So You Want To Trade For A Living: Making The Transition

There he is.  That piece of human garbage in a suit.  The sound of his voice causes the hair to stand up on the back of your neck and the smell of his closeout special aftershave makes you want to vomit, even on the mornings when you didn’t spend the previous night drowning your sorrows at a local watering hole.  And now he is coming your way.

As he approaches your desk, ready to ask about some redundant sales report or wishing to schedule a time to “discuss” your latest performance review, you decide that you can’t take it any more, and that’s it…..you snap! Standing up and yelling at him for all to hear, you inform your soon to be ex-boss that you have had it with his pedantic rules and procedures, that he and the company as a whole has never valued you as you deserved, and that you are through–consider this your resignation.

And with that you grab your personalized coffee mug and mouse pad and walk out the door, free at last, and ready begin your new career trading for a living.

Despite the poetic justice and dramatics of the above scene, that is exactly the wrong way to make the transition.  The decision to trade full-time and the transition from your current job or profession has to be planned out well in advance in order to give you the best chance at succeeding in your new endeavor.  In fact that preparation should begin not just months, but years ahead of time.

Ready, Set, Uh…….

Hopefully it goes without saying that you should already have been trading, and trading successfully, for some time before you quit your job.  How long? Five years minimum. Wha….wha…..WHAT..???  Yes, I know that I just popped a lot of eager beaver bubbles out there, but there is a logic to that time frame.

Think of starting to trade full-time like starting a new relationship.  Say you meet what you think is the love of your life and after only two weeks of dating you head out to Vegas and get hitched.  Chances are you’re going to find out over time that you have incompatibilities with your partner, at least one of which will probably be deal a breaker, causing your marriage to end, and end badly.

But what if you were to give the relationship more time before the nuptials?  Time to experience the ups and downs that new couples inevitably have and to see if you could adapt to them, survive them, and ultimately create a relationship that will flourish no matter what is thrown at it?  It’s the same concept with trading for a living. Five years gives you enough time to experience different types of markets, to see if you can adapt and evolve your trading as they change, and stay profitable in the process.

One of the mistakes that thousands of people made in the late 90′s was to assume that because they had been trading profitably for a couple of years that they were ready to make the move to full-time trading.  What they didn’t realize was that they had only been profitable because the market was in the middle of a massive bull move.  When that move ended in 2000 those new full-time traders did not know what to do because they had never seen this “new” type of trading environment.   Eventually the vast majority of them lost all their money and had to go back to their day jobs

Location, Location, Location

Another thing you want to think about ahead of time is where you are going to trade; at home or at an office.  Now I know this seems like a no brainer to most,  the assumption being that because of advances in technology trading out of your house is the answer; but you want to think long and hard about this.  Sure, a home office saves money and affords you the added bonus of being able to roll out of bed and start your trading day unshaven and in pajamas, but there can be some major drawbacks to this arrangement.

Trading on your own means you are your own boss; nobody tells you when to start working or when to stop, and if you are someone who needs structure, this can be a problem.  I remember my first month of college, when I realized that unlike in high school, nobody cared if I showed up or not; it was completely up to me to create my own structure in order to make sure I got to class on time, studied the appropriate number of hours, and showed up for exams.  And for me it wasn’t long until I was cutting class, missing tests, and ultimately dropping out.

Having an office to go to every morning forces you to get up, take a shower, put some clothes on, and mentally get in the mood of “going to work,” which is what you may need in order to stay sharp and focused in your trading.  Going to an office also eliminates the issue of being interrupted by kids, your spouse, solicitors, the phone, the gardeners who are cutting the neighbor’s tree down, and a host of other distractions.

And trust me, if you are married and/or have kids, don’t fool yourself into thinking that you can just go into your home office, shut the door, and act as if you are not home. They know you are in there, and you’ll be interrupted “just for a second,” on numerous occasions during the trading day, one of which will surely coincide with the next flash-crash.

