You may have been fascinated by the stock market for some time. You see stories on the news, on your social media feed, or online of individuals who are seeming to make unbelievable profits trading stocks. While becoming phenomenally wealthy would be nice, you may be content with making the same salary that you have now but with only trading stocks.
If you have considered quitting your day job and supporting yourself financially by trading stocks, you may wonder if this idea is a fantasy or something that is real and profitable. You may have already experimented with paper trading simulations. You were more successful than you expected to be and are now ready to take the leap and invest actual money.
Online trading platforms have made it easier than ever for people to make real money trading stocks from their home, from a cafe, or while sitting on the beach. While the concept of trading for a living and the “freedom” it can bring may seem alluring, it is important to remember that trading for a living is a challenging job. It requires a specific skill set and an emotional resilience that many people just don’t have.
This doesn’t mean that you cannot use a stock trading app, learn some strategies, and become successful. What it means is that you will have to plan realistically, evaluate your situation, and determine how much money you are prepared to lose as you strive to make this venture successful.
Are You Disciplined Enough to Trade from Home?
Waking up every day and going to an office job requires focus and discipline. Not everyone can do this. That’s why there are many good people who just cannot seem to hold onto a job.
Successfully trading for a living requires a different level of discipline and focus that most people, regardless of their career, will never achieve. There is a difference between being a day trader and a traditional investor.
A traditional investor puts money into the market and then watches their investment grow. A day trader is an active participant in the market daily and must make calculated decisions that can have an immediate impact on their wealth.
You might compare the difference to that of playing flag football with your friends on the weekend and playing in the NFL. Both things require the same skill set, but even the best weekend warrior could not hope to qualify to play in the NFL.
The idea is not to dissuade you from pursuing your dream of trading from home. If that’s what you want to do, you need to go into the situation with your eyes open to avoid disappointment.
Trading from home gives you flexibility. You don’t have an employer breathing down your neck. The rise of stock trading apps like Stash and Acorns has made it even easier to access the market in just a few seconds. However, being a day trader is a stressful profession. The actions you take have an immediate impact on your money, so you must have a disciplined schedule that you live and die by.
Discipline will help you set a target profit for trade and then walk away in a mechanical manner. Disciplined traders do not allow emotion or the temptation for more profit to cause them to hold onto a trade longer than they expected.
Discipline means that when a trade goes south, you can cut your losses and close the position. Resilience allows you to get back up on the horse confident that your next trades will be successful.
Education is a Must
Hearing stories about traders who can make massive amounts of wealth because of relying on their intuition or gut is motivating. However, it’s not realistic. Trading is a science and an art. Scientists and artists are only successful if they study and practice.
Before you call it quits to your day job, educate yourself about trading. You should be able to speak intelligently about most things related to trading. You want to have general knowledge, but you should specialize in short term strategies.
The Internet is full of information designed to help educate you. There’s nothing wrong with availing yourself of this information. However, you should be leery of individuals who promise to make you rich overnight if you are willing to part with a little bit of your money to buy their book, program, or strategy.
Reputable institutions like the Securities and Exchange Commission, the IRS, and the Financial Industry Regulatory Authority can provide valuable information that can help you. There are also several books published by respected leaders in the financial industry that can help you get acquainted with the rules of the game.
Going back to our analogy of a weekend warrior versus an NFL player, both understand the rules of football. It’s the NFL player who has dedicated himself to learning strategies and gaining in-depth knowledge of the rules. This is a key to success.
Once you have the theories down, put them into practice using a paper trading simulator. It would be foolhardy to leap headfirst into a full-time trading career if you can’t sustain profitability through fluctuations in the market using a stock trading simulator.
Set Aside Capital That You’re Willing to Lose
Everyone hopes to be the next rags to riches story. You will need to have some capital that you are willing to invest to get started – managing your budget correctly is the key.
The capital that you must have set aside should be divided into two categories. First, have at least one year of living expenses set aside to cover things like housing, food, and insurance. This is not the money that you will invest with. This is the money that will allow you to dedicate months to your career without being concerned about needing to pay the rent.
If you are going to be a pattern trader, which means you trade four times a week on the same days at the same time, the FINRA requires that you have a brokerage balance with a minimum of $25,000. We’re talking about a considerable amount of money. But if you look at it like starting in business, it doesn’t seem overwhelming. Businesses require investment.
You need to prepare yourself mentally to leave emotion out of your trading. You must brace yourself to endure financial losses, especially during the first few months of trading.
These are just a few of the basic tips you will need to consider if you want to make money trading stocks. To be honest, the odds are not in your favor. However, if you have enough capital, if you’re disciplined, if you’re studious, and if you’re diligent, you might be one of the few able to successfully master the science and art of trading and enjoy the freedom and financial rewards that come with it.
Interesting related article: “What is a Trader?”