Find out what is required to give up your day job and become a profitable trader.
With a few smart moves and plenty of dedication, this time will come. But it is a journey.
Trading and investing is a highly lucrative and empowering career choice but its application is very different to that of what we understand as “a job”. I recently went to a seminar and the speaker asked the crowd “What does JOB stand for?” and back came the response “Just Over Broke” in mass unison. Clearly a common question asked at these “created to hype you up” trading presentations. To be fair, that is true to a certain extent when you consider that the average salary in London is around £25,000, and I think I may even be generous when quoting that figure.
Those who turn to trading and investing do so for the obvious intention of making more money, but people have their sights set on different amounts and this is where it starts to go wrong. “I am happy to make £100 a day. I don’t want to be greedy” (Of course not! Considering $6 trillion is traded daily. This is my personal favourite.) or “I target 2% a week” are typical responses that I often hear from those who are struggling to see consistent growth in their trading account and come to me for guidance.
What we can gauge from these comments is a regular misconception of trading and investing and that is that it can be treated as a 9 to 5. A job, unless it is purely commissioned base, has a clear wage structure to it, either per hour or per annum. We know how much we should expect in our account every month based upon the agreed contractual hours. Of course, I say 9 to 5, but many career choices require you to work much longer hours, even taking work home in the evenings and at the weekend, but for the same monthly amount. Teachers for example and those who work in banking. Extra unpaid hours I guess are just considered the norm in today’s world. The harder you work, the more unpaid hours you do, the more chance you have of that bonus or that promotion.
However, investing does not have a clear wage structure to it and will not pay you a consistent monthly salary. Why is this? Because markets are not liquid all day every day throughout the year. The markets ultimately do 3 things, which is they go up, they go down or they go sideways. When they go up or down, they are called trending markets and it is during these trends that the markets pay out heavily if you are going in the right direction (oh and another reason why many fail but that is beyond the scope of this article). When the markets are going sideways, they are called consolidating markets and this is where we must stand aside. This is where our stance as investors changes to capital protection as we carry a higher risk of losing money.
Trends in a market can last for weeks to months at a time, where experienced investors can see large percentage gains on their account but when consolidation hits, this is where we exit and take our profit and refrain from trading until the next round of trends appear.
If we take JD Sports as an example, the stock had been in consolidation from May 2019 until September 2019, which is 4 months. The reality is that markets can consolidate for equally as long and sometimes even longer than they trend and it is for this reason that investing can not be treated as a 9 to 5.
The smart and safe way of making consistent money in investing is done by rotating through periods of actually investing and standing aside. It is uneventful and mechanical but highly effective once mastered. (Note: when one market is in consolidation, say Forex, another market is usually trending, say US Stocks. Knowing how to move from market to market is a key trait of a top investor.) This is one of the many reasons why having a day job is not only essential but beneficial when first starting out in investing. Firstly, you won’t make money all the time and most will not immediately make the money needed to fund their lifestyle.
Secondly, trend followers require no more than 30 minutes a day of screen time in front of the computer as we are looking for long term opportunities. Having a day job brings routine to your investing career as it can be adapted around your 9 to 5. Most importantly, it stops you from falling into bad habits.
Those who spend all day staring at the screen “find” opportunities that are not there based purely on a need to be investing and making money. This is a guaranteed way of losing money. Remember, less is more.
Thirdly, investing also requires saving. The more you have, the more you can make. 10% growth on a £10,000 account is different to that on a £100,000 account (and once you understand how to enhance the “secret” of making money — the all-powerful action known as compounding — profits are exponential). Having a day job and commanding a good salary means you have the ability to save. Saving is essential. It is what to do with your savings to see the best possible returns in the safest possible way is where people need to become more savvy and aware. Leaving it in a bank is in fact losing you money. Property is of course a good option but not the only option open to us.
Having a day job means you can treat your investing account as a savings account and so instead of leaving it in the bank, you can feed your investing account regularly and see much greater returns on your hard earned money. This is key to growing a healthy investing account.
This is, of course, once you have understood how to invest and to do this you need at least 6 months to a year and you do not need a large capital to start with, another misconception. We advise our community to start with around £2,000 in a basic account.
To digress slightly as I have brought it up, many newbie traders and investors fail to see investing as a business and so aim to cover any costs incurred ASAP. A typical scenario is putting your life-savings into an account and hoping to see quick riches through what is called day trading. This is when a trader sits in front of the computer from 9 to 5, looking for opportunities, usually risking large on small moves in the market. It is time consuming, stressful and inconsistent. More often than not, this is a sure-fire way to disaster. Slow and steady wins the day.
The advantage with investing is no other business has the low overheads that investing has but with the huge potential rewards that can be made in the time spent “working” a day. But for most, recovering your initial outlay is not going to happen in the first year. The first year is all about learning the art and returning a profit, typically 30% (hang on — compare that to your bank!) in your first year on a small investing account.
30% on £2000 is only £600 but the focus should be on your ability to return 30%, which is a significant achievement (Note: experienced investors can see returns far greater than 30%). With the confidence and knowledge you have gained, you can then take your investing to the next stage by opening a larger account and then adding to it as a savings account. If you come in with a 4 to 5 year plan, investing will reward you very well, and which is when, and if you choose to, walk into your boss’s office and hand in that piece of paper that states that in a week from now, you will no longer be an employee of the company.
Investing is a journey that requires knowledge, investment and time. It is a career choice that is open to everyone but will only reward the few that make the right decisions and take the correct steps. Unless you are already in a strong financial situation, it is best suited to those who are in employment and command a healthy salary.
If to be an investor is a goal of yours, then first assess if your current lifestyle and career allows you to give investing the TLC it requires. If you are not in a position to do so, then this needs to be addressed first.
Give investing the foundation it needs and it is the way out of the daily grind. It will give you the freedom to make the lifestyle choices that you want and that very few are ever fortunate to be in the position to do. Investing is not just a way of generating a secondary income. It is empowerment of both your money and your time.
As always, keep it simple, keep it Sublime!