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Trading for a living—this is why many of us come into the market in the first place. It’s the fuel that drives a lot of marketing, good and bad, and it’s an ideal to which many traders aspire.

So let me just put the conclusion up front here: you absolutely can trade for a living. It’s possible, and many people do, make enough money trading/investing to completely fund your lifestyle and replace all other sources of income. But, as you might imagine, it’s not at all simple. Let me share a few thoughts with you.

The marketing message

On a very personal note, I realize that one of the mistakes I’ve made over the past decade is that I have not respected the supreme importance of marketing. I have operated under the assumption that if I produce top-quality content, good people will find my work. This is true (and, in fact, it’s probably how you found me!), but I now realize that me working with a proper marketing message is a net gain to the world—it obviously helps me build my business, it connects my work to more people who could benefit from my work, and the success of my businesses will allow me to create more content. That’s the very definition of a virtuous circle.

But most of the marketing in the trading community is slimy and unethical because it is based on lies. When some guy rents mansions or cars to take pictures, or does videos by the pool saying things like “this could be your office every day while you work just 3 minutes each day on your trading”, that person is, with 99.99% assurance, lying to you. (Ironically, I’m writing this beside a swimming pool, but that’s not the point…) What they are selling you is the idea that if you buy their service you can follow their trades and own the sports car and flashy lifestyle.

What is true about this marketing message is that trading can absolutely change your life and financial situation. It certainly has for me, and for many others. The lie is that any “service” can get you to that success. The lie is that you can get there by following someone else’s trades or chatroom calls. The lie is that it’s easy. The lie is that you can have this success in a few months. Yes, you may be able to achieve this success, but it will be one of the hardest things you do—it’s going to take years and it’s going to be a major focus of your life.

The reality

Ok, so, as they say “real talk” here. Here’s what I believe, based on nearly 25 years of experience in the market, a career of active trading myself in nearly all liquid market and on all timeframes. This is also what I’ve gleaned from knowing literally thousands of traders—from 8 figure annual traders (I did not mistype), to traders just scraping out a little bit every year, to traders who were not able to find success. Let me bullet point this and Ill expand:

  • The path to trading success is far from certain. Starting out, your chances of success are far less than 50%.
  • Trading success requires a significant capital base. Out of all the marketing lies, the worst might be that you can make a living with a few thousand dollars. You do need money to make money in the markets.
  • Trading income is highly uncertain. There will be years you reap a bounty, lean years, and maybe even years you pay the market for the privilege of being a trader.
  • Even once you achieve success, future success is not guaranteed. A lot of things can derail a trading career.

I would say, to all of the developing traders who are envisioning a future where they trade for a living—one of the questions you need to be asking is should you trade for a living? Even if you could, should you? Do you really want this life?

Let’s dig deeper.

The path

We don’t need to spend a lot of time here. If anything, my writing, speaking, teaching, has over-emphasized the negatives—the challenges, the pitfalls, and all the ways a developing trader can go wrong.

Since we’re looking at reality against the typically slick marketing message of the internet gurus and scammers, let me just say this: your chances of success are far less than 50%. You must know and accept that going in, because it makes this different than most careers. If you want to be a doctor, you can probably follow a path and get there. Same with being a lawyer, or air traffic controller, or master craftsman. In most careers, there’s a pretty clear path to success.

Industry stats (from brokers) tell us that between 80% – 90% of trading accounts lose money, depending on the sample. Don’t be too quick to dismiss those stats and say “well I’ll be a winner.” Maybe you will be, but you at least need to respect the fact that you are going into a situation where the cards are stacked against you. You have to respect the challenges and have a realistic view of what you need–edge, money management, capital, discipline, support framework, etc.

If you respect that, you can do things to make your odds much better than the typical ~15% success rate. I know this is not in line with “the power of positive thinking”, but I also think that positive thinking and visualization can work against us in many situations. It’s not a panacea, especially if it encourages us to deny reality. Then, it’s a poison.

You need money to make money

There are laws of nature that cannot be broken. The speed of light appears to be one. Gravity is probably another. Risk/reward, and the somewhat proportional connection between the two, is yet another.

Anything can happen in financial markets. It is possible that I can “invest” $500 and make $5,000,000. You could borrow money on a credit card and blow the trading account up into the millions. You could put all of your net worth on some 3 delta options and make it big. It’s possible, but it’s so unlikely that you must eradicate thoughts like this from your thinking.

