I don’t know you, your skills, your aims, and your finances. I am not qualified to teach you what to do with your money. But I can offer the right answer for most people.
Should you trade for a living?
No. The answer is a big fat NO. You should not trade for a living.
(I’ve not traded for a financial institution before. So here, I am talking about trading independently using your own money.)
Why you should not trade for a living
#1: You will most likely fail.
You’ve heard the gloomy statistic of 90% to 95% failure rates among traders.
Yet, there’s no lack of new traders entering the market.
This is because of stories we hear. We hear about the high life of successful traders. However, we seldom hear tales of how trading erodes your life and bank account.
There are two reasons for this discrepancy between the gloomy statistics and the uplifting stories.
First, we have an ego to protect. We need to preserve our self-esteem. This is why we like to talk about our successes. This is also why we avoid talking about our failures.
Second, there are too many people out there with incentives to spread the “you can do it too” message.
If you believe that it’s easy to make money from trading, you will trade more. Brokers earn more. You will buy more trading books. Authors and publishers earn more. You will enroll in more trading courses and seminars. Self-styled gurus earn more. You will download more software to support your trading. Software developers earn more.
More people believing that trading is easy means more money to be made by commercial vendors. This is why they help to spread the stories of successful traders.
We claim to be rational and make decisions based on facts. But the truth is that we are more influenced by the stories we hear than the numbers we know. This is why there are still flocks of new traders joining the market every day.
Remember the statistics. You will most likely fail.
#2: There are easier ways to make money.
You can definitely make a living by trading the market.
But it’s extremely likely that, with your skills and experience, there are much easier ways to make money out there.
You can always find a job. Get paid for the hours you show up for work, even if you are not really working. Even better, find a job you like and you won’t feel like you’re working.
Or if you have a marketable skill, consider freelancing. You might get fussy clients but at least you’re paid for the hours you put in.
But when you trade for a living, you do not get paid for the hours you put in. You might even lose money.
Being an independent trader is like starting your own business. An entrepreneur needs to deal with income uncertainty and possible loss of business capital. Just like an independent trader.
If you find starting a business to be too risky, then trading for a living is not for you.
The point is, for most people, trading is one of the hardest way to make a living. The market is not a place for you to find easy money.
#3: You need a lot of time, effort, and money.
You need a lot of trading capital to make a decent living.
On top of that, your trading income, if any, will be volatile.
You need to devote a lot of time and effort to learn so that you stand a slight chance at success. You might still fail to make money from trading even after spending much time and effort.
Now that you know how difficult it is to trade for a living, choose A or B below.
A: I am convinced that I should not trade for a living.
Great, but you should still save your money and learn to invest for retirement. John Bogle’s books are a good place to start. You need not read the rest of this article.
B: I know it’s tough but I still want to do it.
Good. You’ve made an informed choice to pursue trading as your career. Carry on reading.
Are you really sure you want to trade for a living?
Now I want you to reconsider. Yes, I am nagging.
But at this point, you can still save yourself from this tough road of trading for a living.
To make sure that you want the turbulent life of a trader, go through the 6 questions below.
#1: Do you have enough money?
As a basic guide, you need one year’s worth of living expenses stashed in your savings account. No personal debt.
The trading capital you need depends on your trading plan. Your research, backtesting and simulation records should give you the answer.
If you don’t know the answer, don’t trade.
#2: Are you willing to pay in order to work?
This is what all traders have to go through.
We are so used to the idea of working and getting paid. But, to trade for a living, you need to get used to losing money at the end of a workday.
#3: Are you willing to work hard?
I have a 30-day refund policy for my trading course. Traders do not need to give a reason when they ask for a refund.
However, I always encourage them to share their reason for refund. It’s always good to get critical feedback to help to improve my course.
One type of response goes along the line of “Your course is good, but I realised that I need to put in the effort to study it. It’s too tough.”
Without a second thought, I set the refund process in motion.
It’s only fair. These traders will never benefit from my course. In fact, they will never benefit from any course.
Learning how to trade is always tough. And if they think otherwise, they think wrong.
#4: Do you love studying the markets? Is it something you will do even if you’re not paid?
Everyone who wants to trade for a living should answer yes to this.
#5: What’s your opportunity cost?
Many young aspiring traders look for advice. Their dilemma is common. They are usually deciding between an attractive job offer and trading for a living.
Remember that trading is something you can always go back to. The market is always there. But other opportunities might be fleeting.
Bear this in mind when you choose.
For instance, you get a chance to work on an exciting new project in an exotic country. And you know that it’s something you would really enjoy. Take it. The markets will still be around when you return.
#6: What if you fail?
This is a reality check.
Work hard and you will succeed in trading. No, I wish it’s that easy.
In trading, hard work has a flimsy link to success. You must be prepared to work hard and yet fail.
Before you decide to trade, face the possibility of failure head-on. Recognise that most likely, you will fail.
What happens if you do?
It’s okay to fail. But make sure you have enough financial and mental capital to carry on, to move on to your next project in life.
Is Trading All Bad?
If trading is so bad, why should any one trade? Why am I still trading?
Trading is an excellent activity if you want to understand risk, uncertainty, and yourself.
I’ve learnt many lessons from trading. These are lessons that I’ve applied to my life.
I’ve learnt to judge decisions based on the information at the point of decision-making and not by their outcomes.
I’ve learnt to be humble. Trading is a humbling experience for most people. Even for those from the top of their fields, the market gives them their fair share of frustrations and failures.
I’ve become more aware of my emotions and biases, not just in trading, but in dealing with all things in life.
I’ve come to appreciate market risk and the destructive power of greed and fear.
If, in spite of all the cons I’ve highlighted above, you decide to take the plunge. I hope you persevere.
Even if you do press on and become a serious trader, no one can promise that you will be profitable. But you will definitely find it to be a great learning journey.
Also published on Medium.