Do you aspire to trade for a living?
Or are you thinking of trading Forex as a living?
It’s a very bold move but can be a rewarding endeavor.
However, if you really want to trade for a living, then you must be prepared.
And by being prepared, I mean prepared psychologically, emotionally and financially.
So before you jump right in to trade full-time…
Here are 7 very crucial questions that you must ask yourself…
Q1) Do You Have A Winning Trading System?
So the very first and most important question you need to ask yourself is whether you actually have a winning trading system.
If you do not know whether you have a winning trading system or not, then you obviously do not want to trade for a living at this point.
If you have a job, then you definitely do not want to quit your job just to pursue trading full-time on your own.
It’s much better to keep your full-time job and trade on the side.
And once you’re consistently profitable for at least a year, then you can consider going full-time at that point.
Now, there are a few exceptions to that…
The first exception is that you are still studying.
For example, when I was in my university days, I would also go get a part-time job.
The income that I earn from my part-time job, I would fund a small trading account and trade it.
So if you are still schooling, you can try this approach.
It will be tough to manage studies, work, and trading at the same time.
But it can give you invaluable experience during this time because you haven’t started looking for a job yet.
If you’ve already started working, then the other exception is to join a proprietary trading firm (otherwise known as prop firm).
When I decided I wanted to be a full-time trader, I quit my job then to join a prop firm.
At that point of time, I didn’t own a house, I wasn’t married and didn’t have a kid.
I had very few financial commitments which made sense for me to join a prop firm.
Depending on your prop firm structure, you may or may not have a basic salary.
Even if you did, it would be very minimal.
So unless you’re financially well-off already…
It would make sense only to join a prop firm if you’re dead serious about trading for a living…
And be okay to go without pay for at least half a year.
That’s because you will most likely not be profitable when you start at the prop firm.
If you can, then joining a prop firm would be the best way for you to trade for a living.
In the prop firm, you will be able to learn the prop firm’s trading strategies…
And more importantly, you will have support from your trading colleagues and senior traders.
This can greatly accelerate your learning curve and is much better than trying to figure things out on your own.
However, if you’re not a student or it doesn’t make sense to join a prop firm…
Then it might be better to hold off trading as a living until you have a thoroughly tested winning trading system.
Q2) Do You Know Every Detail About Your Trading System?
Now, what if you’ve been trading for a while and you believe you have a winning trading system?
If you do, then the question you need to ask yourself is whether you know what to expect from your trading system.
There are very important questions you need to answer about your trading system before you start trading full-time.
For example, do you know…
- What is the expectancy of your trading system over at least 5 years of data?
- What is your trading system’s expected return per year?
- How many unprofitable months in a row has your trading system produced in your backtesting?
- What is the longest losing streak your trading system has?
- Exactly what is the biggest drawdown your trading system has incurred?
These are the questions you need to know the answers to because it will help you with your trading psychology.
For example, imagine you have started trading full-time…
In your first week of trading, you are doing not too bad with a small overall profit.
Then suddenly, you hit 5 losing trades in a row that wiped out your small profit and you’re now in a loss.
What do you do now?
Well, if you knew based on your testing that the longest losing streak you had was 8 losing trades in a row…
Then at this point, you wouldn’t panic.
That’s because your trading system has produced a losing streak of 8 trades in a row before.
So you know this is a possibility that can happen.
But if you have no idea about this, then you’re going to panic.
You’re going to doubt your trading system, and may even start to fear to get into a trade.
When that happens, your trading psychology has been messed up.
And it’s going to be hard for you to carry on trading properly.
Hence, it’s very important you know your trading system inside out.
This way, you will have the confidence to trade your system without your emotions getting in the way.
Always remember, good trading is objective, not subjective.
Q3) Do You Have Sufficient Trading Capital?
Many people come into trading with a very unrealistic view of how much money they can make.
For example, many people think that they can double their trading capital every year, or even every few months.
