Hey folks,
I recently caught up with an old schoolmate who’s now doing good in both business and trading. His journey into full-time trading had its fair share of bumps and bruises, almost pushing him to throw in the towel and quit trading.
His story sent shivers down my spine, prompting me to share it here. It’s a cautionary tale for those considering full-time trading and leaving their jobs, offering insight into the challenges ahead and how the allure of freedom can lead to risky behavior in the markets.
A few years ago, he took the plunge into full-time trading after just one year in the markets. Despite initially making decent gains, his account took a hit with a nearly 40% drawdown within three months. Constantly glued to the screen, he found himself entering subpar setups out of boredom. This setback led him back to a corporate job again.
A trader at heart, my friend reignited his passion for trading again after a year, experiencing significant success and impressive gains in a short period. Emboldened by this achievement, he dove back into full-time trading, leaving behind his lucrative job with substantial capital. Although initially profitable, he later encountered a 30% drawdown. His downfall arose from difficulty in retaining winning trades, as he continuously pursued new opportunities, ultimately resulting in losses. The absence of backup income made it challenging to sustain his profits.
He found himself puzzled by his contrasting success while working compared to full-time trading, leaving him questioning his abilities. With dwindling confidence, he made the tough decision to close all his trading and Demat accounts, retaining only the one holding some mutual funds.
This time around, he opted not to join back another firm but instead ventured into starting his own consulting business with another friend. His business started off well and as it became stable, his passion for trading
got him back into the markets. However, he made a crucial decision to only trade when the setup was optimal, prioritizing favorable odds( he has his own set of criteria to decide that). With a disciplined approach and concentrated bets, he has maintained profitability for the past two years. As an equity trader, he spends just a couple of hours preparing his charts, marking his pivots and S&R levels, tracking various indices with balancing his time effectively with his consulting business.
When I inquired about the shift this time, he casually mentioned that he no longer pursued trades solely for consistent monthly income, a mindset that had led to past failures. The stability from his business allowed him to patiently wait for setups with favorable risk-reward before taking action.
According to him, here are a few essentials for becoming a full-time trader:
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Alternate income source: Having an alternative income source is crucial, according to him. Relying solely on trading for consistent money can lead to erratic decision-making and significant losses. Having another source of income removes the pressure to force trades and allows for patiently waiting for suitable opportunities.
Against the cliché advice of needing 2-3 years of savings before diving into full-time trading, he stresses that even with substantial savings, the markets can deplete them. Trading to compensate for a missing monthly salary often leads to impulsive decisions and unfavorable results. -
Don’t just do trading: Full-time trading doesn’t equate to being glued to the market all day(except if you are trading F&O). He warns against overemphasizing charts and trading, as your charting screen will just pull you into random trades.(’ Bulaati he, magar jaane ka nahi’). Instead, he advocates spending time on other pursuits to keep your mind analytical and unbiased when evaluating your trading setups. He says he did just 5 trades this year so far and isn’t bothered about when he will find the next trade and it’s a superpower in trading when you are not searching for that next trade.
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Focus on risk, not profits: Here’s where he flips the script. He enters trades not with the sole aim of making money, but because the risk is tilted in his favor, promising better returns according to his system. His mindset revolves around minimizing losses, trusting that the market will take care of the profits. He admits to missing out on some opportunities due to this approach but remains unfazed, balancing his trading with his business endeavors and avoiding regrets. The difference between a newbie and a professional trader isn’t just massive profits, but rather the ability to analyze and manage risk more effectively than the novices.
Btw, he doesn’t consider himself a professional trader.
- Embrace the boredom: He humorously admits that without his business to keep him busy, he might have gone bust from the temptation of taking subpar trades. Maintaining mental resilience is the key in the trading business. Sometimes, it feels like all you’re doing is drawing trendlines and support and resistance levels, and observing the indices and the broader market but the patience pays off. Once you’ve tasted success, you’ll find yourself eagerly awaiting the right opportunity, no matter how boring it may seem in the meantime.
By the way, I recently penned this fable on Patience. Perhaps the above point will resonate more with that tale.
- When he stepped into full time trading for the second time, he found himself isolated. Quitting his job meant losing the camaraderie of colleagues, office banter, and weekend parties, which narrowed his social circle. Focusing solely on the markets can disconnect you from the real world, as he experienced. Fortunately, his business allows him to travel and meet new clients and make connections, keeping him engaged.
Indeed, what worked for him is not universal for full-time trading, as each individual’s journey is unique and influenced by their personality. However, the essence remains that trading is inherently risky, and controlling external factors do provide an edge. As Mr. Vijay Kedia aptly puts it, “Making money from markets is the hardest way to make easy money.”
I request the other community members to contribute their valuable insights from their trading experiences.
Until then, Ciao Adios!!!
