Can I Daytrade for a Living ? (posted in 2008)

I have had quite a few emails and queries about daytrading for a living. Mostly pleasant ones indicating that I am doing really well, so why don't I just start doing it for a living ? Other not so pleasant ones which refuse to believe that i can trade and still work a normal job. And if my trades were real live trades, then why do i bother working, so I must be blogging falsely.

So I thought I would post my current view on this subject and where I think I am with my trading. This is just my opinion of course and other traders who are more experienced than me may differ in their views. All constructive comments are welcome as always.

I will organise it in a series of questions and subsequently my answers.

Q. It's not possible to daytrade and work for a living.

Answer> Yes in a lot of cases.But I am lucky that I work in the Computer Industry, so it is in fact my job to be sat in front of a computer all day. Also I am fortunate that work flexibility allows use of Internet and some flexible hours, so I can do some of my work outside normal office hours. The other key point (which the so called detractors have missed) is that I am based in the UK, so in fact the US trading hours start at 2:30pm my time. So for most of the office day, I am actually doing my normal job. Even in the afternoon, I am not constantly watching the markets. I am not a scalper using level 2, who has to look for each tick or whatever. I am looking at my charts every 15mins or so, so it's not a major problem. The US market close co-incides with the evening in my time, so I can watch the last 15 mins or so whilst at home with no problems. And potentially, if I wanted to trade just the last session (and I know some traders do solely trade the last session), then I could do that with no impact whatsoever on my normal day job.

Q. You are blogging false trades you have never taken.

Answer > 00nr7 has lead the way in this in suggesting we post our trades. So enough said on this subject. Which interstingly enough as caused quite a bit of dicussion on various blogs..


Q. Why don't I give up my job and just daytrade for a living ?

Answer > Well, this answer has various different facets. But I will try to cover the key points in my view.

First key point > In my mind, I am comparing my normal job to trading. I know that my normal job pays a certain amount, and we can thus live on that with no serious problems (when I say we, i mean the family, and a 3 year old is not cheap ..lol). So extrapolating that view, I say to myself, can I make the same amount of money trading that I can from my normal job ? Well, the answer to that IMO is currently NO. "What?" I hear you say, how can this be true ? Well it all comes down to capital and your risk on each trade. As you all know, the minimum is $25k. I am risking say 1% a trade, so even if you have a good consistent strategy, $25k is not enough. You will need a lot more, and that is the crux of it. I don't feel that I have enough capital to be making the sort of money that would be the income we need. Do your own research, read various material on the web and people are saying that you need in excess of $100k. I personally think that is excessive, and something in between is achievable. So I am currently building up my savings pot to try to get to these sort of levels.

2nd key point > You need the extra capital to cope with a bad run. I have always said to myself, even if you are consistent, there may well come a time when you have a bad run. If you are relying on daytrading income for a living, you have to be able to ride this out. So my opinion is that I need about say "6 to 12 months salary" which can be used to fall back on for living expenses and have the trading account separate so i don't put pressure on it. There is no way I want to go into a trading day and think like "the bills are coming in, I'm down in my account, I need to have a good day today". You are trading with scared money then, and that will cost you, both in money and your mental state.

3rd key point > relates to the last thing I said above. Currently I am never trading with scared money, as I always have my normal job. So I can also approach trading by saying, OK if there are no entries, it's fine. if I have some winners, it's fine. if I have a bad day and losers, it's fine. So why would I give up my normal job right now ? when i can use it as a backstop and trade in a relaxed fashion. Isn't it better to do both, especially since I am relatively new to this strategy ? In addtion, I am mentally trying to relax whilst trading as training for when i do eventually do it for real.

4th key point > I think ralph kindly said, that my success rate was so good, why do i feel I can't trade for a living ? Part of the answer is above (in terms of capital). But also, yes I agree that I am doing well so far. I started live trading Jan this year. I have had some losing days of course, but I have been profitable every month. But let's look at the facts closely. Six months is not enough. Other professions don't have a period of 6 months and then all of a sudden you are an expert and know all the tricks, so why should trading be any different ? The six months prior to that I was paper trading, and think back to last summer. It seemed to me that it was a good summer for daytrading. That will mostly not be the case, already this summer the market is tougher and entries are more difficult to come by. So if we look closely, I've had 6 months of paper trading which went well, but part of that was due to an "easier" market as I certainly made mistakes in that 6 months. The 6 months of live trading is going ok, but is not enough IMO to take the leap. I need longer at it and in difficult market conditions.

5th Key point > Reread my last sentence above. I said "difficult market conditions". I'm sure you read other blogs chat rooms etc and traders have been saying that it is tough to trade at the moment. Turn it into a positive, be more disciplined, don't jump into trades etc. If your trading can cope with the difficult market conditions, then your confidence can jump. You can say that the market was tough, but your strategy/ trading plan was tougher. If you can make a profit or breakeven then you are entitled to say that you can handle the tough times which will always come around.

6th Key point > I want a longer time , so I can add to my current strategy. Don't forget that I am only trading a small part of TraderX and have adapted it somewhat. But Traderx also traded gap fades and also traded breakdowns of the ema as "failed pattern" trades. So having a couple of other things in your arsenal can be very helpful. Maybe also having a swing trading component, looking further down the line.

7th key point > I want to practice my current trading strategy more whilst still doing a normal job ? I want to ingrain it more into my psyche, so it's almost second nature. This may sound strange, but lets think about my strategy for a bit. I trade 15 min charts in afternoon and spend a couple of hours trading, then perhaps another 1/2 hour later in the day. So I want to prove to myself more that I can do this reliably and almost as second nature. Why? you may ask. Well because when I do give up my normal job, I want to trade the same way, but I don't want to do more of it. I know some traders who start trading and since they more time, they actually spend more time studying the markets etc. I do not want to go down this road. Say I give up my normal job, then start waking up early to study markets etc, read all the info on bloomberg or whatever to improve my trading since i have now more time on my hands. Before i know it i will be spending 7 hours on trading a day. Why...why..why... Surely the attraction of trading is that you can make a decent income and have more time to spend away from work, with the family or whatever. Otherwise I would just be switching one "job" for another "job".

8th Key Point > This is one I have often thought about, but there is no real answer until you try it. It's the psychcology of doing your "job" in isolation. If things are not going well, then I can't talk to my collegue sitting next to me to get his/her input. I can't go and see my manager and suggest we have a meeting to discuss some matters of concern. I can't have a relaxing day at the office where we talk sports or whatever on a quiet day. I will be on my own full stop.

I hope you can see that taking some of the key points above, is the main gist of why I feel I am not ready to trade for a living yet. Don't get me wrong, I love trading, but there are also aspects of my normal job which i enjoy as well. You may think I am being extra cautious before i take the final leap and you may well be correct. But it's taken me a while to get to this point, and to find a trading plan that i am comfortable with and which I do have confidence in. If you had said to me 3 years ago that I would be trading 15 min timeframes and spending 2 or 3 hours on the market and making decent profits, I would have laughed at you. Then it was all 1 or 3 min candles and must get the big moves as soon as you can, very hectic, chasing positions, overtrading, revenge trading etc etc. I wasn't ready then, but I'm much closer now.

Anyway, rambling over. Maybe got a bit carried away with amount of stuff in this post, but hope you found it of some use.