Transitioning Into Trading
If you are currently transitioning into trading, have you really planned to succeed or are you leaping into the blue without a parachute?
A pipe dream
A trader’s wife once told me that she trusted her husband’s trading ability, but she also secretly trusted the markets’ ability to render his system obsolete. She was primarily concerned with paying their bills. Could her husband consistently bring in the profits necessary to support them? Their family required six thousand dollars per month to maintain their present lifestyle. Her salary was three thousand dollars a month and they had fifty thousand dollars in an account that was separate from their savings. Their savings account consisted of twenty-four thousand dollars. In paper trading, the system showed a potential return of thirty-five percent profit per year. Did she have a good reason to be concerned?
A real dream
Ronda was concerned about her husband, Jim, becoming a gambler. At least, that is the way she looked at the trading profession and Jim had given her ample reason, having lost twenty-five thousand dollars before he started to view trading as a serious business. Their lifestyle expenses were four thousand dollars per month with Ronda bringing home five thousand dollars per month from her job. Jim earned six thousand from his full-time position. They both had retirement accounts and a joint savings account with a total of over five hundred thousand dollars. Recently, Jim had received an inheritance of two hundred thousand dollars.
After his twenty-five thousand dollar loss, Jim studied trading for three years, tested his system with paper trading and with real-time simulated trading. He took a leave of absence from his job for three months and was consistent in bringing in profits that would amount to forty percent per year from the one hundred thousand dollars he had put in his trading account. Should Ronda support Jim in his trading?
Consider the whole picture
With a business plan, you should be able to conclude whether your calculated risk in transitioning to become a trader makes sense – or is just plain foolish. Here are some questions to consider before making the transition.
Who are you responsible for financially?
If you are responsible just for yourself and are young enough to crash and jump back into another profession, then be a fool and take an uncalculated risk in trading before you are ready. (I would never recommend it.) This is like skydiving for the first time without any training. If you are responsible to a family, then you must consider them and the monetary and emotional cost to them if you lose money because you were not ready.
Do you have enough money to support your lifestyle?
How much money do you need to run your life, and will trading realistically bring in the necessary returns from the money you are willing to risk? You must account for the cost of running your business, and you should have a minimum of six months of expense money over and above trading capital plus living expenses before venturing into any new business. These figures can only be determined after trading in real-time and with real money.
Do you have a contingency plan in case your trading does not work?
Suppose that trading does not work for you: how long will it take to get a position that will provide the income necessary to run your life? You must consider how much your skills are in demand and the conditions in the job market.
Changing from any career where you are paid a regular salary to being an entrepreneur is a challenge. With trading, it can be more of a challenge because of the everyday risk that is inherent in the profession. Before you start, create the necessary resources, develop a plan, test your theory, and make sure you can follow your trading rules. Then, you could be among the people who are highly successful in the markets.
Adrienne Toghraie, Trader’s Success Coach