Trading For A Living - Part 1

Written by Geoff Turnbull


There can’t be many traders who haven’t at least consideredrepparttar idea of tellingrepparttar 112377 boss what they think of him, throwing it all in and going off to traderepparttar 112378 stock market for a living. It’s a big risk financially, and that uncertainty is what stops most from jumping ship. Is it really possible to trade for a living? The Dream

You know how it is, you’re sitting in a traffic jam at some unearthly hour of a particularly wet and miserable morning, onrepparttar 112379 way torepparttar 112380 same office you have sat in for too long to remember, and you’re thinking - there must be a better way – life shouldn’t have to be like this. Your mind starts to wander and you find yourself thinking back to that stock you bought only a week ago, and how it skyrocketed giving you enough profit to takesrepparttar 112381 kids to Disneyland inrepparttar 112382 summer, and you begin to consider if you couldn’t make a fulltime living at this trading game. The advantages are certainly tempting; no more pointless meetings withrepparttar 112383 manager, hours to suit, holidays whenever you feel like it, and with your home-office - no more traffic jams. Heck, come to that you could even make home anywhere you want it to be! Byrepparttar 112384 timerepparttar 112385 traffic starts moving again. you’re busily calculating how much cash you could make if all your trades went like that last one - you’re almost ready to write your notice letter there and then!

The Bad News

Time for a reality check. Certainly all ofrepparttar 112386 above benefits are there to be enjoyed, but it’s a huge step from full time employee to full time trader. Are you really ready to give up that monthly pay-check just yet? Can you really cope not knowing how much money you’re going to make month to month? Are you prepared forrepparttar 112387 months when you actually lose money instead of make it? There are many things to consider before takingrepparttar 112388 leap of faith.

Considerations

Before you even think about trading for a living you have to know how much money you need to live on, that is, how much cash do you need to generate every month in order to survive. As a financially minded person you already have good home accounts, or are atrepparttar 112389 very least vaguely aware of whererepparttar 112390 money goes. So takerepparttar 112391 annual figure (monthly is no good, you need to account for annual recurring items like insurance premiums, car servicing, and vacations), add 50% and divide by 12. Why add 50%? Because there will always be unexpected expenses, and as traders we are always prepared to expectrepparttar 112392 unexpected. Now you know how much money you need each month, you can look at your savings and work out how much buffer money you have, that is, how long you could survive without earning anything at all. You can’t expect to be an instantly profitable trader, and evenrepparttar 112393 best and most experienced have periods of drawdown, so you need to be ready forrepparttar 112394 worst. If you can’t live for at least six months from your savings then you are probably under capitalised and are not ready to give up that pay-check just yet. An important but often overlooked aspect of under capitalisation isrepparttar 112395 effect it will have on your trading; if you are trading because you needrepparttar 112396 money, then you are trading scared and you’re almost certainly going to lose. You cannot distance yourself fromrepparttar 112397 money-aspect ofrepparttar 112398 trade if you are relying onrepparttar 112399 money.

Trading For A Living - Part 2

Written by Geoff Turnbull


In part 1 of this article I started to look atrepparttar financial implications of giving uprepparttar 112376 day job to instead start trading full time for a living. There are more than just monetary considerations as we will see later, but for now, there are some more costs to ponder.

More Costs!

Let’s move on to equipment. Presumably you already have a PC and internet connection by virtue ofrepparttar 112377 fact you are reading this onrepparttar 112378 internet. But are these both up torepparttar 112379 job of trading full time? Againrepparttar 112380 specifications for both hardware and ISP will depend largely on your trading style, but if you’re relying on a 100Mhz Pentium II and a dial up service, you’re setting yourself up for failure. So budget for quality equipment, budget to keep it up to spec, and budget for some repairs too – expectrepparttar 112381 unexpected. Many traders makerepparttar 112382 mistake of saying “This will do me whilst I start out, and I’ll get something better when I make some real money”. This is quite simply false economy, you are unlikely to ever make real money with a substandard setup (and this applies equally to substandard software and data feeds). This is a cut-throat business and 95% fail, you must give yourself every advantage you can. You wouldn’t enterrepparttar 112383 Indy 500 in a go-kart withrepparttar 112384 intention of buying a better car when you’ve won a few races, andrepparttar 112385 same thing applies here.

Earnings

When you’ve added this all together, you have a pretty good picture of how much money you need to generate from your trading in order to live. Does your past performance suggest you will be able to meet this target? It’s tempting to say “When I go full time I’ll make much more”, but how do you know this isrepparttar 112386 case? Perhaps you can take a couple of weeks holiday and try it out – if you don’t make enough in that two weeks then you’re not ready. A few weeks really isn’t enough time to know if you’re going to succeed though. An ideal next step then is to cut your day job hours to part time and trade maybe two or three days a week. This way you know you have some money coming in, you get to trade for real, and if it all goes horribly wrong you are probably better placed to get back into full time employment than someone who quitrepparttar 112387 working world completely.

The option of part time work is a luxury many of us don’t have however. So does it have to be all or nothing – trade or work? Why not keeprepparttar 112388 day job and trade outside your working hours as well. If you are trading and end of day strategy, then this is easily achieved by doing your research inrepparttar 112389 evening and placingrepparttar 112390 appropriate combinations of Stop and Limit orders with your broker. For day traders, certainly practising is easier if your intended market is not your home market, for example if you want to traderepparttar 112391 US and you live inrepparttar 112392 UK where you can come home and paper trade inrepparttar 112393 evening. There are other try before you buy options open torepparttar 112394 day traders who want to practise trading their home market outside of normal hours though. eSignal allows you to download tick data for any symbol and play it back in real time or speeded up so you could traderepparttar 112395 whole day in an hour. Other vendors have similar offerings, and if you have an IB account you can use AutoTrader to record tick data duringrepparttar 112396 day for playback into a demo version of SierraCharts or QuoteTracker for free.

Cont'd on page 2 ==>
 
ImproveHomeLife.com © 2005
Terms of Use