Want to quit your job to day trade? It’s feasible, but go through these steps, and know what to expect, before you quit your day job.
In 2005, fresh out of university, I saw a job posting from a day trading firm. With a fascination for the markets, I applied. Three interviews later I was given the opportunity to attend training. Most people that applied didn’t make it to training, and about 90% of those that did make it to training were pruned within a few months–not because they were fired, but because they opted to quit. Day trading is a tough business for the first year or two; and for many want-to-be traders it never gets any easier (or profitable).
My business professors, and even my investment professors whom I regularly talked with, ceased verbal and email contact upon finding out. Before they parted ways they gave me some head shakes, puzzled looks and words that were more colorful but basically said “I thought you were smarter than this.” Nope! I had apparently switched over to a world of myth and snake oil salesman…”Nobody makes money day trading…consistently.” One year later I could have said they were wrong. More than 11 years later, I can say definitively that day trading is a worthwhile pursuit. It has never been about the money; for me it is about the freedom. To travel, to spend hours each day on hobbies instead of work, and spend time with family friends upon request or desire. Here are the things I have learned in almost 12 years of trading, both day trading and swing trading.
Quit Your Job to Day Trade – Preparation
You can’t even conceive how much you don’t know. Almost everything you think you know about trading is wrong, inaccurate, or of little use in actual practice.
With a business background and having traded simulated accounts throughout university (more swing trading stuff, not day trading), I thought I knew a fair bit about the markets. I didn’t.
Trading every single day, for the entire day while markets were open, it took me four months until I had a profitable month. In the sixth month I started to make a livable income, a SMALL livable income, but it continued to improve after that (see How Long it Takes to Become a Successful Trader).
I was one of the very few who survived this initial learning curve at the trading firm. In “What’s the Day Trading Success Rate” I discuss the paltry percentage of recruits who were profitable while I was at the firm–less than 5%–even with successful traders there to show new recruits what to do.
If you want to day trade, and are willing to put in several hours a day of market time, then at minimum estimate that it will take at least 6 months until you are consistently profitable and making a bit of an income (a few winning weeks could just be random luck). To be safe, assume it will take a year. Make sure your finances are in order to afford one year without income, or get a part-time job so you can still focus on trading as much as possible.
To do it right, ideally have your trading capital plus have enough in savings to cover your bills for 6 to 12 months. If opting to work part-time, have enough in savings, coupled with your part-time work, to cover bills for 6 to 12 months. Without this buffer, it will be very hard to focus on trading and not be worried about money (worrying will negatively affect your trading). In my case, I was coming out of school and didn’t have much in the way of savings. I worked evenings and weekends to pay my bills while I learned to day trade. If you expect to quit your job with little in savings and no part-time job to support yourself during the learning curve, you’re living in a world filled with unicorns.
Don’t go in expecting to be rich. Do it because you like it. Most day traders I know make a normal living, they just have a lot more time than most people and love what they do. Day trading can be done in one to four hours a day. There is no reason to trade more than that. If swing trading, the time spent on the markets each day should be less than an hour. More than that and the time probably isn’t being spent as effectively as it should.
Day Trading is Psychology
I know, and get emails from, traders who have traded for years and have never been profitable. They have blown tens of thousands of dollars (sometimes more) in day trading pursuits.
Day trading is about admitting when you are wrong when it comes to your market approach and individual trades. Stubborn traders don’t survive; you need to know when to ask for help, be willing to change, and be able to pull the plug on a trade, no matter how much it hurts. One trade or one day doesn’t matter, as long as you cut your losses when planned (see Learn How to Make a Trading Plan).
Don’t get hung up on one trade; consider the big picture and always be thinking “Live to trade another day.” If you get stubborn and blow your capital, that’s it. You’re done and have to start over. Don’t let that be you. Accept what the market provides and live to trade another day…always. Think of everything in terms of longevity, not just dollars and cents right now. This will help steer you toward better decisions.
Most of the people who email me after years of unsuccessful trading think they now have the answer, but in reading their emails I can see they are just repeating the same mistakes over and over again. Your systems either works or it doesn’t; don’t rationalize.
To Quit Your Job to Day Trade, You Have to Practice… A Lot
How do you break a cycle of losing? You need to practice so much on a specific element that you form a new habit. Most people think trading is easy, so they deposit their money in an account and start swinging for the fences. Don’t do that.
Start in a demo account, trading the same size account you will be trading when you switch to real capital (see Best Way to Practice Day Trading and Gain Consistency). If you are profitable in a demo for two or more months, trading every day, then switch to a real account. In the real account, your position size should start at the absolute smallest level, even if you can afford to trade a bigger position size.
