Trade For A Living: 4 Harsh Truths (part 2)

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?

By |2019-04-15T05:44:33+00:00April 15th, 2019|Mindset|18 Comments

18 Comments

  1. CAROL J. BRUBAKER May 10, 2014 at 8:55 pm - Reply

    Do these harsh truths also hold true for the Forex? I was told the one thing you don’t need a lot of is money to trade the Forex. You can start trading the Foresx with as little as $500.00 and if one is vigilant trading the rules a consistant profit can be made.

    • Chris May 11, 2014 at 3:01 am - Reply

      Hi Carol,

      Yes, one can technically start with $500 (or less).

      However, it’s certainly not going to provide a livable trading income.

  2. Antonio May 10, 2014 at 9:55 pm - Reply

    Chris, as usual you are very direct and honest in your posts, this will save many traders, I want only to add a small positive fact that can help, we can join the forces with experienced selected traders (like you?) and this will help learning to trade, saving many mistakes of the beginners. I did it and in 4 years I lost only the first year (less then 3k) The first thing I learned is money management and do not stress myself.
    May be only next year that will decide to do it full time, I will be in pension ehhehhh I will enjoy it.
    Good luck to all and follow the recommendations of Chris is the only one who says the things how they are.
    Antonio

  3. Bashar Abdin May 10, 2014 at 9:58 pm - Reply

    Hi chris
    Many thanks for the second post ,actually you got the point , and I agree with you about the pressure affected on a daily trader for living , but I know a fellow used to trade for living only once a month by binary options trading , last month won (28,000 $) on NFP report, but his capital over 400,000 $.
    Gain wishing you the best , and keep going in success.

  4. Laur May 10, 2014 at 10:40 pm - Reply

    Hello Chris,

    I have been reading your blog for a while, but this is my first post.

    Although you have relevant content, i must tell you, this is not 100% true.
    I am also a proffesional trader, and this game is all about controlling risk, in order to get good GAIN.
    That gain of 5-10% is very low, and trust me there are ways to get more from the market, in safe conditions.
    If you know how to manage risk, profits will come. But most part of your success is made by the STRATEGY you apply.
    A good strategy can bring lot of money, while a less good strategy can bring less money.

    According to how you play with Risk Management, Equity Management, Entry/Exist strategy, ratio, etc. , you can get an optimal way to win more money than 10%.

    Good luck, and i’m thinking to join icarus project too.

    • Chris May 11, 2014 at 3:02 am - Reply

      Hi Laur,

      When you say you are a professional trader, do you mean that you are a bank trader?

  5. walter morris May 11, 2014 at 5:29 am - Reply

    Chris, at one time there existed a forex trading challenge called the surefire trading challenge, and one could join and download literally hundreds of systems which were explained in detail. These systems produced anywhere from 50 percent to 3000 percent gains in one month.

    The challenge no longer exists, but you can investigate the Traders Library that was started by the original promoter of the contest. I downloaded about 20 of the systems and I was really impressed, but lost the files when my computer died. I am trying to find A way to purchase the systems but so far not located any source. Anyway, the systems are an excellent source of new ideas and systems that are very potent.

    Man, you must make a tidy sum to be able to travel the world. I look forward to the same success.

    • Chris May 11, 2014 at 9:10 am - Reply

      Hi Walter,

      Thanks for bringing it up, as it gives me an opportunity to comment on trading competitions in general.

      In my opinion, these “challenges” are based on (and promote) a gambler’s mentality.

      I say this because the only way to win is to take irresponsible amounts of risk. It’s a game that only a reckless trader can win. I’ve written about this in part 3 of the Retail Forex Manifesto.

      Personally, I would avoid anyone who encourages such behavior because it does not make you a better trader. In fact, it does the opposite. These competitions encourage people to go “all out” and then go on to glorify the “winners”.

      What they (conveniently) don’t talk about, is the thousands of other traders who traded with similar methods but blew up their accounts. Everyone just looks at the lottery winners, but ignores the millions of lottery participants who lost money.

      Who wins in the end? Just a random handful of lucky participants and the people selling the dream.

      The truth is, real profitable trading (at the retail level) is nowhere near as exciting as these lottery challenges (as I like to call them). It’s mostly about measuring and tracking risk, and managing positions over time. It’s not sexy, but it’s reliable.

      Just like any hedge fund, our job is to grow our capital over time with as little risk as possible. It’s not about betting big, rolling the dice and praying we get lucky, which is what these competitions are essentially about.

      If you want to make quick money, don’t follow a trading challenge. Start one.

      P.S.> You might want to check out this related post.

  6. Gonzalo May 12, 2014 at 3:09 am - Reply

    Hi Chris,

    If you keep it out of the trade and you’re risking 400 pips or 500 would be logical to go for a 1:1 ratio minimum.

    Or you can consider that you take profits with a lower ratio?

    Regards,

    Gonzalo

    • Chris May 13, 2014 at 4:57 am - Reply

      Hi Gonzalo,

      It really depends on your trading philosophy. Whatever it is, your risk reward ratio should be congruent with it.

