amazing for surround gaming. I choose when I want vacations. And I do very well for myself. Not to mention, I get to stick my success back in everyone's face who ever said, "So I hear you want to start trading?" and looked at me like I was a slacker who would never make anything of myself. So if you've heard all this, and you really think you can do it, believe in yourself. Maybe you can. Maybe you'll be part of the small percentage of people who do really well trading on their own and get to define the rules of their own lives. If you can't, you'll figure it out soon enough and pick up the pieces.
As for me, as I've mentioned before, I was a professional poker player, and I decided to teach myself to trade stocks and options. Short-term trades for the most part, but not really day trading. Over the last six years I've had the pleasure of creating and perfecting a successful proprietary trading strategy, and have been able to meet and work with many traders who were independent like myself, traders who worked for hedge funds, investment bankers, profile managers, hedge fund managers, product development specialists - you name it. I've also been lucky enough to learn a lot from many people who come from many different asset class backgrounds. My flexibility has allowed me to pick up and join projects when I want, and my success has garnered the respect of my peers.
It's been a great life. So go get after it. And then prepare for it to suck.
And of course, if you want to agree or argue with me based on your own experience, ask for advice, talk about your own struggles or successes, I'd love to hear from you in the comment section.
Until next time,
This is The Uncontortionist