January 18, 2024
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Read time:
9 minutes
Making the transition to being a full-time trader can be one of the most exciting milestones in your trading career. You’re leaving behind the safety net of having a stable income from a regular job and trusting your ability to make things work in the markets.
It’s not all sunshine and rainbows though. Not only will you have to make sacrifices, particularly at the beginning, but there are also new challenges that you may not expect.
I say this from first-hand experience, having made the jump to full-time trading back in 2012. For me, the decision itself wasn’t a difficult one, as I’d already earned nearly half a million pounds in profits from my trading by the time I left my job in banking. However, I experienced many difficulties after making the switch, and had to learn lessons the hard way.
With that in mind, I want to go through some major challenges you’ll face as a full-time trader. These are not only based on my own experiences, but also from helping many other traders over the years.
Mistake #1: Thinking of Your Monthly Returns as a Regular Salary
You can’t control what happens in the markets. It doesn’t matter how great you are at trading, that’s just an undeniable fact.
(Ok, I guess I’d better include a caveat here… Unless you control the asset, you have enough capital to drive price movements, or your name’s Navinder Sarao... I’m going to assume it’s a “no” to all three!)
It’s always a good idea to segment things into two categories: things you can control, and things you can’t.
The market itself falls into the latter category. We can control our trading system, our entry criteria, our position size, and a bunch of other things, but we can’t control the markets.
Therefore, it’s inevitable that you’ll have better performance in some months than others. You can have the greatest trading system, but if the market isn’t presenting the right opportunities, you’re not going to have any trades.
Likewise, even if you’re taking trades with a positive expectancy (as you should), you still don’t know whether the outcome of each individual trade will be a profit or a loss. Even as a profitable trader, you could easily have a losing month after a string of losses.
This is part and parcel of trading. But this can be a problem for traders who treat their monthly returns as if it’s a monthly salary from a regular job.
What do you think is going to happen if it’s getting towards the end of the month and you haven’t made enough money? What if you’re at break-even, or worse, in a loss?
What do you think will happen to your decision-making? You suddenly have a lot more pressure and are much more likely to take bigger (maybe even inappropriate) risks.
You could begin overtrading, experiencing FOMO, and risking higher percentages of your capital to try and reach the return you need. Then, once you’re in a trade, you’ll have heightened loss aversion and make decisions that deviate from your plan.
These are basically the same issues you experience when you risk too much money on a single trade… And that’s because, if you’re relying on your monthly return as a salary, there is more at risk on each trade.
I get messages quite often from traders asking about transitioning to full-time. They tell me they've saved up a certain amount of money to trade with and if they hit the same returns they've been getting recently, they'll have enough money to live on. This is not quite the right way to think about it.
Instead, you should have enough money set aside to cover your living costs for a prolonged period of time, regardless of what returns you end up generating from your trading. This means dividing your savings into money for your trading account and money to cover your living costs which isn't put at risk.
You can then take withdrawals from your trading account less often, once you’ve built up a big enough return to cover the withdrawal without wiping out all growth in the trading account. Living pay-cheque to pay-cheque based on trading returns is a recipe for disaster.
As I mentioned earlier, I made the switch to full-time trading once I'd earned well over £400,000. That meant I wasn’t relying on my trading account each month to cover my living costs, I had more than enough for both. I could make withdrawals once or twice a year to fund my living costs account, and that was more than enough.
But don’t worry, you don’t necessarily need to achieve that amount of capital. With prop trading being more accessible these days, you can use that to supplement your trading capital. For example, one of my members recently managed to get around £800,000 in capital through prop funding.
By taking this approach, it means you can just focus on saving up enough money to cover your living costs before you make the move to trading full-time.
Mistake #2: Feeling Like You Must Open Trades Everyday
This one is a problem I struggled with for many years.
Without realising it, I had a subconscious belief: as a trader, I’m only working when I’m in a trade. Therefore, if I had a trading session without taking any trades it felt like I’d done something wrong or had been unproductive.
