Trading For A Living - Part 1

There can't be many traders who haven't at least considered the idea of telling the boss what they think of him, throwing it all in and going off to trade the stock market for a living. It's a big risk financially, and that uncertainty is what stops most from jumping ship. Is it really possible to trade for a living?

The Dream

You know how it is, you're sitting in a traffic jam at some unearthly hour of a particularly wet and miserable morning, on the way to the same office you have sat in for too long to remember, and you're thinking - there must be a better way ? life shouldn't have to be like this.

Your mind starts to wander and you find yourself thinking back to that stock you bought only a week ago, and how it skyrocketed giving you enough profit to takes the kids to Disneyland in the summer, and you begin to consider if you couldn't make a fulltime living at this trading game. The advantages are certainly tempting; no more pointless meetings with the manager, hours to suit, holidays whenever you feel like it, and with your home-office - no more traffic jams.

Heck, come to that you could even make home anywhere you want it to be! By the time the traffic starts moving again. you're busily calculating how much cash you could make if all your trades went like that last one - you're almost ready to write your notice letter there and then!

The Bad News

Time for a reality check. Certainly all of the above benefits are there to be enjoyed, but it's a huge step from full time employee to full time trader. Are you really ready to give up that monthly pay-check just yet? Can you really cope not knowing how much money you're going to make month to month? Are you prepared for the months when you actually lose money instead of make it? There are many things to consider before taking the leap of faith.

Considerations

Before you even think about trading for a living you have to know how much money you need to live on, that is, how much cash do you need to generate every month in order to survive. As a financially minded person you already have good home accounts, or are at the very least vaguely aware of where the money goes. So take the annual figure (monthly is no good, you need to account for annual recurring items like insurance premiums, car servicing, and vacations), add 50% and divide by 12. Why add 50%? Because there will always be unexpected expenses, and as traders we are always prepared to expect the unexpected.

Now you know how much money you need each month, you can look at your savings and work out how much buffer money you have, that is, how long you could survive without earning anything at all. You can't expect to be an instantly profitable trader, and even the best and most experienced have periods of drawdown, so you need to be ready for the worst. If you can't live for at least six months from your savings then you are probably under capitalised and are not ready to give up that pay-check just yet.

An important but often overlooked aspect of under capitalisation is the effect it will have on your trading; if you are trading because you need the money, then you are trading scared and you're almost certainly going to lose. You cannot distance yourself from the money-aspect of the trade if you are relying on the money.

Living expenses are only one part of the financial equation. Next you must consider how much trading capital you need. This is the money actually facilitate trading, in other words your account balance for trading margin, and the money you will be spending on data feeds, software, and internet access. You must account for this separately, you cannot start eating into your daily living expenses money just because you took a bad trade and need some more margin.

The amount of trading capital you require will depend very much on your trading style. To day trade the US Stock Markets for example, you must have at least $25,000 in your account, so budget for $30,000 to allow for positions moving against you (if you fall below the $25k minimum even briefly, your account can be frozen for up to three months). If you are holding positions overnight you may manage with a lower balance but bear in mind your buying power and consequently returns will be reduced.

If all this is starting to sound expensive, well it is. There's no two ways about it, you simply cannot survive long term as a trader if you are under funded.

This article will be concluded in part two.

About The Author

Geoff Turnbull is a full time day trader, and a contributor to http://www.stock-trading-world.com

---

Trading For A Living

How many times have you said to yourself, "I'd like... Read More

Downdraft

For the year 2000 we have seen hundreds of mutual... Read More

Mutual Fund Expense Lies

When purchasing mutual funds we are cautioned to read the... Read More

Alfred E. Newman

What! Me worry?Many of you remember the cover of MAD... Read More

Finding A Good Stock

One of the things people are always asking me is... Read More

The 10 Commandments

Wall Street has been preaching for years and years to... Read More

Investment Attorneys and Garbage Stocks

How is it possible that trash Companies are posting less... Read More

Successful Trading ? Taking Profits - Part 2

Suppose your position has made a big move and you... Read More

Online Investing & Stock & Share Trading: 4 Reasons Why Most Online Investors & Traders Go Broke

Are you attracted to the idea of being in control... Read More

Market Psychology

Today we are inundated with tons of information about the... Read More

Shorting Stocks ? The Basics, Part II of II

After the publication of the first part of this two... Read More

Mutual Funds are Dead

You may have wondered why your mutual funds have been... Read More

Different Ways of Buying Stocks

Let's say you are interested in this one company. You... Read More

How To Buy And Hold

One of the most believed bits of conventional wisdom from... Read More

Mutual Fund Ball and Chain

The broker told me not to sell because the mutual... Read More

Why This Bear?

People are constantly asking me why is the stock market... Read More

Duct Tape

Did you run out to buy that duct tape yet?... Read More

Forecasting the Stock Market

Every day I see in the financial section of newspapers... Read More

How to Find Value in No Load Mutual Fund Investing

What are you thinking when it comes to your no... Read More

Online Trading Strategy: Collecting Cash when Stocks Go UP - It PAYS to Know More than Others

When it comes to stock market trading it PAYS to... Read More

Nest Eggs and Omelets

Do you have a nest egg? You know, a place... Read More

Successful Trading ? Taking Profits - Part 1

So you're started trading, you bought some positions with your... Read More

Historical Briefing: Stocks, Finance and Money

The World Bank claims that some two billion of the... Read More

Trend Trading - Trading Stocks Using Technical Analysis and Swing Trading Strategies

Peter is a professional trader, Paul is not. Peter has... Read More

How To Be A Winner

Everyone who invests in the stock market wants to be... Read More

Bottoms Ups

If you have talked to a stock broker or financial... Read More

Stock Investment Advice

Stock investment advice is easy to find. Do you get... Read More

Stock Trading Diversification

This is the continuing story of our two imaginary traders,... Read More

Lifestyle Funds Provide Greater Security?

With the stock market stubbornly refusing to settle down and... Read More

Swing Trading Strategies

Using Swing Trading Strategies and Technical Analysis when Trading Stocks... Read More

Market Experience of a Naïve Stock Operator

Sometime in the third quarter of 1997, someone told me... Read More

Enronization

Even if you don't own any of their stock or... Read More

Which Way The Market

I am hearing predictions by brokers, financial planners, talk show... Read More