Among the many questions people wanting to invest in stocks ask is, “can I make a living by trading stocks?” Well, this is no surprise considering the idea that quitting your job to start earning yourself a living by trading stocks seems fascinating to many people. The plain trust is that you could actually earn yourself a living by doing stock trading, but the big question is how probable is it to do that?
Trading stocks for a living is more of a dream than reality
It may seem a fantasy to many aspiring traders who want to earn by trading stocks; however, it isn’t something impossible to do, though it’s only attainable by a few individuals. Every year newbie investors kept afloat by their paper trading success try to take a leap of faith and make their decision to start earning a living from the stock market. While some make it, a majority of them only blow up their accounts.
There are people who have made a good living by trading stocks and they have done it successful for many years. One thing that lures people to consider trading stocks is the freedom it offers. Imagine that you can literally sit on a sunny tropical beach or in the yard of a mansion high up within the Hollywood Hills equipped with only a laptop and fast Internet connection. There you’re able to carve out a living right from this market.
You have the freedom to be your own boss. You can work where and when you want while also being financially secure. However, the reality is that it is tough to trade for a living. It requires you to have a very specific set of skills as well as risk tolerance, which most people do not possess.
In order to trade successfully for a living, it would mean that you have to attain a level of excellence that most people may not have achieved or will never achieve no matter the career they choose. What this means is that trading for a living is more of a dream than reality for many people. While it isn’t good to discourage people, it is important to mention that if you are pursuing trading stocks for a living, it is better you get into it with your eyes open.
What you need to trade stocks for a living
If you are striving to trade stocks for a living, you will need to establish a sound trading methodology. You need a technique that can take advantage of volatility and at the same time keep the risk management in control. The methodology needs to have been put to a test over a long time in different market environments and also with real money trading.
Again, you also want to ensure you spend time to gain knowledge about stock trading. This means that you need to be a trader rather than an investor, therefore, you will have to search for reading materials about trading so you understand the ins and outs.
On top of that, establish a contingency fund. Probably, you will need to set aside at least one-year’s worth of funds before plunging into this market. This is not the money you are going to use to trade with, but cash for use to cater for your living expenses. It is a financial cushion that allows you to have a peace of mind during the time you are trading.
Remember that emotional effects caused by finances can disorientate your trading strategies and you may not be able to make the right moves, something that may cost you huge losses. This is why many people lose their capital when they trade stocks. They are influenced by psychological emotions and make mistakes.
A) Coping with income inconsistency
In the first few months you start trading stocks, you will encounter income inconsistencies and this affects your psychological well-being. The goal is to ensure that you have a reliable yet consistent stream of revenue. It will take time when you trade stocks to be able to reach a point where it offers you reliable income to meet your living expenses. You will have to bear unprecedented daily fluctuations of income, which may be tough for you. Therefore, you have to prep for it.
B) Dealing with emotions of trading stocks
Often, the biggest hurdle you have to deal with and need to overcome so that you make a living by trading stocks is that of emotions. The business of trading stocks, by its nature, is made up of a larger percentage or frequency of losses than winnings. Any successful trader understands that they will lose small in most of their trades, however, those losses are covered up by the big winning trades they have to make. Looking at it this way, it seems counter intuitive to human nature, since people always want to win.
Day traders in the stock market
Day traders within the stock market look at the market with strict technical analysis. These traders are grouped into three categories that include scalpers, intraday traders, and the swing traders. While these traders do the same thing of making profits based on differences in value of stocks, they apply different amounts of time in their trading positions.
For example, scalper traders make money with high frequency trades that attract lower profits. They take advantage of those small inconsistencies in the stock market and the quick movements. A scalper opens a position for only about seconds or minutes and they close. Scalpers will place higher frequency of traders because the profits they make per trade are usually low.
An intraday trader will hold positions overnight or for a couple of hours. They will be in positions for minutes to hours but they aren’t as high frequency traders as the scalpers.
Swing traders make money by opening positions for longer periods. These traders can stay in position for a couple of days or weeks. The traders focus on the swings in stock market instead of relying on quicker movements.
A day trader may make money when stock values go down or up. Such investors can even make more money when there is volatility in the market such as during a recession, crisis, or a special event announcement that affects the value of stocks.