Over time, if you show profits consistently, only then increase your position size. Your position size shouldn’t ever expose you to a more than 2% loss on your account equity (based on the difference between your entry price and where you exit the losing trade). I recommend never risking more than 1% of account capital on a single trade. When you start day trading with a relatively small account, 1 or 2% may not seem like much, but you can still accumulate large percentage returns that will grow your account quickly. On larger balances, you may even find risking 1% is too much, as the resulting positions will be larger than what the market can handle (you’ll run into liquidity issues even in very liquid markets).
Practice is not just putting in hours. Take notes, record what works and what doesn’t. Everyone else is just putting in hours too, but 95% of them fail. Be different; go the extra mile in your practice to really dig into improving your methods. Be methodical. Look at each segment of your trade and write down how it could be improved and what is good about it. Do this constantly–it is your practice time, so make it worthwhile.
An analogy may help. Much of my free time is spent golfing; I golf several times a week and when I go the range (golf practice facility) I see the same people there day after day. They put in lots of hours on the range, but never improve. They hit a good shot and so they try to remember what they did and repeat it. It works for a couple of shots and then they hit a few bad shots. They abandon their plan and try something else. This process never ends. They are continually trying new things based on the results of only a few shots. Improvement, if there is any, will be minimal with this approach.
You need to repeat things exactly and routinely, to build consistency with it. Results don’t come immediately, and immediate results are not a reliable indicator of the worth of a method. If you try something, stick with it with many trades, and then judge it. Also consider yourself….are you actually implementing what is taught, or do you just think you are? Taking screenshots of your trading days can help you look back and see objectively what you were doing in real-time.
To continue with my golf analogy, to improve you need to focus on building repetition in one area. If my posture is off, I work on correcting it, often with the aid of video or a mirror. I practice it, and don’t deviate, until it is ingrained and I no longer need to consciously think about it. Then I move to working on another aspect of my swing (if needed).
Focus on each element and make it perfect. Perfect doesn’t mean you win every trade (or hit every golf shot perfectly), it just means you are doing what you have planned. Results take care of themselves; all you can do is be responsible for yourself and do what needs doing. If you practice for a long time and see no improvement, you’re not practicing correctly or your method is flawed. Work on fixing it. Putting in years worth of hours and repeating the same mistakes won’t make you better trader.
In Trading, Expect Good Months and Bad Months
For a good day trader, losing months should be extremely rare, if not altogether non-existent. Taking at least several trades a day, over the course of approximately 20+ trading days in a month, means lots of trades. A good trader should be able to see their statistical edge materialize over that many trades. That said, there are still good and bad months. You may be profitable every month, but the income will fluctuate based on market conditions.
Some months you make 1/10 what you made during a good month. Prepare for this. Keep funds in the bank for the slower months. When you are doing well you feel invincible, and that the big bucks will roll in forever. It doesn’t work that way. Set money aside for slower months…”good” stretches and “bad” stretches can sometimes last for multiple months or even years.
This fluctuation in income happens over the short-term and the long-term. For example, after trading for a year you notice “bad” months produce $5,000 in income, while your good months are $30,000 (these are just numbers to illustrate a point, not representations of what you can or will make). You expect this income range to continue going forward. The market is active during this year, with lots of volume. Such market conditions can last for years.
Then slowly things change. The market isn’t really moving and there isn’t much volume. This type of market condition can also last for years. Not many trading opportunities come up, and now you are struggling to make $5,000 per month…a number which was appalling when the market was in a more active period. Making the $30,000 in a month is no longer possible. Your income shifts to $2,000 to $3,000 a month. Some months are a bit higher and some a bit lower, but you are in a new income range based on market conditions. As volatility expands again, and volume returns, your income increases again.
Good day traders tend to make a good living no matter what conditions are like, but WE ARE affected by market conditions. Plan accordingly, and save money during the good times (hint: if you feel you’re making lots, and it feels fairly easy, you’re in a good time). Income expectations must be adjusted based on market conditions. If you try to make your high income during a time when market conditions don’t favor it, you could end up with massive losses on your hands, compounding the problem. We can only trade what the market gives us.
If you choose to day trade, your income will fluctuate…greatly at times. Accept that now. If you can’t handle it, or have a lifestyle that is so leveraged it couldn’t handle regular income fluctuations, then day trading probably isn’t for you.