However, that is not exactly possible as your account grows.
For example, if you only have a starting capital of $500, then in order to double your account, you would have to risk a big percentage on each trade.
For example, risking 20 percent of your account and getting 5R on one trade would double your account.
Psychologically, it’s easy because after all, 20 percent of $500 is only $100.
But when the amount becomes bigger, it becomes tougher and tougher psychologically.
Here’s what I mean…
Let’s say you start off with a capital of $5,000.
If you risked 20 percent on each trade as well, that would be $1,000 risk per trade.
Would you be able to risk $1,000 on each trade?
That means if you just lost 5 trades in a row, you would have lost $5,000.
It would be psychologically tough.
Now, what if you had a starting capital of $50,000?
If you risked 20 percent of that, it would be $10,000 per trade.
Chances are that you wouldn’t be able to risk $10,000 per trade right?
The bigger your capital, the harder it would be psychologically to risk at that same percentage.
So what you need to realize is that doubling your account every year is unrealistic.
In fact, some of the best traders in the world have an average return of 20+ percent a year.
And 20 percent is already considered a very good return.
That means if your trading capital is $100,000, on a 20 percent return, you’d be making $20,000 a year.
And that means it’s about $1,660 per month.
But if you only have a starting capital of $50,000, then a 20 percent return would only be about $830 per month.
So the question you want to ask yourself is with the starting capital you have and the expected return of your trading system, can you survive on that?
Q4) Do You Have Sufficient Savings to Weather Losing Months?
Most trading systems will inevitably have losing months.
The question is – do you have sufficient savings to weather those losing months?
If you’re single and don’t have much financial commitment, then this shouldn’t impact you as much as if you have a family to feed and lots of financial commitments.
When I was at the prop firm, there was a time where the whole company was having difficult months.
In fact, the majority of the traders in the prop firm were going through a rough period as we had gone through 3 consecutive losing months.
Even a senior trader who had been around for many years had been struggling in the markets.
During that time, I was already married and my wife was pregnant with my son.
I knew that I had to find alternative means to have a consistent income because I had quite a number of financial commitments already.
And that’s when I decided to start a business on the side.
I would work on my business after I came home from the prop firm and also on the weekends.
Over time, this side business started to bring in some income…
And that helped weather the times when I had losing months.
With the additional income, I could be objective while trading without being afraid of taking a loss on my trades…
Because I knew that even if I had a losing month, I still had income coming in from my business.
So the important question you need to ask yourself is whether you have enough savings for when the losing months come.
And that’s why understanding your trading system is so important if you want to trade full-time.
Because if you know how many consecutive losing months your trading system has had historically…
You will be prepared financially, psychologically and emotionally when it comes.
Q5) Are You the Sole Breadwinner of the House?
What if you have a family and you’re the sole breadwinner of the house?
If this is you and you really want to trade for a living…
Then I strongly suggest that you at least have enough savings to pay all financial commitments and financial means to support your family for at least a year.
This way, even if you aren’t profitable at the end of a year…
At least your family still has the finances for at least a year.
And these savings are apart from your trading capital.
If you do not at least have enough savings for a year, it’s better to trade on the side and keep your job.
Trading for a living is not easy.
When your family’s livelihood is dependent on you making an income from the market…
You get a whole lot of stress and pressure that can affect your trading performance.
And this leads to the next question…
Q6) Do You Have A Backup Plan In Case You’re Not Profitable?
We all aspire to trade for a living.
And when we finally get a chance to do that, we don’t ever want to look back.
But have you ever thought – what if it doesn’t work out after a year?
Will you still continue trying to trade it for a living?
Or do you have a backup plan in place?
When I was still a prop trader, I had a chance to sit close to one of the most senior traders in the firm.
He had been around since the firm was first founded.
At first, I was really excited to learn from him.
I would go to his desk to chat with him.
