When you’re thinking about becoming a day trader for a living, it’s all about the capital you start with to let you know what you’ll net each month. If you don’t start with enough capital, you won’t have much to start trading with and you won’t be able to grow your wealth. If you want to ensure that you can quit your day job and become a trader, you need to follow just a few simple tips.
Here are four tips to help you quit your day job and make big money as a day trader.
1. Decide If You’re Ready
When you’re thinking about becoming a day trader, you need to decide whether or not you’re really ready for that lifestyle. The allure of earning a lot of money clouds the judgment of a lot of well-intentioned people who aren’t ready to make the lifestyle change. Even people who are great with mathematical analysis and filled with financial knowledge aren’t always ready to be entrepreneurs.
The life of a trader isn’t all glitz and glamour. While there are some high highs, there are also some low lows. If you don’t know the basic tenets of behavioral psychology, you won’t be able to predict the judgment of others or know how to manage your own reactions.
Traders work extremely long hours on a daily basis, sometimes with little to no break over the weekend as there’s constant preparation to be done. You’ll end up soon realizing that you get very little time to take vacations or leave from work. Even if you go in with a lot of knowledge, it takes a lifetime of learning on your own to become a truly great trader.
If you’re committed to the daily work required of a trader, you’ll be able to succeed despite the intense commitment required. Assess whether or not you can do all of this and even take the time to read some books on the psychology of trade. You’ll be able to stay one step ahead of the chess moves that other players are trying.
2. Arrange Enough Capital
As a trader, it’s hard to become a profit generating machine without any flaws. In any trading environment, there is a dance of profit and loss that you’ll have to do at all times. There will be short-term and intermittent losses and then some extended losses that are all just part of the game.
It’s easy to get discouraged when you make eight consecutive losing trades before you recover. However, if you’re not prepared to roll with the punches and take your lumps on the road to success, you’re not ready to be a trader.
You need to have capital around to cushion your fall as you weather the ups and downs. Before you begin as a trader, you should have a large amount of money to dedicate to the work. You’ll need around $100,000 if you want to start your business on day one and be able to recover from any tumbles.
New traders start with smaller amounts all of the time, but with the many costs you can bear as a trader, it’s easy to deplete those funds quickly. There needs to be enough money around for you to deal with growing pains without panicking.
3. Learn The Markets
Before you quit your day job, you need to learn about how the markets function. There’s a complex interchange between the way that currency markets, commodities, and futures all dance together. The interaction between the various markets determines what happens down the road.
Start with the basics depending on where you’re focusing your trading. You need to know the major holiday and the hours of operation with markets at home and abroad. Get to know what’s happening on international markets as well, so that you can understand what’s to come at home.
The impact of the kind of news events that are happening around the globe shake the markets up. If you don’t know how news, the weather, and political affairs are changing the markets around you, you’ll be blindsided. Even a simple trading strategy that takes these events into account will result in more robust and dependable profits than a strategy without that doesn’t.
4. Learn to Manage Your Money
When you start off with trading capital and have a strategy that’s proven to work, you still need to manage your money carefully. Bad money management can result in net losses, even with a great trading strategy. Deciding how much to put down on day one sets the tone for how much you need to make and how much you could lose.
A trading strategy that gives you a 70% success rate still needs mitigation to ensure you don’t make any mistakes. If your first three trades fail, even if your next seven are sure to succeed, you’ll be shaken by the experience. Your average might work itself out over 100 trades but if your first ten don’t do as well as you’d hoped, you need to be prepared.
Managing your money helps you keep from collapsing under the weight of a few losses. Effective money management can keep you winning even if you have a success rate below 50%. Practice your plan and be flexible with the structure to ensure that you’re prepared for whatever happens.
Don’t mix your personal finances with your business finances. As a trader, you need to keep your life afloat and pay yourself for the work that you do.
Becoming a Day Trader is Life Changing
If you want to become a professional day trader, all you need to do is to prepare. That means saving the right amount of money to start with, to learn the markets, and get to know what you’ll be specializing in.
Before you start counting your chickens, make sure you’re prepared for tax season by checking out our latest guide.