How Long Does it Take to Make a Stable Income from Trading?

This is a discussion on How Long Does it Take to Make a Stable Income from Trading? within the New to Trade2Win forums, part of the Reception category; SHORT ANSWER How long is a piece of string? The best answer anyone can come up with is somewhere between ...

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Old Apr 5, 2008, 12:23pm   #1
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How Long Does it Take to Make a Stable Income from Trading?

SHORT ANSWER

How long is a piece of string?
The best answer anyone can come up with is somewhere between 6 months and never – which isn’t very helpful! Therefore, what this FAQ will aim to do is to outline practical steps that you can take that will help you to get from wherever you are now - to making a stable income from trading - as quickly as possible.

If you’re offered a salaried position at a proprietary trading firm (referred to as a ‘prop’shop’) or at an investment bank, you’ll be expected to make money for your employer in a matter of months. If you don’t, you’ll either be moved on to a different department or invited to find alternative employment. However, for the purposes of this FAQ, the chances are that you’re a self taught retail trader working from home. The only time limit is one that you impose yourself. The upside to this is that there’s little or no pressure, but the downside is that you could spend years of not getting anywhere and eventually give up. A lot of time will have been wasted and, quite possibly, a lot of money too. So, what’s the solution?

Set your own time limit
Unfortunately, there’s no reasonable benchmark which helps you to gauge what would be appropriate for your personal circumstances. However, what you can do is to set realistic time based goals. For example, month No 1 might be to read all the FAQs and Stickies on T2W. Month No 2 might be to set up your data feed, charting software and broker. Month No 3 to develop and test a simple trading methodology etc.

Learn fast and get experience
Knowledge is power and the best kind of knowledge is that which you acquire through your own experience. Learning to trade is a bit like learning to drive. Learner drivers read the Highway Code, but that's no substitute for getting behind the wheel of a car. The same principle applies to trading, so open an account and paper trade on a simulated platform as soon as possible. Then, when you’re ready, trade very SMALL amounts of real money.

Have a reason to trade other than just making money
The goal of consistent profitability is common to most traders. However, make sure that it’s not your only goal. If you never achieve it, how will you feel? You don’t want to devote months - or maybe even years to this endeavour - and, if it fails, to conclude it’s all been a total waste of time. Your trading journey should be rewarding in itself, even if you never achieve the goal of making a stable income from doing it.

Last edited by timsk; Oct 5, 2010 at 12:45pm. Reason: Updating
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Old Apr 5, 2008, 12:23pm   #2
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How Long Does it Take to Make a Stable Income from Trading?

T2W Bot started this thread LONG ANSWER

No certainties. No guarantees. Only probabilities
Trading is unlike almost all other human endeavors. Suppose that you’re tone deaf and have no natural musical ability. In spite of these shortcomings, you’re determined to learn to play the guitar. You practice many hours each day, take lessons, immerse yourself in the work of Hendrix, Page and Clapton etc., and go to as many live gigs as possible. You may never be good enough to play in a band but, eventually, almost certainly you will reach a level of proficiency that enables you to bash out a recognisable tune. Unfortunately, if we equate ‘a recognisable tune’ with consistent profitability as a trader, the same level of dedication and practice are not guaranteed to produce the same results. As a trader, you must embrace the fact that there are no certainties, only probabilities.

From six months to eternity
As a rule of thumb, if you can survive the first few years, you will probably be able to keep going for a long time without losing a lot of money. Traders refer to this as a ‘slow bleed’. Your actual trading stats may hover around breakeven, but the commissions, fees, software and data feed subscriptions all mount up over time. In this situation, either you can quit trading altogether; go back to paper trading until the trend reverses and try again, or top up your account as required and carry on in the hope that your fortunes improve. The hard fact of the matter is that regardless of the amount that you study and practice, you may never experience consistent profitability. In reality, the first real goal for most new traders is to reach a point whereby they can decide whether or not trading is ever likely to work for them. And if the likelihood is that it isn't, then the faster they can move on to pastures new, the better.

How big is the mountain?
To help you determine whether or not trading is ever likely to work for you, the first obvious step is to gauge the size of the task ahead of you. Trading, like learning to play the guitar, is a performance activity. You can’t expect to learn to trade, let alone be good at it and make consistent profits, quickly. This flies in the face of zillions of ad’s littered like confetti all over the internet, telling you that you can go from a standing start to pulling in consistent profits in a matter of weeks, sometimes days. Get real, it ain’t gonna happen! Why not? For the same reasons as you’re not going to play footy for your country at the Brazil 2014 World Cup, or star in the next Spielberg blockbuster, or perform at the Albert Hall with the Royal Philharmonic Orchestra. Some members will argue that trading isn’t anything like as difficult as learning to play an instrument or becoming a top sports star. And they’re right, in as much as the basic mechanics of putting on and taking off a trade aren’t difficult. But, the people on the other side of your trades are professionals who have, in many cases, put in years of study.