Have Support If You Want to Day Trade as a Career
You can day trade on your own, but having someone help and give you pointers will speed up your progress…if you are willing to listen.
Books and videos are good, but you still need to practice the material, test it all out for yourself, and customize it to your lifestyle and personality.
Many traders find it helps to have someone, or a couple people, to bounce ideas off of. When I started trading, me and two friends traded similar strategies and discussed the markets and trading methods every day during lunch. We also frequently met for 30 minutes after the market closed to discuss how we could improve.
Support doesn’t necessarily have to be from a mentor. Recruit someone to be your “trading referee.” This could be a friend, spouse or family member, and is someone who keeps you on track. You let them know what you are working on in your trading, and then you submit your trades to them. In all likelihood they won’t know what you are doing, so you have to explain it to them. Having to explain it to someone else makes sure you understand it yourself. It also makes you more accountable. Even just the thought that someone may check up on us will often prevent us from taking a trade which we shouldn’t, and keep us focused on what we should be practicing.
Joining an online community, a local trading meet-up group or technical analysis chapter (check the International Federation of Technical Analysts website for links to country organizations, which then may list local chapters in your area) can also be beneficial at the beginning of your career. You will meet people on the same journey and can bounce ideas off of them. As a group, you may figure out certain things quicker than on your own. Plus, trading is a very solitary endeavor; it’s nice to have some people to talk about your “work” with.
Be careful though. You want to be around people who are helpful, not pushing their own agenda. Ultimately, everyone needs to forge their own path. Most people lose money in short-term speculation, so you don’t want to be dragged down by others. Don’t spend time with people who are sinking ships, they will sink you as well. Hang out with traders and potential traders who are encouraging, have the same goals in mind, who are open to learning, and are there to help you (as you are there to help them with what you learn).
Quit Your Job to Day Trade? Steps and Expectations
Never quit your job to day trade until you have shown consistency within a demo account for at least a couple of months, trading every day. If you opt to trade a live account right away, then trade a very small position size and keep risk to very tiny fraction of your account (less than 0.1%…yes, less than 1/10 of 1%). As you get better you can also increase position size…but not before you get better.
Have at least a years worth of savings (in addition to trading funds) so you can commit all your energy to the day trading pursuit, or have several months worth of savings (in addition to trading funds) and/or a part-time job which covers your bills each month. If you’re worried about money when you start trading, it’s likely going to be much harder for you. Instead, save up a bit more money…be patience in getting started, the markets will be there…there is no rush.
The next step after you’ve proven your method in a demo account is to open a live account, trading the smallest position size possible, and increasing the position size only if consistently profitable. If you are going to quit your job to day trade, have your financial affairs in order, and assume it will take at least 6 months or more before you start to see consistent profits. Preferably don’t give up your income until trading is at least partially replacing what you are giving up. Get a part-time job to help relieve the financial strain you will inevitably feel during your learning curve. Many traders struggle when transitioning from demo trading to live trading, so even if your demo trading was profitable, it could be many months before you see those types of returns in a live trading account. There is more psychological pressure with real capital, so there is another learning curve when you transition to real capital.
Save money during the good times; there will be months where your income drops dramatically, even though you may still be profitable.
Seek out someone to give you feedback on what you are doing. Preferably someone who has been through what you are going through, and has come out the other side a profitable trader. If that isn’t possible, seek out other traders either online or in your town via meet-up groups or a local technical analysis chapter. You may find talking with others helps speed up your progress. If you feel it slows you down though, stay away.
Practice, practice, practice. Day trading is not necessarily about acquiring knowledge. Like a sport, you need to act. Theory is great, but it doesn’t make money in the markets. To make money you need to go through many repetitions doing the same thing. Get into a demo account and practice trading specific trade setups–which have a statistical edge (profitable)–over and over again. This way, when you switch to live trading you won’t need to question what to do. You will act with precision based on what you’ve practiced. Trading with real capital will take a bit of an adjustment period, but at least you know what you should be doing. Work on doing it. Trade the smallest size and only build to risking 1% or 2% of your account balance as your consistency improves.
Quit your job to day trade? That’s up to you, but hopefully now you can make a more educated decision.
If trading forex interests you, my Forex Strategies Guide for Day and Swing Traders eBook covers all the basics of forex trading plus day trading and swing trading strategies, giving you everything you need to start your journey. The nice thing about forex is that the market is open 24-hours during the week, so it is an accessible market for people who don’t want to quit their job to trade (just yet), but want to start building some extra income in their spare time.
By Cory Mitchell, CMT