If you are a stock enthusiast, a common question that is bound to pop up is whether you can live off stocks. Quitting your job and making a living just by stock trading can seem enticing but is it really possible? Can one simply take up stock trading courses and make a living out of the learnings? It may seem like an unachievable fantasy, but one can make a living like this, given it is probable.
Amateur investors who are smitten by their successes with paper trading simulations may just hop into the biz and decide to earn a living from the stock market. But, at the same time, some achieve their fantasy-fed goals of sitting on a tropical beach and killing it with just a laptop and an internet connection.
Most people who trade independently for their income use day trading strategies, and studies have shown that most day traders lose money with time. But that does not hinder the glimmer of trading for a living, the freedom to work wherever, whenever, and however you want to. However, there are many things to consider before actually putting your papers down.
Successful trading is achieved through education and learning the strategies and the market. Develop a trading strategy through stock trading courses and stand by it. Keep aside enough money to support yourself as you learn the ropes.
Successful trading requires you to achieve a level of focus and discipline most people cease to acquire, regardless of the career path. This goes against the traditional investors, who buy safer products and let them grow for long.
But be vigilant if you wish to pursue day trading for a living. Day trading is not for those who wish for flexible, low-key workdays. Instead, day traders adhere to their trading schedules and plans.
Day traders ardently take notes on their watchlist stocks at pre-set times the whole day. Then, upon reaching a profit target, a successful trader confidently closes the position to hold on and hopes for the profits to grow. Consequently, professional traders cut their losses and close their position when a trade turns bad. Scalping and swing trading are other prominent trading methods similar to day trading.
Educate yourself about trading
Before you resign, spend time and educate yourself thoroughly about trading. Learn about every type of trading that the market has, and day trading demands you focus on short-term strategies and the securities that work best with them.
You can get valuable information about trading from,
- The Securities and Exchange Commission (SEC)
- The Financial Industry Regulatory Authority (FINRA)
- The Internal Revenue Service (IRS)
You can also take stock trading courses or read introductory books and strategies and theories to get familiar with the playing field. Once you acquaint yourself with the theories, products, and institutional players in the market, test your knowledge with a simulator first. Then, take a leap only when maintaining ample profitability through various market conditions on a trading simulator.
Pick a Sound Trading Strategy
Develop a sound trading methodology that cashes in on volatility and keeps risk management principles. You should test this methodology over months or years and in different environments. Get started with a demo account first, and then put in the real bucks. Then, slowly replace the simulated positions with risk-taking positions.
Keep aside enough income.
Trading will not lead you to riches overnight. Day trading or not, you will need a considerable amount of capital to start as a professional trader. This money will help you through your living expenses, such as housing, insurance, and food. This is your backup that will allow you to start off a new career without worrying about rent.
Talking of capital for your brokerage account, you will need considerable capital to start as a day trader. FINRA put some mandates for “pattern day traders,” the traders who open and close a position in one day and at least four times a week. Basically, day trading every day means you are a pattern day trader.
FINRA mandates pattern day traders to maintain a brokerage account balance of $25,000, which means $25,000 in addition to the year’s worth of income you have put aside. You will also have to do your day trading in a margin account.
If you want to make living trading without having to do day trading, you will need to make every trade bigger. Without day trading, you limit the number of trades; each trade has to be for a considerable sum, and with more money comes more risk. Come tax season, you will need to keep a record-keeping strategy handy.
Develop a mental fortitude
Professional traders keep their emotions out of their trading decisions. You will have to prepare yourself mentally for drastic financial losses that come with the first few months of day trading. You will have to calculate things pragmatically instead of emotionally. Analyze your mistakes and learn from them instead of getting entangled in emotional highs and lows. The best stock trading courses won’t teach you mental preparation for losses; you learn this yourself.
Having a reliable and consistent revenue stream to make trading a living takes time, diligence, and luck. Building a mental fortitude to work through losses until you have a consistently profitable strategy is not possible for everyone. Watching your income go up and down every day can take a toll on your psyche, more so when it is a sustained experience that goes on for months.
Trading is a rollercoaster ride of speed, volatility, adrenaline, and losses and can be difficult to get through for novice traders. Practice patience and keep your mind calm against repeated losses, or the stress of day trading will severely impact your mental health.
These were the basics you need to make a living by trading stocks. Although the chances of your success are slim, diligence, discipline, and capital can help change the odds. If you master this art, the road toward trading will be exciting, independent, and full of financial rewards.