Can you make a living as a daytrader? Come on… You don’t need me to answer that.
Every day, non-traders seek out information about trading for a living. They read article after article about successes and failures. They mull over the risks, and their impacts. They write me email asking questions. Some of those people will end up giving trading a try, and some won’t. Let me tell you something about the people who do try it: all that research is just them going through the motions.
The people who make the jump to trade for a living don’t need an article to tell them they can do it. They already know, deep down, that they can. To them, every horror story is an example of a mistake that they won’t make. Every success story just reinforces their conviction. They may be wrong, but they are driven to find out first hand.
They say they’re investigating, or weighing the risks and benefits. But, whether they know it or not, that’s not really what they’re doing. No, they’re building a case to convince themselves (or their spouses, or whoever) that quitting their job and trading is not a dumb thing to do. But this whole process is a waste of time, in my opinon. Because, it is a dumb thing to do, and there’s no way around it.
FACT: Trading is risky, and most people that try it will fail. They will start with money, and finish without money. From a safety and security standpoint, you couldn’t make a bigger mistake than quitting your job and trading for your rent money. But, be honest: you already knew that, long before you did your first “can I make a living daytrading” google search (the first of many such searches, if you are like me). And, if your probable failure were going to stop you, you wouldn’t be sitting here reading this article.
There are plenty of reasons why these potential traders might end up sticking with their jobs. Maybe their spouses can’t stomach the idea, and they value their marriage more than their dream. Maybe they shy away from the embarrassment of failure in the eyes of their friends. Maybe they just can’t find a way to raise the needed capital yet. But it’s not the risk, and it’s not the fear. If the risk, or the efficient market hypothesis, or whatever, were going to stop you, it already would have. If you have a trader inside you, just admit it: you know the risks, and you know that trading is still for you.
It’s the same story with any start-up business. For instance, anyone that does two minutes of investigation knows that you don’t want to open a restaurant, if you value your startup money. Most new restaurants fail, but I am glad people still take a chance and open new restaurants. I am glad people still go to hollywood to become actors. I am glad for musicians and artists that would rather struggle to express something beautiful than count widgets for dependable income. I am glad for dreams, and the chance to reach for them.
So, if you are a trader and you know it, don’t waste any more time pretending you are still deciding. You had decided before you started. The only question is if you are able to try it sensibly. Can you build up enough trading capital? Can you build up some savings so you can give yourself a chance to succeed? Can your family live with it, and do you care enough to let that stop you if they can’t? Learn everything you can about trading, and when you think you know everything, learn some more. Get health insurance. Etc., etc.
You don’t have to make the jump all at once. Look at Prospectus, who writes here. He’s getting started via a Zecco ($0 commissions) account, risking just a few dollars per trade. I think that’s a great idea. When you have a dream, take steps toward it until you are there. I worked essentially double my normal hours for a year, to build up my trading stake. If that weren’t possible, I would have looked for a second job. Do what you have to do!
I never would have written this post if it weren’t for a couple great posts by Phileo about his hard look at trading for a living part I and part II, and some commenters claiming that daytrading is a terrible idea. So, essentially, my response to them is: I think it’s the justification that’s hard, rather than the decision. And, we already know it’s a statistically bad idea. But, we believe in ourselves, and we follow our dreams. And, some of us do succeed. This past year as a stock trader has been wonderful for me, and that gives me all kinds of motivation to make sure my success continues. If it doesn’t, so be it! I will still have had years of trading bliss, and if you’ll forgive the pun, I wouldn’t trade that for anything. :-)
Haha! Too funny, Richard!
I think the comparison to opening a restaurant is apt. Many first-time restaurant owners fail, but even then I doubt they give up and work as an accounting clerk for the rest of their lives. They gather their wits, figure out what went wrong, earn some capital and jump in again, getting a little closer to living out their dream.
I think I’ve figured out the secret to avoiding horror stories – risk management. Armed with this, I’ve stopped thinking about a fallback career or backups. I’ve mentally burned my bridges and I’m pushing forward, and it feels great.
Thanks for expressing what many of us are feeling.
What a bullshit post. You suck and I hope you fail.
hahaha, I think I’ve struck a nerve with One Bad Dude. Anything in particular you didn’t like about it? Well, for what it’s worth, I still hope you succeed at whatever it is you do.
Trading is hard enough without all the games the big boys play. I have been slowly trying to trade and learn as I go. Its amazing what Ive learned and witnessed. Watching the big boys driving prices hard up or down triggering stop orders and stealing money.
They do it with stocks and options. Ive seen bid/ask on options move up and down without a corrilating move in the undelying stock. It quickly triggers buy and sell orders then the bid/ask just as quickly goes back to where it should be.
It just seems too difficult to trade for a quick pop when these jokers are waiting to pounce and steal from the novice trader.
Any thoughts on how to avoid being taken by the big boys?
