article by : Rayner
Let me ask you…
Why do you want to be a trader?
You want financial freedom.
You don’t want to answer to anybody.
You want to be your own boss.
You want to make money.
You want a passive source of income.
Now you’re probably wondering:
“Is it possible to achieve all these from trading?”
Then you’ll want to read every single word in this post because you’ll discover the myths, the possibilities, and most importantly… the truth about trading.
You may be surprised at what I’m about to share with you.
So if you’re ready… then let’s begin.
#1 You’re trading for passive income
Passive income means receiving an income without doing “anything”. In reality, you either require a large capital upfront, or you work your butt off in the early stages and reap the benefits later.
So, can trading be a passive source of income?
Well, let’s see…
Year 1 – you’d probably blow up multiple trading accounts as you’ve no idea what the heck you’re doing.
Year 2 – you learn everything you can get your hands on
Year 3 – you throw out 90% of what you’ve learned and focus on the stuff that really matters.
Year 4 – you have a concrete plan on what it takes to succeed in this business.
Year 5 – you see some consistency in your trading.
Year 6 onwards – after being through the ups and downs, highs and lows, you come to the realisation that the only thing passive is paying your brokerage fee on every trade.
If you really want something passive, you’re much better off investing in an index fund.
#2 You need to repay your debt
If you’re in debt and looking for a quick fix, maybe trading is a solution?
The answer is NO and it’s not even for the experienced traders. Here’s why…
Trading requires emotional control. But when you’re in debt, whatever control you have is clearly out of the window. Because you only have one thought in mind… which is to quickly make back the money you owe.
So what happens? Well, you start taking larger risk because you want to make money fast. You’re unwilling to cut your losses because you don’t want to lose. You have such immense pressure on yourself and things eventually spiral out of control.
Eventually, you blew up your trading account and you’re still in debt.
So, never trade to repay your debt because you are only digging a bigger hole.
Instead, get a job (pizza delivery or something) and pay off your debts. It may be a slow process, but at least you’re climbing out of the hole.
#3 You hate your job
Your job has no career progression. Your colleagues talk behind your back. Your work isn’t recognised by your boss.
You honestly hate your job and you want to find a way out of it.
So you think to yourself:
“Why not trade for a living?”
There’s no boss to answer to, no politics, and no restrictions. All of it sounds good till you find out what it takes to trade for a living. So let me explain…
First, you must be a consistently profitable trader to start with. Else, it’s like saying you want to be a professional Golfer when you’ve never played gold in your life.
Next, you need sufficient capital. Having a $1000 account and trying to trade for a living is ridiculous, (unless you can survive with $30 a month). In my opinion, you’d need at least $100,000.
Lastly, you should have your living expenses covered for the next 12 months, which isn’t from your trading account. This is to ensure your survival even if you didn’t make money this month.
If you meet these requirements, then you can consider trading for a living. If you can’t, then you’re better off staying at your job. At least you get paid no matter how f***ed up things are.
#4 You want to make money
I know this sounds ironic…
…who doesn’t want to make money, right?
But here’s the thing:
If you trade just for the money, YOU WILL NEVER MAKE IT.
The reason is simple.
You will not persevere through the tough times to reap the rewards. Especially when you blow up multiple trading accounts, when you suffer from analysis paralysis, when your fear is holding you back… what will you do?
As you’ve seen earlier, you can easily take 5 years or more to become consistently profitable.
Don’t believe me?
Check out Marty Schwartz, a stock “Market Wizard”, who took 10 years to become profitable in trading.
Marty Schwartz isn’t the exception. Think about Bill Gate, Steve Jobs, and Warren Buffet. They each took years before they had their breakthrough, and the thing that propels them forward is their passion, not the money.
If you just want to make money, go drive an Uber, give tuition, or take part-time jobs. These are easier methods to make money than trading. But, if you’re passionate about trading, then you can consider walking down this path.
You have to have a lot of passion for what you are doing because it is so hard… if you don’t any rational person would give up — Steve
#5 You want financial freedom
Financial freedom means you have enough wealth to meet your daily necessities even without working. It’s probably because you have assets that generate a consistent income (like owning dividend stocks, collecting rental from properties and etc.)
So, does trading give you financial freedom?
It’s a yes and no. Let me explain…
Yes, trading can provide financial freedom if you use it to generate wealth over the long-term.
For example: Trend Following hedge funds generate an average of 10 – 20% a year. This means if you have a $1m account and you adopt a Trend Following approach, the returns should be enough to cover your expenses (albeit you don’t require $50,000 a month to live on).
However, the catch is…
You need a large capital to start with. If your fund is small, it’s not possible to achieve a state of financial freedom. Remember, you need money to make money in this business and there are no two ways about it.
#6 You’re looking to make it big in a few short years
You should realise by now… trading takes time, patience, emotion control, frustrations, grit, and the ability to endure PAIN.
And that’s not all. You still need capital, the life blood of your trading business. Without it, you’re like a car without an engine. It’s not going to work.
Now… let’s say you took 5 years to see consistency in your trading results, and you make an average return of 20% a year.
With a $10,000 account, you can expect to make $2000 per year.
With a $100,000 account, you can expect to make $20,000 per year.
With a $1m account, you can expect to make $200,000 per year.
And It’s obvious the larger your account, the more money you can make. So, if you want to make it BIG as a trader…
Get consistent in your trading
Find ways to raise capital and trade larger
Forget all the marketing gimmicks. Forget the get rich quick scheme. Forget about the fancy systems and that promise high win rates.
That’s not a path you want to walk unless you want to continue losing your hard earned money.
#7 You want to buy a new car, watch, or toys
Repeat after me…
Your trading account is not an ATM.
Your trading account is not an ATM.
Your trading account is not an ATM.
Your ATM will always spit out money when you put in the correct pin. But trading not only spits out money, it also EATS UP your money. A big difference.
So, if you think you can use your trading account to fund your latest gadgets, “toys”, or whatever… you are sorely mistaken.
Doing so is a recipe for disaster because you put expectations on the market. You expect the market to give in to you. You expect the market to give you profits. And this is when you break your rules by trying to bend the markets to your will.
You shift your stop loss to prevent a loss. You average into losers hoping you can make it back quickly. You revenge trade and hope to make back your losses. In other words, you break your trading rules that were meant to protect you.
You destroy your trading because you treat the market like your ATM.
The bottom line is this…
If you want to make a purchase, don’t rely on your trading profits. It’s wiser to save your money and buy on a separate account.
1. There’s no such thing as passive income when it comes to trading. If you want something passive, you’re better off investing in an index fund.
2. Don’t trade to repay your debt because you’ll only make matters worse. Get a job, save money every month, and repay your debt.
3. If you want to quit your job and trade for a living, make sure you have sufficient capital and expenses covered for the next 12 months. That is the bare minimum.
4. Don’t trade just because you want to make money. If you just want to make money, there are far easier ways like driving Uber, giving tuition and etc.
5. Trading itself won’t give you financial freedom. You need sufficient capital, the skill to generate a positive, and your expense must be lesser than your return.
6. Trading is not a get rich quick scheme. If you’re looking to make it big in a few years, look elsewhere.
7. Your trading account is not an ATM machine. It can spit out money, but it also EATS UP your money.
Remember: that overnight success usually takes about fifteen years