Know who’s on the other side of your trades
According to research undertaken by the renowned psychologist and author Bret N. Steenbarger, professionals execute around 75% of all equity and futures contracts volume. Many of these professionals are highly qualified people. Gone are the days when the city trading floors were filled with street smart barrow boys from the East End. Take a look at this book – better still, buy it: Options, Futures, and Other Derivatives by John C. Hull. At the very least, read the introduction and scroll through the 20 page Glossary of Terms and see how many you understand. You can do it for free and it should bring home the point that this isn't a 'get rich quick' business in which you can make easy money with minimal effort. The chances are, the person on the other side of your trade read this book as just one of many standard reference texts in their first year at university – at least two years before they went anywhere near a trading desk. This is who you’re up against. This is the trader selling to you or buying from you. What makes you think you’re as good – let alone better than him / her? Make no mistake, to become a successful retail trader trading your own money from home is a very tough gig. And it’s going to take time, probably years rather than months. Run a mile from anyone who tells you otherwise. Oh, one more thing: if you read this book and understand it, you’ll be a lot further down to road towards trading success than most other retail traders!

Track record
The flip side to this is the rare breed of trader who is profitable pretty much from the get go. However, if you’re in this enviable position, before you can claim to be consistently profitable and confident that your success isn’t merely good luck, a 6 month track record as a bare minimum is necessary. That’s for a day trader, if you’re a swing trader, think in terms of a year or more.

'Stable' and trading: uneasy bedfellows
In the context of trading, the word ‘stable’ isn’t one you’ll come across very often. During the back end of the 1990s, lots of traders thought they’d discovered a stable income through trading. Then, in the Spring of 2000, the dot com bubble burst and many of them lost (all) their gains and had no idea what to do next. The lesson to be learnt from this is that even if your strategy has worked well for the last six months or maybe even a year, there’s no guarantee that it will work next year or the year after that. Only when you’ve traded the full kaleidoscope of market conditions and know how well your methodologies perform in all of them – will you be able to answer this question with any real confidence. Depending upon your style of trading, realistically, this will require making consistent profits for three years or more.

For faster results . . .
Paying a coach or mentor could speed up the process. However, a word of caution here . . .
A) Good traders who are also good coaches are as rare as hen’s teeth. Teaching others how to trade is much easier than doing it oneself. So, beware of those who can talk the talk but are unable to walk the walk.
B) Although there are a few good coaches, they may not teach an approach which suits your trading style and personality.

Finding the right coach / mentor is a tricky task in itself. The obvious fast track route is to get a trading job at an investment bank or ‘prop’ firm, where they will train you and expect you to be earning money for them in a matter of months. However, this is not an option for most ‘retail’ traders working from home in their spare time. Often, they have other work and family commitments and so, for them, the journey will be somewhat slower.

What does 'stable income' mean to you?
In the context of conventional employment, it means being paid at the end of the week or month. However, there are some extremely successful traders who have weathered unprofitable months and, even, unprofitable years. Would this be acceptable to you? If you’re someone who wants to be profitable on a monthly basis as an absolute minimum and, ideally, on a weekly basis, then this will almost certainly involve becoming a day trader. Producing consistent profits on such short time frames will be difficult to achieve for swing traders and virtually impossible for position traders, taking perhaps only one trade per week. The size of your account is also important. If ‘a stable income’ means £2,500 per month, (£30k per annum) then this will be easier to achieve if you have a £100,000 account than it will if you only have a £2,500 account. Self evidently, a 2.5% monthly target is an easier and more achievable target than one of 100%.

For the purposes of this FAQ, it’s reasonable to assume that you want to go from where you’re at now to consistent profitability in the shortest time possible. Here are some ideas to ensure that the bridge to this happy state of affairs is as small as possible and traversed as easily and quickly as possible.

1. Stop trading
If you’re losing heavily, stop trading. If you’re losing consistently – albeit small amounts – stop trading. There’s no point bleeding your account dry, hoping and praying that your luck will change. Almost certainly, it won’t. Remember, to professional traders, ‘hope’ and ‘pray’ are the dirtiest of dirty four letter words!

2. Paper trading
Does your trading strategy work when trading paper money on a simulated trading platform? If it doesn’t work in this environment, it almost certainly won’t work trading with real money. When you can make money here, then upgrade to live trading using real money. Keep the amounts involved as small as you can and only increase them gradually as and when the profits allow.

3. Minimise your losses
It’s imperative that you stay in the game long enough to figure out how to achieve consistent profits and a stable income. If you’re losing a lot then, self evidently, you’ll fall by the wayside relatively quickly. It would be a shame to ‘blow up’ (i.e. lose all your money) just at the point that you figure out how the market works and a way to trade it! Learn about risk management to ensure that your losses are kept to an absolute minimum.

4. Learn how to lose!
If you can’t accept losses, trading will always be a tough gig to master. The greatest salesmen learn to accept the word ‘no’ and to overcome rejection before they become masters of their art. Similarly, all great traders have to accept some losing trades from time to time. Some of the biggest names in the business have a success ratio of only 40% or less! If you’re chasing the Holy Grail of a 100% success rate, then you’re wasting your time and will be very disappointed. That’s guaranteed!

