I get this question often and always offer the same answers to allow the person to determine if they can trade full time. I don’t trade full time and I am not sure if I ever will because I am great at what I do: trend trade longer time frames.
Take this quick quiz and honestly determine if you are built to trade full time:
- Are you properly capitalized?
I wouldn’t suggest anyone start to think about trading full time until they have at least six figures that can be used solely for trading. Living expenses must come from other income or saved funds. Without six figures (and the more then better), I suggest you continue to build your stake. - Are you a successful part time trader?
Why do you think you can succeed being a full time trader if you haven’t made money as a part time trader? Have you built your own stake to six figures trading part time? If so, you pass this question with flying colors. - Have you developed a system that works?
Does your system have a positive expectancy? Have you back tested the system (I don’t hold too much weight to this question)? Do you understand position sizing and do you implement it properly so you don’t blow-up with one or two trades? - Does your system offer enough opportunity?
Without opportunity (multiple trading signals per day/ week), you will not be able to achieve your system’s expectancy. A lack of opportunity may skew your results and turn your anticipated positive expectancy to a negative expectancy and cause you to go broke. - Can you handle your emotions?
How do you handle your emotions now with longer term positions or part time trading? Do you follow your rules, all the time? Will you have pressure to make money every month, week or day? Can you handle being alone (most cases) and staring at a computer for large portions of the day? - Finally, do you have spouse or other influence that will interfere with your endeavor?
A spouse, friend or family (member) can have a negative affect on your trading that may result in subconscious sabotage. Outside negative forces or nagging pressure people may lead you down a path that is not controllable because you are trying to prove something rather than “just trade” based on your acquired skills. Make sure the closest people in your life support you while making the move to full time trading.
I would add this one to the list:
Can You Afford the Risk/Possibility of Blowing All or Most of Your Bankroll?
I would argue that you MUST wait until the answer to that one is a definate YES.
great article. I am lucky enough to answer yes to all but one of the above. My spouse isn’t very supportive (mainly because I haven’t attained consistency) but our solution is to not talk about it. once I get more consistency in my trading this “problem” will fix itself.
Hi Chris. Excellent subject. I think the amount of capital required is the biggest stumbling block to would-be full-time traders. Low six figures would be conservative in my opinion. Unless you have other “streams of income” to support you.
I know I put some lucky market maker’s kid through college before achieving a level of consistency.
Chris, I like your blog. Excellent education. By the way, how can I subscribe the membership at marketstockwatch.com?
Hi Chris,
if you say living expenses do you mean living expenses for one year or two or three years?
My peronal formula for people asking me is that you need at least 6 times your living expenses for 1 year, so you have a time horizon of about 3 years to become a consistent profitable trader who can make a living with double digits profits.
Cheers,
Markus
Ainkurn,
I hope so for your sake. It may not affect you consciously but could be hurting you subconsciously. I am not a psychologist so I am not certain but support from the wife would be a big help between the ears where we don’t have much control.
I wish you the best man!
Jonathan,
Yes, I agree, low six figures is conservative. I didn’t want to throw out an actual number but I was clear that the more the better.
Markus,
In addition to what Jonathan states, I would also have to agree with you with living expenses. Again, I didn’t give a time frame but several years’ worth of living expenses would be ideal. A one year experiment trading full time may short change your plans – a few years would be ideal to see if you can make it work.
Jennifer,
I am sorry but MSW closed last March after the death of my father. I decided to focus on family more and couldn’t devote the time needed to run the site. Besides, I have a lot more fun doing this blog for free!
Enjoy!
I’d say that 99% of people that want to trade full time shouldn’t be trading at all. You brought up a good point when you asked if one built up their 6 figure stake part time. Actually, I think it’s necessary to have a decent seven figure stake to trade.
Great blog, by the way.
Jeff
I too, have been asked this question. I consult with traders all the time. My answer … be able to give your wife three years of living expense with a 10% burn rate. Tell her that for three years there is no other money. That takes your budget off your mind for three years. From there you need an additional $250,000 as working capital. That is for a trader who is married with children. Anything less is a hard go. If you are single greater risk can be taken, but not with your family.
In this day and age, we don’t see too many money management professionals worrying about trying to outperform the market. These investment strategy professionals are concerned with management on a good day but pay little attention to stock investing success and financial growth
· Michael Marcus: Turned a $30,000 account into over $80 million.
· Tom Baldwin: Started with $25,000 , he got to over $2 Billion.
· Ed Seykota: 250,000 % return on his account over 16 years.
· Nicolas Darvas : $25,000 into $2,25 million (in just 18 months).
· Steve Lescarbeau: He developed a Trading system that has averaged a 70% return ever year.
· Steve Cohen: He manages billions of dollars and averaged returns of 90% during the past seven years.
· Mark Minervini: Averaged 220% annual returns in the past five years.
They are real people, who not only make massive gains from the stock market but do it with millions under money management.
Size of your capital is not issue .It is your Money Managment strategy that matters plus your mental discipline to stick to a time-tested strategy that has proven to work.
Chris,
I’m curious about the picture at the top of the blog post. Is that the system you use? I counted seven screens with two keyboards. Do you use all screens when doing your research? How many computers is that? Thanks!
I answered “no” to all of those but the spouse one. No joke. I on the two year plan.