@Tony, I have found this helps me:
1. Trade liquid stocks.
2. Trade in a longer timeframe.
3. Protect your losses but not your profits. Keep protective stops only at important pivots.
4. Sell at your targets.
Don’t trade options until stocks are mastered.
richard: great post…truer words were never spoken — we are looking for rationalization…the decision has already been made…now its a matter of time before we are prepared to make the jump
one bad dude: have u ever considered a career as a motivational speaker…u seem to be such an inspirational guy
Great post, Richard. Anyone who has a real passion for day-trading , and to some extent even swing-trading, has to give it a shot at some point. It’s a fire that won’t go out.
Thanks, all. It can be hard to bridge the gap with the non-traders, sometimes. Most of them mean well when they are warning me about near-certain failure. They can’t imagine that anyone who knows the risks would go forward with it. On the other hand, I can’t imagine not taking a shot at it. The worst that happens is I fail, which is no big deal in the scheme of things.
Richard,
your post reminded me of a question I wanted to ask you. Is it true that you went full time trading with an account size of $50000? I’m wondering, because you will need at least a 25% performance per year without drawdowns to be able to live from the profits, no?
@Michael: yeah, that’s what I said in my StockTickr interview.
That’s why the three things I value most are: consistency, consistency, and consistency. People sometimes leave comments saying “you are taking small trades and not swinging for the fences.” And I keep trying to explain: it’s all those small wins that keep my lights on.
Zoomie,
Liquidity: During the past 4 months I gone from gappers to gappers that either average 1.5 mill shares or are on pace to trade at least 1.5 million shares a day. The slippage on those stocks are like night and day when compared to a 500k stock.
Timeframes: I agree. I’ve set up TS to show me 5, 15, 30, 60, Dailies, Weeklies. Helps you recognize a weak stock from a strong stock that’s pulling back. Also, a chart that looks good on the 5, 15 and 30 tends to be a better trade than one that just looks good on one timeframe.
I have no comment on 3 and 4 as they too are dead on the money.
I really wish I could have understood this 4 months ago. It would have saved me a whole lot of pain.
Richard and John stay strong.
Excellent column Richard.I think you’re right in that most “traders” know deep down inside, it’s a matter of when, not a matter of if. The key is to be sensible and give yourself a decent shot at success. Keep up the great work.
Joey
The best trading arena is pre-market, I have been paper trading it for 4 months and you just have to get to know it. Just watch it and learn.
What I find interesting is that a lot of people seem to be all or nothing. Trading seems like an awesome part-time job to me. If I can pull a point per day (average) on two ES contracts then that’ll be a meaningful bump in my annual salary…credit card payments, whatever.
You don’t jump into a new career field assuming a full-time salary. Start small and don’t blow out.
An interesting point, Michael. I’m a pretty all-or-nothing person, so I’m not apt to think of gradations like that. I guess especially on the west coast it’s easy to wake up super-early and trade the morning before work.
michael lomker: don’t forget that richard traded for quite awhile before he made the jump
if u can pull 1 pt./day on 10 contracts, what’s the difference? part-time job or a pretty darn good living…just sayin’
@John: The average trader starts with a $5k account, judging from the people that I’ve talked to and the statistics that I’ve seen. Trading 10 contracts on that would be remarkably unwise, even though some brokers have $500 daytrade margins.
After 4 months of losing money I’ve found something that has been working for a few weeks. I’ve gained back half of my losses. At some point will I throw a larger account at this? Sure, but the type of person that reads articles like ‘can you make it as a trader?’ has no business doing so. You should know if what you have works before trading that kind of position!
I agree with you on that, though I would generally tell people that starting with 5k almost ensures failure. Anyone wanting to make a real go of it needs a large pool of money to live off of while learning, and plan to lose their 5k starter account a couple times. At least, that’s what I’d recommend as a more realistic path.
ml: i’m just saying that if u can “really” pull a point per day on 2 contracts, the ES provides more than enough liquidity to handle 10, 20, or even more
i’m not suggesting that anyone trade contracts that are too big for their account…that will also make it very hard to even get that 1 point
so once u can consistently get that one point, why limit yourself to pay off credit card debt, or take a small vacation…of course if u really love ur job, i’m not suggesting that u quit to become a trader, but getting one point on two contracts is the same as getting it on 10 in the ES
btw, if there is a broker (and i’m not doubting u) that will let u trade 10 es contracts on a 5 grand account, that would be suicide…i’m not sure anyone could withstand that kind of volatility
Hey guys great article!I day trade also full time and have had my ups and downs ,but as another sideline I have taken the time to study horse racing aswell.Im not saying its for everyone but having a betting account set up alongside your day trading account has helped me out many times.If your chasing your tail at the end of the day on the market there is nothing more satisfying than pulling a trifecta on the horses to top your account up to flush.