The Truth about Trading for a Living

What is it like?

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Trading for a living is like any other professional endeavor. Like any other business, it requires a large amount of capital to go full time and the returns are irregular, almost like being a commissioned salesperson.

It's less about dealing with a Lamborghini in the driveway or a laptop on the beach and more about taking the risk, balancing the uncertainty and landing good trades.

Aspiring traders also need to realize that you're not just earning money and getting a daily income check, there are also losing trades losing weeks, and losing months for any serious trader.

Here are 12 truths all full-time traders must face:

  1. You're going to be your own boss so you've got to do the research, screen time and trading work necessary.

  2. Until you have a record of successful part-time trading over multiple market environments, you should never try to trade for a living.

  3. If you trade for a living not only will you have capital losses through losing streaks, but you still have quarterly capital losses related to covering your daily living expenses.

  4. You have to buy private health insurance because you don't have an employer plan. Usually, this is twice what you paid through your employer if in the U.S.

  5.  The amount of capital you need to trade is dependent on your perceptions of returns and living expenses. If you need $25,000 to survive and your hopes of annual returns are 10%, you'll need $250,000 to trade.

  6. Do not assume that trading for a living will be less difficult than your job because of the complexity and mental stress of trading to pay bills, it can be more challenging than most occupations.

  7. The smaller the daily expenses you have, the less you need to trade.

  8. Because of the complexity, you'll probably need a Certified Public Accountant (CPA) to do your income taxes, as you won't have an employer's W2.

  9. Trading for a living is much less stressful if you have minimum monthly payments, no loans, and assets worth a year of living expenses when you begin.

  10. The freedom to trade for a lifetime is worth the journey.

  11. It can be much less pressure if your spouse works as you have another source of income and access to health care and 401 K benefits.

  12. Multiple streams of revenue make it much less stressful to trade for a living. There are seven sources of income for the typical millionaire.

Trading part-time to compound capital gains is the best strategy for most people. Live trading requires a great deal of capital and limited expenses, along with a long-term record of profitable trading.

Trading for a living is very close to being an entrepreneur because you gamble a lot of capital for the chance of independence, being your own boss, and the opportunity of infinite gain.

If you go full time, keep your risk/reward ratio favorable, avoid the risk of the wreckage by making sure that the numbers work before you take the leap.

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10 Rules for Trading a Breakout

Maximize profit & minimize risk.

The following post is an excerpt from our free trading community. We publish market signalsworkshop events, and trading resources to our feed. If you like our content and want to trade smarter, join our next master class and get 33% off this holiday season.

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Active investors use breakout trading to take a position in the early stages of a trend. Typically, this approach can be the launching point of major price changes, volatility increases, and could even offer limited downside risk when properly managed.

Here are 10 rules to consider when trading a breakout:

  1. Breakouts traditionally are an emerging trend based on price action breaking above a level of resistance or breaking below a level of support.

  2. After entering a breakout, a stop loss can be set at the low of the day. For the most part, if it's going to break out it shouldn't compromise the breakout day's low.

  3. Breakouts are less likely to succeed as a chart becomes more overbought at breakout time as measured by the RSI reading over 70. A break and close beyond the 70 RSI can signify the start of a parabolic movement

  4. Buying a breakout without knowing where crucial market resistance prices from the past are, is usually a bad idea as those stuck buyers might still try to sell into strength to break even.

  5. It's best to sell out a position when you buy a breakout and it struggles and falls back through the low of the day before. If the high of the breakout day is held, a new range and a new trend are likely to take place.

  6. Usually buying on a breakout's anticipation, before it happens is a bad idea. For better odds of success, you should aim for a confirmed breakout even if it leads to a higher cost basis. Getting in late but right is better than being early and inaccurate.

  7. It's not a smart idea to pursue a breakout after a multi-day move. You need a support zone directly below to enable a longer-term hold, the biggest gain can happen in the first few days of a breakout.

  8. Buying breakouts in commodities and high growth stocks are much more likely to be successful than in large-cap stocks or indices.

  9. It generally doesn't work to buy breakouts against the current market trend. There are better odds of profitability in trading the general trend. Breakouts usually fail in bear markets, and breakouts in a late bull market do seem to fail eventually.

  10. If the breakout moves in your direction, you might shift your initial stop loss from closing below the low of the day to a trailing stop loss of a short-term moving average such as the 10-day moving average. If the pattern continues in your direction, through parabolic cycles, you should switch your trailing stop to the 5-day ema, near the low of the previous day, or close below the 70 RSI.

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10 Steps to Better Trade Psychology

Trade with confidence.

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Proper psychology and mindset are the first steps toward productive trading. They don't ensure you're going to be a productive and efficient trader but the wrong mentality almost ensures a loss.

So here are ten steps that will lead you to the correct trader mindset, which improves the likelihood of success:

  1. You should be able to sort all available data and focus on building your own style that suits your own risk tolerance and expectations of return.

  2. You have to go into investing with a reasonable expectation of what monetary risk you will take and what your equity curve can look like. All profitable trading systems and strategies have drawdowns as market dynamics change from trending to range-bound and back.

  3. Stop searching for tips and trades produced by others and develop your own system. You don't usually know other traders' exact stop-loss points, position entry, and time frame, so it's hard to properly follow somebody else in a volatile market.

  4. If you have a legitimate trading system entry signal, you have to take it. You can not afford to miss a big win, but you can afford to lose a little.

  5. With every trade, you must consider all options and be ready to leave the trade if it is proven to be wrong regardless of your belief or how much you trust your own forecast.

  6. On every trade entrance, you must accept the risk of failure and only execute if the potential reward is worth taking the risk of losing.

  7. You need to recognize that sometimes market action may seem random, so you've got to trade a system that can filter out volatility and false movements and trade the macro trend.

  8. In any single trade, you must recognize the uncertainty of the market and reflect on the long-term probability of your edge beating the market in the long term.

  9. You need to manage the temptation to let the winners run, but you also need an exit strategy to lock in gains while they're still there.

  10. Concentrate on your trades, consistency, and possible market opportunities to profit. When you keep a positive attitude you help manage your stress levels.

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