One of the toughest times of my life – that threatened my own psychological wellbeing as well as the potential safety and security of my family – was in early 2004, when I first made the leap from part-time to full-time trading.
I had the required knowledge. I had the required skills. I was a great technical analyst. And I had some demonstrated success in the markets.
But I was lacking in other areas. I was grossly undercapitalized. And despite my appearance as being someone with a positive and confident attitude, inside I was consumed with doubt and fear. Of course, I was unable to admit to either at the time.
Well, there’s nothing I know of that’s more effective for bringing all your fears out into the light, than quitting your full-time job to pursue a full-time career in market speculation.
With no other form of income available to support my family, it was all up to me to continue to generate the market returns that I ‘knew’ I was capable of achieving. Of course, almost instantly, my results failed to meet my expectations.
Thankfully, I still had the discipline to respect my stops, ensuring I did not have to face a single catastrophic loss. Although in some respects a single catastrophic loss could be seen as a blessing – at least it gets it over with quickly. Instead I spent the next few frustrating months grinding my way into a soul-destroying drawdown.
My mindset was a mess. I doubted my analysis, hesitating at entry until I got in way too late, or missed the trade entirely. And it seemed as if the only trades I did enter without hesitation were those entered out of frustration from missing the previous trade, rather than from good analysis. Typically, those trades do not provide the greatest edge.
I would take profits quickly; fearful that the market would snatch them back from me.
And I even ventured to depths I never thought I’d go – asking a broker for some trades. In his defense, his analysis may have been great. I just wasn’t in the right mindset to be profiting from any recommendations, no matter how great the trader or analyst.
Basically, fear of not being able to provide for my family led to doubt and indecision, which rendered me incapable of applying my trading plan in a consistent and disciplined manner, leading to realization of the very fear that it sought to avoid.
Fortunately, I was able to recognize the problem before the damage to our finances and my marital status was irreversible. Although I must admit, I took both right to the edge.
So, I took some time out to rethink my plans. I returned (with tail between my legs) to full-time work. And I set about preparing for my next assault on full-time trading.
I am forever indebted to my wife for her patience and her support in helping me see the reality of the situation. (Guys, just because we are hardwired to perceive it as nagging, it doesn’t mean it’s not the truth. J. Just don’t tell her I said that, ok!)
So anyway, what’s the point of all this?
Well, I did things differently the second time around, and I suspect that my thoughts on making the successful transition could be of benefit to others. I get quite a few emails from traders who are thinking of making the same transition – from part-time trading alongside a full-time job, to full-time trading. Typically they’re after my thoughts about how capitalized they need to be, or about what levels of returns are realistic on a full-time basis. Of course, I’m not able to provide a useful answer. We all have different standards of living and therefore different income requirements. A decent budget will tell you what your income requirements are. And your part-time trading results will tell you whether you’re able to achieve this level of income, given your current level of capitalization and your current percentage returns. Working out whether or not you have the ability to cover all expenses is really that simple.
However, and it’s a big however, part-time trading success does not mean you’re ready psychologically for the transition to full-time.
So, given my experiences and my desire for you to avoid some of the same pain, here’s how I set myself up for my second (and so far successful) transition to full-time trading:
I first established other forms of part-time or passive income which were sufficient to cover all living expenses.
I hope you’ll consider this idea for yourself. As always, it’s not advice as I don’t know you or your circumstances – it’s just what I did and what I believe all serious traders should consider (blah, blah, blah, standard financial disclaimers).
Don’t be too quick to rule this out. Don’t listen to that voice in the back of your head that says this isn’t possible for you, or it’ll take too long. The fact is that if you take the time to do this first, it eases the pressure significantly.
I can trade now without any requirement for profit. I could enter a drawdown that lasts the next two years and it just wouldn’t matter (apart from the frustration). Food will still be placed on our dinner table. Any trading profits I get are a bonus – we don’t need them to survive. This is a powerful place to be.
I trade with my mind at ease.
So how do you achieve this?
(1) First, be sure you really want to go full-time. Full-time trading is a tough way to make a living. Sure, it’s easier when you have alternate sources of income to support you through the ‘drawdown periods’, however for most of us life will not be like the trading course infomercials’. I really hope you can make a living trading from your laptop while sipping a Pina-Colada on the beaches of the Caribbean. More likely though, you’ll be isolated in your home trading office for eight or so hours a day, staring at a screen. And if you take my recommendation for alternate sources of income in addition to trading, your ‘free time’ will be spent trying to manage some form of business or part-time job. It’s not easy.
Many people may find that their personal and family circumstances are better suited to part-time daytrading, or perhaps a longer timeframe. Can you manage to trade the first two hours of the emini session? That may be sufficient for your style of trading. Can you trade the first two hours of the UK forex session? Or could you perhaps be happy with trading an end of day strategy using daily charts? These shortened trading sessions, along with some time for study or analysis in the evening, may be all you need to make a very profitable and enjoyable part-time trading business.
(2) Second, confirm that you really do have a proven track record that warrants going full-time. If you’re implementing alternate forms of income, then your trading results don’t need to completely cover your budget requirements, however given that this is likely your longer term goal it may be wise to ensure you’ve achieved that standard of return now. In any case, you need to have demonstrated consistent returns over a significant period of time.
(3) Now, let’s find alternate sources of income.
The ideal would be some form of passive income. It’d be great if we all had a bunch of rental properties and could live off the rental returns, but I assume most of us aren’t in that fortunate situation. Congratulations if you are. For the rest of us though, the most obvious source of part-time income is through a part-time or casual job or business, within your current field of expertise.
Are there opportunities to work for your current organization on a part-time or casual basis outside of market hours, or perhaps from home? If you can work part-time, but only during market hours, find another market that operates after-hours. It’s a global economy – there’s a market open somewhere.
Or once again, have you considered just trading the morning session, or afternoon session. A full-time trader doesn’t have to spend 8 hours a day in front of the screen. Are you able to find part-time employment around these shortened sessions?
If your current employer provides no options, look further afield to other employers within the same industry.
Even better, do you have sufficient experience to start a consultancy business in your current field? You don’t have to be recognized as an expert. You just need some skills that can be marketed to the industry, with sufficient demand available that this can be operated part-time around your trading and provide sufficient income to survive. Seriously, think about it – there are lots of options available.
Or look to other areas entirely…
Is your spouse able to (and willing to) make a job or career change that will potentially provide greater income?
Are you able to teach anything at all? A musical instrument? Dance? Take up coaching or refereeing in a sport? Why not start tutoring local kids in basic math, science or whatever else excites you? There is no shortage of small, home based businesses that can be operated at minimal cost around your trading timeframe requirements.
I know this is not the idea that most of you have of ‘full-time’ trading, but it doesn’t need to always be this way. I plan to always have alternate forms of income, but you might like to phase it out over time so that you really are solely a full-time trader. Consider this a transition phase only.
I also know it’s tough to be working full-time in your trading, and also running a business or working elsewhere part-time. But if you want this bad enough, you’ll find a way. I’ve done it despite a young family. How badly do you want it?
Work out your budget. And find sufficient income to cover it, such that it allows you to trade during market hours.
This process may take a while to put into place, but I believe its well worth the effort. You might be able to handle the psychological challenges of moving straight to full-time trading. Certainly, some traders have done it. But many have failed as well. If the downside risk of failing at your full-time trading venture is too great to accept, then take whatever time is necessary to mitigate that risk. Find alternate sources of income, which can support you while still allowing you to trade full-time.
Wishing you the best of luck,