This post is the second of a 2-part series. You can read the first part here.
Now here’s the next harsh truth about trading for a living:
Harsh Truth #3
The pressure to perform is a big disadvantage.
In a regular job, you get paid as long as you show up and get some work done.
Even if you’re really bad at your job (or your boss hates you), the worst thing that can happen is you get fired.
But at least, you don’t lose money.
With full-time trading however, it’s a different ballgame.
If you screw up or have a bad day, you actually lose money. Sometimes a lot of it.
And if you depend on your trading income for your living expenses, that’s where the real stress comes in.
Imagine having a losing month, and having to take money out of your savings to pay for all your expenses.
How many of such months can you realistically take?
Trading itself can often be a frustrating process, but add to that the pressure of having meet a performance target each month, and you have a recipe for disaster.
This is another reason why I say most traders are under-capitalised. You are far more likely to make $2,000 a month trading on a $250,000 account than it is for you to make the same amount on a $25,000 account.
You see, the former requires a mere 0.8% monthly return while the latter requires 8%. One is a lot easier to achieve than the other.
Here’s what the “trading gurus” won’t tell you:
The people who do well at trading don’t need the money.
That’s how they can remain objective with their trading decisions.
They can literally afford to sit on the sidelines and wait for good quality setups – if they don’t see one or miss out on a few opportunities, it’s no problem. They can go for weeks and months without a profit and not lose their objectivity, because there’s no pressure to make that 8% every month.
Unfortunately, too many people come into trading thinking this is their golden ticket out of a job they hate. Or, they’re hoping it will solve their financial problems.
The thing is, you CAN make a lot of money trading… but here’s the catch: it’s probably not going to happen if you’re under the pressure to do so.
Harsh Truth #4
Retail traders can’t emulate professional traders.
New traders often come into this business with preconceived notions of what profitable trading looks like.
They think it’s like a sophisticated computer game where the trader is constantly watching market prices and opening and closing trades in a matter of minutes.
That’s an appealing image, but it’s unfortunately far from the reality of how profitable trading is done at the retail level.
This happens because most people have no idea how the market works, or how most of the profit is made in it.
They simply look at what the professional bank traders do, and try to emulate them without understanding that it’s impossible for the retail traders to follow suit.
For example, did you know that bank traders spend 90% of their time market making for clients? The reason you see them busy trading all the time is because they can generate risk-free profits from those activities.
While we’re paying spread fees for our trades, they’re collecting commissions for theirs.
For the professional traders, the more they trade, the more commissions they make.
Can a retail trader do this? No way. We have no such luxury.
And guess what? Even if the bank trader loses money trading, he still takes home a basic salary.
… are you getting the picture now?
The fact is that retail traders operate a completely different business model than the professionals.
Of course, this doesn’t mean that it’s impossible for a retail trader to be profitable trading full-time… it just means that only a very small minority will have the energy, training, resources and luck to be able to do so consistently over the long term.
For the other 99% of retail traders, attempting to do this will be like fighting on quicksand — you can struggle all you want, but all you’re doing is facilitating failure.
And So, The Biggest Mistake You Can Make
… is to quit your job and jump straight into full-time trading, hoping to “figure it out along the way”.
While this may seem like a heroic thing to do, in reality heroes are the first to be buried.
These harsh truths are the biggest reasons why I trade almost exclusively on the longer time frames and consider myself a part-time trader. I’ve found that keeping a healthy distance away from the market yields the most efficient results from an effort-to-reward perspective.
It’s ironic, but it is precisely because I don’t have to make money from trading, that I am able to.
What do you think? Is full-time trading something worth pursuing?