5. Use common sense
Obviously, if trading was easy, then everyone would do it. It’s as tough as starting any other business and should be viewed just as seriously. If you wanted to become a dentist or an architect – how long would it take? Unlike these professions, there is no formal education or qualifications required to become a trader. However, don’t let that fool you into thinking that trading is a shortcut to the sorts of incomes enjoyed by these professions (and more besides) without having to put in the same amount of hard work that they have.

6. Treat it as a business
If you play at trading and don’t give it the serious attention and respect that it deserves, the impact on your finances is likely to be as unpleasant as the impact on your health if you drive at high speed with a blindfold. You’ve got to take it seriously if you’re to be successful at it. If you treat it as a hobby – or just a bit of fun – you’re unlikely to be very successful at it.

7. Have a plan
This means knowing exactly what you’re going to do and when you’re going to do it. Regardless of whether the market is trending (up or down) or chopping about in a sideways range, you need to know how to respond at all times; none more so than when you are in a trade. And, as the cliché goes; it’s better to be out of a trade wishing you were in it, than to be in it and wishing you were out of it. Cliché number two: plan the trade and trade the plan!

8. The X factor
As important as a good plan is, it’s not the ‘be all and end all’. Plans are inert and emotionless things. You need the ability to follow the plan and, on occasions, know when to deviate from it. As human beings, we have emotions which tend to dictate our actions. As we all know, the markets are driven by fear and greed. Those that profit the most are those who are in control of their emotions, usually at the expense of those who are not. Being cool, calm and collected is essential, especially for day traders who tend to have to make snap decisions based on sound judgement.

To conclude, no one can tell you how long it will take you to become consistently profitable and make a stable income from trading. All anyone can do is to relate their own personal experiences. How long this journey lasts for you is governed by your ability, determination, account size, goals, temperament and personal circumstances.

Last edited by timsk; Nov 21, 2012 at 2:43pm. Reason: Updating
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Old Apr 5, 2008, 12:23pm   #3
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How Long Does it Take to Make a Stable Income from Trading?

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Old Apr 8, 2008, 11:47am   #4
 
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The process can take several months, but most will admit that becoming a consistently profitable trader took them considerably more time (more like 4 to 5 years). If you think you can do it in 6 months, most likely you'll screw up and blow your account. Patience is a key factor on the road to success. Hard work and thousands of hours studying the market trying to learn the behaviour of its participants will increase your odds of success greatly. It's not a guarantuee that you'll make it in the end, but without it you most definitely won't.
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Old Apr 28, 2008, 3:41pm   #5
 
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Agreed. It takes alot of hard work and commitment. View it as learning another language completely, within which you must remain disciplined and not get greedy! Trade with your head and not with your heart, and be prepared to lose alot of money in the process.
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Old Apr 28, 2008, 3:58pm   #6
 
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Originally Posted by tableturn View Post
Agreed. It takes alot of hard work and commitment. View it as learning another language completely, within which you must remain disciplined and not get greedy! Trade with your head and not with your heart, and be prepared to lose alot of money in the process.
What is the point of going into business to lose money?
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Old Apr 28, 2008, 4:18pm   #7
 
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Originally Posted by FXSCALPER2 View Post
What is the point of going into business to lose money?
So people who trade are guaranteed not to lose money? In my experience, people get too jaded into thinking that trading is easy, but then get a smack in the face from reality when they make a loss.
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Old Apr 28, 2008, 4:47pm   #8
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Sounds very strange to me to

Quote:
Originally Posted by FXSCALPER2 View Post
What is the point of going into business to lose money?
Agree


Seems the same as learning anything really, well thats been my experience anyway. Once you get to a certain level at trading you can make money, or carry out a learned job with a reasonable degree of competence, does not mean you will last or end up a consistant full time trader but you will be good enough to give it a go and it should not cost you the earth.

Apart from actually doing it, how would you find out if your good enough (intra day day trading)

Why carry on if your actually losing whats the point your results say you should be back to demo / papertrading ...don"t they or am I missing something

I would say if your a pretty stable person to begin with you should be able to find out if its a viable option for the cost of your living expences for the trial period............. say minimum 3 months.

I used to use some of my vacation time to dip my toe in water.......... if you can"t do it one week why try 3 months

Why would you consider going full time unless your to the point where your already profitable, reasonably consistant over a number of months part time and your 90% sure its not a risk if you can re-create what you have all ready done.

I would say its a good idea to wait till you have experienced some serious drawdown or a mistake or two and had your method and you tested some to make sure your not liable to blow up at the 1st adverse trading run etc and your pretty sure in your own mind you will cope or will no when its not working and its time to call it a day.

Think the 5 - 7 year period is probably correct to be considered consistant / profitable trader, lots of jobs and skills take that long to learn

I will tell you if I last that long, I will tell you if I don"t :-)


Latter

Last edited by black bear; Apr 28, 2008 at 4:52pm. Reason: typo :-) :-)
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