Yes, there are stories of people who have done this, so the hopeful, optimistic new trader will point to those examples and say “but it’s possible. Anything is possible.” This is true, but it also underestimates the impact of survivorship bias (and, possibly of how the markets have changed in recent decades.)

If you are going to trade for a living, you are going to have to do it the old-fashioned way—slow(ish) and steady. Plan on making a reasonable percentage return on your trading capital; we can have a debate on what the number should be, but it’s far less than 100%, to be sure.

What this means is that you aren’t going to open a $3,000 trading account, quit your job, and make a good living scalping off a 500 tick chart or something. (As an aside, if you’re absolutely determined to roll the dice on a tiny account, your best bet is to put all your chips on one big trade and sacrifice a chicken to the market gods. Ok, maybe the chicken won’t help, but when the odds are against you you should avoid multiple times at bat. Note that this is exactly the opposite of what a trader with an edge should do. (Except, again, maybe the chicken…))

Please don’t be discouraged by this—you can make a very solid living off a very solid percentage return on your account, but you will need a substantial capital base to make a substantial living. There’s no avoiding that, just as there’s no avoiding gravity. For the developing trader, work on developing the skills, showing the consistency, keeping your expectations realistic, and then you can address the capital issue down the road. If you have the skills, the money will come, one way or another.

Trading income is uncertain

Typically, when we get a job we know what we’re going to make. Even in crazy fields like finance where the bonus might be a huge and variable piece of your compensation (and your base salary insignificant by comparison), we still have a pretty good idea what your year-end compensation is going to be. Not so in trading.

Some years, you’ll make three or four times what you expect. Some years, you will make a fraction of what you expect. Some years, you might get to pay the market (i.e., lose money) for the privilege of being a trader.

Can you imagine a job where, some years, you might write a check back to the company? Of course not! That’s not the way the world works, but it is the way trading works.

The myth of perfect consistency in trading is a lie, even for active traders. (It’s a lie sold by people pushing daytrading courses to the uninitiated.) You can tend toward consistency with active trading, but that’s also a function of leverage… which means your overall ROC will be lower… see? Everything is  tradeoff.

So, from a practical perspective, this means that you need to plan your trading career by looking to replace some multiple of your target salary with trading income. In other words, if you could get a job, live the life you want, and make $X a year, $X is not your trading income target. Maybe it’s 3 times X, but it’s certainly a lot higher.

Also, once you do have some success, you need to think about how to plan for the lean times. Don’t spend every extra dollar you make. Don’t take out too much from your trading account to buy a car, planning to replace it with a few good trades. Psychological pressure is a funny thing, and you can easily find yourself on the wrong side of it.

Planning your life

A few practical thoughts here, some of which will reiterate points above.

  • First, focus on learning to trade. Don’t even think about trying to do this for a living or living off trading income until you can show some consistency. It’s hard enough to learn to trade in a vacuum, and borderline impossible if you add the pressure of paying bills out of your trading account early on. It will take you several years to develop the skills you need, and you can’t really shortcut that growth process.
  • There are laws of math, capital, and money, and you can’t get around those laws. You’re going to make a reasonable percentage return on your account, so you need a substantial capital base to support yourself, once you’ve developed the skills of trading.
  • You need a larger trading income than you would need from a regular job because trading income is highly variable.
  • Many traders find that having secondary income streams removes much of the psychological pressure of trading. I personally know traders who made millions of dollars each year for decades, who also had small side businesses that made maybe $50,000 a year, or spouses that worked relatively low paying jobs. What’s $50,000 to someone who makes and has made $5,000,000 a year each year for the past 10 years you might ask? Security. And with that security comes confidence and balance and the ability to do what you need to do as a trader. Consider how you might build an “antifragile” income from multiple streams and sources.
  • Last, be smart. Be a good human. Do what people have done since long before recorded history—put something away when the harvest is good, knowing that there will be lean years. When trading is hard, know that good years will come in the future.

Conclusion

I think, sometimes in my work, I’m too negative. I portray trading as a very challenging endeavor for which few people are well-equipped, and at which few people will succeed. I emphasize the challenges and remind people of all the ways they can mess up and fail.

While this is true, it’s also true that you can be a successful trader, and that success may exceed all your expectations. You can change your life and your world. You can change the world of those around you. You can make the world a better place.

But you will only do that if you have a realistic picture of what is ahead, and if you’re prepared to meet the challenges along the way.