      Personally, I tend to go for a risk reward ratio of 1:2 or more.

  7. Kevin (TDT) Harper May 14, 2014 at 9:03 am - Reply

    Hi Chris
    another solid article … love the final piece of advise

    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”.

    I also strongly agree even though I have done well in a few that “short term trading competitions” are very bad for proving anything and will most probably teach yourself Bad Trading Habits that will come back to tear you / your trading account up at some stage

  8. Goh b h June 1, 2014 at 5:33 am - Reply

    Hi,many thanks for your hard n effort works.i’m new in fx n agree with u that effective entry/exit ,money mgmnt strategy are equally important, still looking for profitable setup strategy

    • Chris June 1, 2014 at 3:18 pm - Reply

      Hi Goh,

      My pleasure. Glad you like the blog.

  9. johan June 1, 2014 at 9:24 am - Reply

    Maybe that is why fulltime traders have paid trade rooms or selling stuff related to trading to make a living Or what do you think?

    • Chris June 1, 2014 at 3:17 pm - Reply

      Hi Johan,

      Yes, that’s certainly possible.

      If you’re a winning trader the smart thing to do would be to have other sources of income so you can keep grow your money exponentially rather than extract equity out of your account.

  10. leonardo August 20, 2014 at 6:15 pm - Reply

    Hi Chris —

    You make some excellent points about the “ultimate quest” of trading-for-a-living. (I stopped by your site to view your pictures from China. Very insightful. I also loved the pictures of Switzerland and Austria – love it there.)

    You are so correct about the HUGE DISADVANTAGE of trading under pressure to perform. Whether that pressure is self-applied or put upon you by others. It is worse if you are applying the pressure. You think less clearly, making it even more likely you will lose.

    A book could be written about that point alone. Actually, there HAVE been books written about that. You can’t make the market move even 1 tick the direction you want, but can make it go against you by just entering with a close stop. At least that is what the reality feels like when you are trading under pressure…. 🙂

    The other point tangent to this whole matter is: unrealistic expectations. Whether you’ve adopted those expectations because of advertising, hearsay, or even lies by those who have something to gain; or your own irrational desire to believe in something that isn’t likely— believing that the markets are one way, when in fact they are not— WILL cost you all your capital.

    Until you finally start letting the market tell you how it is willing to reward you. And then you wait for the few – but certain – opportunities that jump right out at you that reward your patience and objectivity.

    I’ve been a professional trader for more than 30 years. Mostly trading just for myself. But thinking that, “Hey, I can make so much more if I trade a huge account for others…”, I’ve ended up trading for funds that tried to force me to make profits when there were no moves to be had. I saw no future in that and exited stage left.

    If you start out with a mistaken premise, it is impossible to reach your goal.

    Ideas are things. A career built on wrong ideas will fail. I thought I would weigh in on a couple of details that I believe are crucial. The meaning of certain trading terms, like “Professional Trader”. In the Thesaurus you find these 6 synonyms for the title “professional”:

    competent – efficient – experienced – qualified – skillful – expert

    Antonyms, the opposite of “professional” are as follows:

    green – ignorant – incapable – incompetent – untrained – inexperienced

    A competent, efficient trader “knows” that he has a mathematical edge when trading, so that with proper management he is certain to gain. An untrained, inexperienced trader doesn’t even “know what he doesn’t know” has only a limited time before his capital is permanently gone.

    I started trading in my teens. Fortunately I realized how little I knew, and was more willing to let the market tell me where it was going. Without that attitude I would’ve failed my very first year, and would probably be a taxi driver now, not that there is anything wrong with that. 🙂 (Half of my buddies at the Board of Trade were cabbies when they were’nt in the pit)

    I also have a problem with the term “retail” trader that I hear bandied about so casually (usually perjoratively) about people wanting to learn how to trade profitably.

    Fact: You can be just as “professional” as the best traders that have ever lived while trading from average forex platforms and make 99.9% of the profits available using a “Bank” platform or the IB platform (which I consider to be one of the best ever). One of the biggest profits ever made in Forex was made by Soros on Sept. 16, 1992. I knew some of his brokers, and he was paying 5 – 15 pip spreads to enter his positions. He never once complained about being a “retail” trader.

    The most profitable risk/reward trades are longer term trades. And that is where all the “big” money has ever been made. The “big moves”. They are there ours for the taking.

    —I just had to exit part of a Euro short as I finish up here. —

    Thanks for the great articles and trading ideas Chris, and also the great pictures of your adventures. It is great to be free.

    leonardo

    • Chris August 22, 2014 at 3:30 am - Reply

      Hey Leonardo,

      Yeah, Europe is exceptionally beautiful in winter… if only I take better to the cold!

      Thank you for comment by the way, I enjoyed reading it.

  11. Harif July 7, 2015 at 4:35 am - Reply

    I am not a FX trader and will never be as i just am in the complete observation mode at this stage but the only reason I am commenting here is to tell that all the points you made in this post are very much true and also are harsh to accept by who just want to get into trading to make real quick money without putting real hardwork.

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