Filed under: Blog, Quant Trading | Tags: Full Time Daytrading, Trading Advice
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Day Trading Full Time
I have been a day trader for well over a decade - technically i still am to some extent in another form of being an algorithmic trader. The journey to profitable day trading has had more ups and downs than the VIX index. If you are contemplating going down this dark twisted road of day trading then please read this article - it may save your life one day.
Current Day Traders Advice
Most new traders will start by following some sort of online community. There are numerous resources for day traders online and one of my favorite starting out was elite trader forums. The only problem with the online trading communities is that it is often full of failed traders still waiting to make it. These guys will impart their words of wisdom in an encrypted manner making their advice more philosophical than anything tangible. You will have the naysayers informing you that day trading is a suckers game and that 99% of day trader lose.
If you are objective and quite good at reading humans then you will slowly start to learn who the professionals are from the frauds. I always spot the professionals due to their easy going humble nature even online (anonymity brings out all the trolls and sadists). The professionals never act like they know everything, they simply state they have a proven plan and they try their best to execute it every single day methodically and unemotionally (human psychology of trading is what drew me to algorithmic trading thereby eliminating any human weakness).
My advice would be to do your research on any poster on any online community - read through their past posts and responses from other well know posters to gauge the authenticity of the trader. Still recognize that these traders will not give away their hard earned strategies but they often do impart sound advice and solid trading plans.
Why Individuals Want To Day Trade For A Living
This is a rather easy one - most people are tired of having to get up and sit in traffic before ending up sitting at work on a desk in-front of a computer; they probably figure they can pretty much be sitting at the same computer from the comfort of their own home. There are numerous reasons why people want to day trade, it would be easier for me just to add some bullet points:
- Everyone essentially wants to run their own business and dictate how much and when they are going to work.
- Greed factor: some individuals are completely delusional and come for the easy riches to be made. These guys are often in for a rude awakening when they figure out how hard day trading can be and how punishing of a pursuit it is.
- Freedom: many traders have heard of the legend of the trader who flies around the world whilst making trades on his laptop and still makes more money in a month than most people make in a year. Think about sitting on the beach with a drink in your hand and clicking a few buttons on your laptop and still making a living, this is the dream for most people.
- Some people just want to be smarter than everyone else. You can be at any party and you will often hear from the guy who made a gazillion dollars buying a stock that was tanking all because he knew the company is sound, he did is research and ran the number blah blah blah. The trading community is just like the gambling community, everyone is a genius when they are making money. Moreover, traders just like gamblers can be a habitual liars and only talk about their wins whilst pushing losses to the back of their mind.
- Intellectual challenge: many individuals feel unchallenged and unfulfilled with their jobs. Maybe you think you have the smarts to do more than just input data and run a few calculation on a spreadsheet. Trading definitely can be an intellectual challenge for some but for others it is no different than making bets at your local gambling shop (we call them bookies in the UK and the only difference between them and brokers is that brokers dress smarter)
What To Expect When You Make The Transition To Full Time Day Trading?
To be honest mostly you should expect boredom and wasting a lot of time looking at computer monitors. Trading is only as difficult as you want to make it - some people can make money from the simplest strategies and others simply want to re-invent the wheel and look for the holy grail of strategies. New traders will obsess over their PC hardware, the number of monitors they have and how good their trading desk looks (you should be obsessing more over your strategy and testing it from every perceivable angle rather than thinking about adding another monitor).
Day trading can lead to laziness and make you quite unhealthy. Sitting at home all day means no interaction with colleagues or having to get dressed up to go to work. It is all to easy to become an unwashed, unshaven uncouth zombie staring at screens all day. My advice would be for new traders to look for a cheap office or share an office with another trader. Approach trading like you would any other business, always keep it professional and understand that trading is a serious en-devour and it is not something you are going to master whilst watching CNBC all day long in your underwear.
Working from home can lead to isolation for some. Hence, it is very important to stay active in your community: join a gym, play a sport, whatever you do make sure you have active hobbies which allow social interaction (day trading can be seriously detrimental to a social life if you let it be). Sitting down all day is going to wreak havoc on your back and posture sooner rather than later: invest in a good chair and keep your midsection under control. Take regular breaks from the computer monitors and make sure you get some fresh air once in awhile.
When Should You Make The Transition To Full Time Trading?
My advice to any new day trader is do not become a full time trader if you do not have any other source of income (could be part time job or small business on the side). When you start out day trading make sure your living costs and overheads are at an all time low, do not expect to make money day trading if you are forced to make money to pay your rent. Keep costs to a minimum and that way you won't be forced to make silly trades just to pay of some bills. I would even go as far as to say live with friends or families for free if you can as this will give your trading an advantage when you first start.