If you live alone, distractions don’t bother you, and you don’t have a problem saying “no,” then definitely give trading from home a try, but if not, you can usually lease an individual private office for $300-$600 per month, which might be the best investment you ever make towards you trading career.

Track You Trading History

Another important thing that you must do to prepare for your move into full-time trading is to begin journaling, logging, and auditing your trades.  Every day after the market is closed you should be reviewing each and every one of your trades and creating a spreadsheet that includes entry/exit prices, profit/loss, both in dollars and percent, percentage of overall capital used, and notes relating to each specific trade. Then based on those numbers you should generate an overview report which can easily display your percent return and drawdown for any given period of time.

This process has a number of benefits and it is crucial for two reason that you have at least a years worth of your trading history documented (though the more history you have the better).  First off it will tell you if there is consistency and method to your trading, something you may think you already have, but may be shocked to learn you don’t when the raw numbers are reviewed.  Second, it will help you when it comes to deciding how much money you will need to start, something I will cover in more depth in the next post in this series.

Your First 30 Days

Let’s assume that you have done all your preparation, decided on your location, and (gracefully) exited from your job on a Friday afternoon.  You are now free to pursue your dreams and begin trading full-time, so what is the first thing you should do when the opening bell rings on Monday morning?  The answer is nothing, because you are not going to be at your trading desk.  You are going to be far away from the markets, ideally doing something you have always wanted to do but never had the time to.

Look, chances are that the job you just left barely three days before was one that required you to work a full eight hours.  In fact in today’s fast paced world you might have worked ten, twelve, or fourteen hours per day.  Maybe even six days a week. And all those hours were probably filled to the brim with phone calls, emails, presentations, meetings, seminars, webinars, and any number of other things that make up the corporate world today.  You have been conditioned for years, perhaps decades to always be doing something.  Go, go, go….don’t let one hour, one minute go to waste.

Once that bell rings your instinct will be to “do something.”  You won’t feel right if you aren’t “doing something” at all times.  But that is not what trading is about.  Most successful traders spend the majority of their time “sitting on their hands” not trading.

You are going to need some time to decompress and learn the art of “not doing something” and that is going to take some time.  The best thing to do once you’ve quit your job is to take the next two weeks off.  Do anything you want, just don’t watch the markets, and try to relax.

When you return then spend the next two weeks just watching the markets.  Don’t trade, just watch.  Learn how it actually feels to “not trade” while the market is open. Use that time to figure out what you will be doing in between the times you are trading, such as reviewing charts, creating scans, or communicating with other traders.

Previous - So You Want To Trade For A Living: An Introduction

Up Next – So You Want To Trade For A Living: How Much Money Do You Really Need?

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10 Responses

  1. Pingback: So You Want To Trade For A Living: An Introduction | The bclund BlogThe bclund Blog

  2. Pingback: So You Want To Trade For A Living: Monetizing Your Trading | The bclund BlogThe bclund Blog

  3. I don’t know why anyone would want to trade. Most people would be better off paying for a session with a dominatrix. It would cost a lot less money and you’d get the same effect.

  4. Pingback: So You Want To Trade For A Living: How Much Money Do You Really Need | The bclund BlogThe bclund Blog

  5. Pingback: Thursday links: wishing for more | Abnormal Returns

  6. Thank you for this series. I’m a target audience member on this. My question would be how to balance profits. Specifically, retaining as capital versus taking a “salary” for living expenses. What steps/process/thoughts go into that decision?

  7. Great post! It is my plan to eventually trade full-time. I do love my current job though…but it takes me away from my family way too much.
    One of these days, it will happen… In the meantime, I am schooling myself part-time at the art of daytrading.
    Looking forward for the next posts in that serie!

  8. Fantastic post Brian! Loved the part about 5 years before going FT and sitting on your hands and doing nothing. Can relate well with both of them.

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