I’d ask him about his opinion of the market and how he would identify trades.
However, I noticed that he would do something odd whenever it was lunchtime.
In general, when it was lunchtime, traders would go out to eat together.
But he always brought a lunch box and stayed at his desk to eat during lunchtime.
At first, I thought it was because he wanted to monitor his positions or even trade during lunch hours…
But then I decided to ask him about it one day.
His answer shocked me…
He said he was trying to save money.
And that got me really curious because senior traders trade big position sizes.
That means the size of their trades could easily make them thousands of dollars each day.
So him saying wanting to save money on lunch was very odd.
Then as he opened up to me, I finally understood why.
While he had been a senior trader at the firm since it started…
He hadn’t been profitable for almost a year.
That means he hadn’t got paid for that long.
He said the market had changed and he couldn’t adapt his strategies to the market.
That was quite shocking coming from a senior trader.
And because of that, he had to save money on lunch each day.
His life got affected as well.
At that point in time, he was in his mid-30s.
He told me he even had to break up with his girlfriend because he couldn’t afford to go out with her on dates.
About half a year later after that talk with him, he eventually left the prop firm and found a full-time paying job.
So while the internet is full of “gurus” selling you the dream of trading for a living…
It’s not that easy.
The big question is whether you have a backup plan in place for when things don’t initially work out?
Now, you can always come back to trading at a later point when you’re more financially stable.
Just like when you plan your trades, you must always know where your Stop Loss is.
Similarly, you need to have a backup plan if trading full-time doesn’t work out at first.
And that story of the senior trader leads me to the next question…
Q7) Does Your Spouse or Family Members Support Your Trading Endeavor?
If you don’t have supportive people around you, it can be very tough.
Now, I’m not saying that you must wait for your spouse’s or family members’ approval before you start trading full-time.
What I’m saying is that if they are supportive of you trading full-time…
It will definitely help in your trading psychology.
You see, when it comes to trading, many traders underestimate the importance of being emotionally in control.
However, how you feel greatly affects your trading.
Ed Seykota, one of the legendary traders of all-time, has a great quote that says:
If you had a quarrel with your spouse or family member on you trading full-time…
You can get affected emotionally and trade dangerously.
For example, a friend of mine not too long ago decided to try trading full-time.
He had been trading on the side for some time, and he had been profitable.
So he finally made the move to trade full-time for a living.
However, his wife was not supportive.
He gave up his job that he had been at for many years to trade full-time.
So when he made the move to trade full-time, his wife would always start quarrels with him.
Because of that, he got so determined to prove his wife wrong that this affected his trading.
He ignored his Stop Losses, traded a bigger size than he should, and took small wins instead of letting his winners run.
His rationale was that he wanted to avoid making any losses at the start…
And make money quickly so his wife would believe him.
But that had the opposite effect.
He lost 50 percent of this trading account in the first week.
When I recently spoke with him again, I found out that he was back to having a full-time job and trading on the side again.
As they say, “happy wife, happy life”.
And if you’re not married, but have a “significant other” or family member that is not supportive of your move to trade full-time…
Then you want to at least let that person know that you are just trying it out and have a backup plan.
If you tell them you’re just trying out and if it doesn’t work out you have a backup plan…
Then they will be more willing to be supportive of you to temporarily trade full-time.
And if trading full-time does work out in the end for you, then they will naturally be supportive of you in the future.
So if you really plan to trade full-time, this is something you want to take note of.
Trading for a living is definitely something very attractive to all traders.
That’s what I did for almost 5 years of my life.
While I still trade for a living per se, my trading income is not my sole income.
I still have other income sources from my business and investments.
This way I’m more objective in my trading and can trade at my best.
And if you want to be more objective in your trading as well…
Then you need to be able to answer the 7 questions I’ve laid out in this post for you.
With that said, I have one other important question for you…
Do you aspire to do Forex trading as a living?
Let me know in the comments below.
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