Do not give up your job until you have at-least 1-2 years of somewhat profitable day trading behind you. If you have been making swing trades whilst doing your full time job and then feel you can take up day trading full time then please STOP! Day trading and swing trading are two different animals, most people rarely make money on both.
When i started my day trading i was young with a good College Degree behind me, so even if i failed i had other opportunities. I lived with friends and had a full time job at that time and i kept my costs very low. Being from the UK i would work my full time job and then start day trading US markets when i got home - after a couple of years and after having saved enough money for a decent sized trading account and the ability to live for the year without working i made the transition to full time trading (i still kept a part time job on weekends so as to have a consistent stream of income still flowing in).
Day Trading Results
To be brutally honest i would have to say most day traders will lose money - and this is not because they are not smart enough or willing to work hard enough. It is simply because trading is gambling and gambling brings out the worst in humans. Not having a proven plan, not following a plan, getting greedy or fearful will always lead to a failed day trading career. However, if you followed my advice on when to transition to full time trading then at-least if trading does not work out for you it wont be the be all to end all. You can always go back and get another job or if you have another business on the side you can begin focusing on something that is making you money instead of being huge drain on your resources.
After the initial education phase of trading being to look at it as the business phase. Don't waste your time continuing trading if your profits are small and the opportunity cost of getting a much higher paying job is to high. If your business is not working and you have tried for a number of years then don't waste anymore time or energy on a failed venture. Learn when to cut your losses and move on, always keep in mind that most new business fail anyway and trading is nothing different.
Only Trade With What You Can Afford To Lose
Never trade with borrowed money or money you need for rent. Don't start with an account size which is far to big as most new traders are likely to blow up an account or two in the learning process. Don't get greedy and view your initial years of trading as an education. If you are financially comfortable before you begin you don't need to force an income from your trading which will lead to better results. I have rarely seen a successful trader not lose money in their first couple of years of day trading - understand this for what it is and aim to keep your losses as small as possible.
A famous quote by legendary investor Paul Tudor Jones was, "Only losers average losers", take heed of this snippet of wisdom as averaging down losing trades for any beginner trader is a recipe for disaster. Not only is it a bad trading habit but because averaging down can work many times before the ultimate blowup. it makes traders think it can be a viable day trading strategy, when in fact it is not.
I have seen the scenario a million times where a trader makes a trade only for it to go against him, he then adds to the trade and see it further go against him. Then the obligatory curse words and statements of fact saying, 'this market is crazy, this move is crazy, there is no way this won't come back". Well please don't become this guy because markets are seldom crazy and strong trends will go keep going far longer than you can remain solvent. I view the market as evil sadistic entity trying to 'squeeze' as many traders as possible at all times. The market is hardly ever wrong and only your position is wrong. Keep a level head and good money management and you should never fall into this trap.
Is It Worth The Stress And Steep Learning Curve?
This is a very difficult question to answer, anyone wanting to be a day trader must realize that the initial years of trading will be a very difficult and solitary road to take. Just think how many social interactions and other aspects of your life you are giving up in the pursuit of a dream. On the other hand a successful trader has the freedom to do anything he wants and unlike other businesses he never has to worry about clients, meetings or whether the economy is going to tank (in fact a crises causes volatility and traders see volatility as opportunity).
I think ultimately many day traders are introverts or deviants of society - they don't want to fit the traditional mold that society has forced on them and want to do things on their terms. If you follow the advice above and put yourself in a position where taking a couple of years to test the waters whilst knowing it won't impact your life too negatively in the long run if you fail, then i would say take a chance. Also, recognize and understand your personality - the psyche of trader is very important and you must recognize how your mind thinks and how it makes decisions. Understanding ones self can improve your trading and give you much better consistent results.
Is It All A Dream?
Successful day trading is a dream very few will achieve, but then again so is any other successful business. I would never tell any individual to not aim to achieve their dreams as long as they are prepared and understand the risks and uncertainty ahead of them. Ultimately you will never learn day trading from anyone else (unless you have excellent mentor) and will have to try to make your own understanding of financial markets and how to expose certain underlying inefficiencies which allow you to profit.
Actually the most important advice i would give any new day trader would be to learn to code your strategies, that way you can easily make the shift to the less stressful and more lucrative automated trading business. Trading is nothing but a series of rules on when to enter, place stops and targets. These rules can all be broken down into code and you can then apply these strategies to 100s of different markets or oven create numerous uncorrelated strategies.
Take a chance if you are well prepared and position yourself for a roller-coaster of a ride.