Why should you not become a full time trader!!
I have one word answer to all the people who ask me about how to become a full time trader — Don’t. If I am pushed on it the response becomes a little more elaborate, from one word to two — Fuck no!
Throughout this blog I will refer to these two answers as Ans.1 and Ans.2.
The motive of this blog is not to demotivate you to take up full time trading but to prepare you for what lies ahead should you decide to go for this particular form of self torture. Say you joined twitterand started following the entire Indian #fintwit community and all you see on your timeline is that all these traders are making insane money every single fucking day. Gone are the days when people used to post MTM screenshots of few lacs, the game has changed now and now we see MTM screenshots of crores. Gone are the days of respectable double digit returns and now you see return percentages as big as your capital! Bazillion percentage return in 5 minutes they say. And after seeing all of this shit storm of mtm screenshots and claims and then you will wonder — this seems easy enough, maybe I can also do it. Well, Refer Ans. 2. .
Some of you might even be trading part time for a while now and might be making good progress. You might have turned profitable and might be making decent profits as well as some occasional losses too. And then you might think that if not for some of those historical big losses (which you want to take as learning costs), you might be pretty big deal — maybe even become the best trader in India if not the world if it were not for your day job. Then you start blaming your full time job because of which you have not been able to focus solely on trading so that those big losses that you incurred wouldn’t have taken place (Refer Ans. 1). You are now starting to believe that trading full time would do wonders to your trading and you will be the next billionaire. First of all, refer Ans. 2 and second, if that remotely sounded like you then read on. I will try to break this decision of whether or not you are ready to take up full time trading into a few sections so that it helps you make an informed decision.
Conviction on system - The first and foremost thing is to have a proven system without which there is no point to even think about becoming a full time trader. I am not debating about being systematic or discretionary. You could be anyone but having defined trading rules is an absolute must. You might have been profitable for a very long period trading randomly but that doesn’t mean that you can rely on your past performance and instinct/luck in future too and be profitable in the long run. For a systematic trader, make sure you have backtested your system thoroughly. Learn more about backtesting and pay a lot of emphasis on parameters other than P&L and ROI like max drawdown, max losing streak, RoMad, etc. Ask yourself a question that in live trading if max DD is say 1.5–2 times of what’s captured in backtest, will you still be able to continue with the system? There are a lot of algo traders on twitter, reach out to them and take help in backtesting your system the right way. And for a discretionary trader, go through all of your trades in the past and identify the biggest losers. Don’t spend too much time figuring out why those big losses came but imagine being in the same situation of taking big hits one after another after you have become a full time trader. If that makes you nervous, but you are still thinking you should become a full time trader — refer Ans.1.
Discovering what suits you — It takes a lot of time to find out the trading style that suits you the most. It’s a discovery that happens over a period of time. There are a number of methods to trade like equity, option buying, option selling, futures trading and then there are different trading styles too intraday vs positional, scalping, trend following, mean reversion, etc. Have you already tried most of it and figured out what suits your psychology, what’s that one thing that resonates well with you. This one is as important as having a system in place. Most of you reading this already know that I am primarily an option seller and an open losing position with sold options (credit received) won’t bother me as much as one with bought options (done on a debit). So, it’s important to figure out what goes well with you.
Setting right expectations — Just like with anything else, setting the right expectation in trading will help you in the long run. Only one out of thousands (or probably lacs) are able to make big in trading. All that 50–5500% returns in a day/week/year that you see doing rounds on social media is not achieved by many. Don’t get mesmerized by what you see on social media, nobody loses money there and everyone makes such insane returns. The big funds all around the globe are happy with anything between 15–30% pa returns. So based on your own understanding of your trading, set a right expectation — the one that you will be able to achieve in the long run. Do not try to compare your returns with what others are making (or at least claiming to). Personally, I don’t keep any fixed targets for myself but I try to make 3% pm on an average and I will still be happy with 25–30% pa annually.
Dependence on Trading Income in the Near Future — If you want to take up full time trading because you see huge potential and are dreaming of making big profits, then refer Ans.1. You can’t begin to trade full time thinking you will soon start making much more than what your current job pays and pay that home loan of yours real quick. That will be starting your journey on the wrong foot. Instead, you need to think of it as growing a plant. By becoming a full time trader, you are just sowing a seed that needs a few years of hard work and discipline for it to grow into a fruitful plant. Forget full time trading if you don’t have savings to cover your expenses for the next 3 years or so.
Capital Requirements — Being under-capitalized is one of the biggest problems with most retail traders and the aspiring full time traders. Make sure you have enough capital to start with after parking savings to cover for your 3 years of expense like I said before. Let’s do some Maths. Say you have a system that makes 30% pa with 6% DD. Take only half of it and compound your capital annually assuming 15% return pa. So if you started with X capital, at the end of 3 years you will roughly have 1.5X capital. With this 1.5X capital after 3 years, if you can cover your annual expense with 15% pa return then your starting capital is good enough to get going. Being conservative in your calculations won’t hurt you — plan for the best but be prepared for the worst.
Trading Psychology — This would not be complete if I don’t stress enough on the importance of right trading mindset. Trading is not just about having a setup, taking trades and making money. It’s a lot more. Trading is business and that too not so stable. In a job or any other business, mostly you will get your monthly cheque but that’s not true for trading. There could be a series of losses leading to losing months. How you cope up with losses and come back strong requires you to be mentally strong, very strong. Your entire faith in your trading system might go for a toss after a series of losses. Imagine being in such a situation where you have only made losses for say 2–3 months in a
stretch, will you still be able to sail through it. If you can’t, then full time trading is not your cup of tea.
Notes -
1. We all know that trading on borrowed money is an absolute big Ans.2 even if you have a holy grail system in place (or at least you think so). A step ahead — If you have any liabilities like home loan, car loan or any other personal liability and you plan to fulfill that out of your trading profits, then full time trading is not for you.
2. Having an additional source of income will be very handy. If you are the only earning member of the family without any additional source of income, then think twice.
3. Make sure you have an exhaustive health plan to cover for your medical emergency.
4. Trading is no fun. It’s a serious job and requires you to be serious and hard-working. Don’t think the job starts at 9 o’clock and ends at 3. On most days, expect to spend at least 2–3 hours post market.
If you think you have all it takes to become a full time trader I wish you good luck. Remember, don’t ask any full time trader whether you can quit your job and take up full time trading or not. If you have to ask that question, it means you are not yet ready and once you are ready, you won’t have to ask this question to anyone.
Happy Trading!!
