In this series titled Trading Truths To Learn Or Liquidate By, we hear from Patrick Munnelly, head of Prop Trading at Littlefishfx.com.
#8: Trading For A Living
I can guarantee you that behind every story of trading success is a more protracted tale of struggle and self doubt, that had to be hurdled on the road to trading for a living.Patrick Munnelly
I want to address the realities of trading for a living full time. The Internet is full of false promises, of turning your $100 account into a $1,000,00 with a year. Most wannabe traders are attracted to the business by the allure of the opportunity to make life changing sums of money. Others are attracted by the potential freedom trading can provide, with the opportunity to trade from anywhere on the planet as long as you can access a stable internet connection.
While the opportunity to create meaningful wealth and a life of liberty is possible, it isn’t going to happen this month or next, like the Forex gurus would have you believe.
I have been a full-time trader for 15 years. During this time I have garnered a substantial amount of experience. While trading for a living certainly has many positives, it isn’t the dream ticket that many are sold. Like any business or career undertaking, the early stages require a HUGE amount of work, just to get off the ground, and once you finally defy gravity the hard work doesn’t stop there.
The reality of trading an account for income, is that even once you acquire the knowledge and skill to consistently reap a return from the market, you aren’t going to be doubling your account month-on-month. You would be a miracle worker to deliver consistent month-on-month 20% returns. In fact you would be a statistical anomaly.
Monthly Performance: the Reality
In reality, you would be a trading superstar to deliver 10-15% month-on-month. A more realistic monthly target from my experience is 2-5%. Now obviously there will be outliers in the distribution of your returns, some larger up months accompanied by drawdown months. This simple trading truth is one that so many inexperienced traders simply fail to grasp or understand: instead they remain blinded by 200% returns month-on-month.
So once we accept the reality of the potential percentage gains, we are faced with a harsher reality: we probably wont be able to support ourselves or our families on our $100 trading account. We aren’t going to achieve it on our $1000 account. We are going to struggle on our $10,000 account. Realistically, to simply trade for a living covering our expenses and some spending money, we are likely going to need a minimum $50k account, where your 2-5% month will deliver between $1-2,500.
Even once you have adequate capital, you will face further challenges. Once your trading account is your sole source of income, you will begin to feel the pressure of performance. This is a psychological phenomenon that is difficult to quantify, but it is certainly one that you must consider.
If you find yourself in the back-end of the month trading for your rent check, that pressure is certainly going to impede your decision-making capabilities in ways you can't yet imagine. If you extrapolate further, and consider the challenge of a drawdown month whereby you have to dip into your trading capital to cover your bills.
The following month starts in the hole, you take another few hits, this will put you on the ropes mentally and fiscally. Do you think you have the mental wherewithal to trade through this type of scenario? Suddenly you may experience some shakiness in the trigger finger!
Before Quitting the Day Job
So before you jack in the day job to go it alone and trade for a living, you need to consider the realities of the implications of the decision. So what is the best route to achieving your goal of trading for a living?
Well from experience I can tell you there are two key considerations to achieving this goal. First, education resulting in a rigorously back-tested trading strategy/plan. Secondly and critically, adequate capitalisation.
So for those who are truly committed to making a serious career change, I would counsel some soul-searching and some conversations with some seasoned individuals, who actually successfully trade for a living. Listen carefully to the story of their journey to where they are now. I can guarantee you that behind every story of trading success is a more protracted tale of struggle and self doubt, that had to be hurdled on the road to trading for a living.
Another excellent option for those looking to make the transition to full-time trading, especially for those constrained by the capital aspect of the equation, is joining a prop trading programme. Instead of liquidating a smaller account, you would be better investing a sub 10k account directly into yourself and killing two birds with one stone.
Through a prop trading programme you can get excellent trading education, with the potential for trading meaningful capital in structured disciplined environment - hence giving yourself the best possible platform for transitioning to trading full time and making a success of your new career/business!