It wasn’t such an issue when I was trading part-time. I could go for weeks without opening trades simply because I was focused on other things, so I was used to having days go by without taking an opportunity.
But this changed once trading was my full-time job. If I didn’t open a trade during a session, I’d feel guilty about it and as if I was failing. I’d feel like I had just wasted an entire day.
Over time, this would lead me to start extending my trading session times or start following more markets. Neither of which would lead to my best performance.
Here’s something you’ll realise after years of experience, but hopefully you can start to understand it sooner. If you’re analysing the markets and doing everything you should be doing, but you don’t find an opportunity - you have still been working. Your job as a trader doesn’t only involve opening trades, that’s only one part of the role.
In fact, you’ll also start to realise, as I did, that great trading is just as much about the times you don’t trade as the times you do. Your performance is defined by your long-term results, not each individual session.
Understanding, accepting, and expecting this before you make the shift to full-time trading will stop you putting as much pressure on yourself, which may otherwise lead you to taking damaging actions like overtrading or forcing inappropriate trade entries.
Mistake #3: Not Following a Proper Routine
If I could go back to 2012 and give myself one piece of advice, it would be this: If you want your trading career to be sustainable and to perform at your best, stick to a consistent routine. Not doing this caused me big problems that I eventually had to fix, including serious issues with my health.
When you have a regular job, you’re forced into a consistent routine through the set working hours. But when you become your own boss as a full-time trader, there’s no one stopping you from working whatever hours you wish. There’s always a market open somewhere that you could be trading!
There are three common ways this can become a problem: you could work too much, not work enough, or not work consistently.
My main problem has always been working too much. As I started to make great money from trading, I became a caricature of the expression, “time is money.”
I didn’t want to go out anywhere (and if I did, I’d still be following the markets), I didn’t want to sleep (and when I did, I had the laptop open beside my bed), and I barely even ate. I wanted to spend as much time in front of the charts as I could, because missing an opportunity would mean potentially missing out on more money.
As a result of my unhealthy lifestyle, my health deteriorated and I had several serious symptoms, including a terrible infection. I was rushed to an emergency clinic and the doctors did all sorts of tests. At one point, they were convinced I had diabetes. It turns out, I was severely run down and suffering from chronic stress.
It’s easy to fall onto the slippery slope of thinking: more trading time = more money. In reality, if you trade excessively, your performance per hour will be far from your peak. You’ll make more mistakes, and nothing about it will be sustainable. In fact, studies have shown how disastrous bad sleep is for our trading, in ways we’re not consciously aware of.
At the other extreme side of the spectrum, you may actually find that you end up working much less... Perhaps not enough! Since you’re not being held accountable by work colleagues, your work sessions might gradually reduce as you realise you could be doing other things. You’re likely to be working from home, so it means you have to battle against all the usual distractions without having anyone there to tell you off for missing a day of work.
But a far more common situation is for traders to spend a good amount of time in the markets, but following an irregular routine. It’s like the cycle teenagers go through during school holidays; you start going to bed later, then you start waking up later. Before you know it, you don’t have a set work time, you just get started whenever you wake up and finish when you feel like it.
There are many reasons why this is bad for your trading. Not only is an inconsistent sleep routine just as bad as not sleeping for long enough each night, but the actual skill aspect is going to suffer. Without following the markets at set times, you’ll lack a lot of important implicit knowledge, and since a big part of trading is about being consistent - how can you achieve that if everything in your life is in flux?
You will experience your best performance, and be more likely to have a sustainable, long-term career as a trader, if you stick with a set routine each day. Achieve consistency in your everyday life, and you’ll be more likely to experience consistency in the markets. Remember, being a full-time trader is a job; yes, you have a lot more freedom, but you should still hold yourself accountable in the same way you would if you were reporting to someone else.
These are just some of the challenges you’ll face as a full-time trader. Once you make the transition, I’m sure you’ll encounter many more problems that you’ll have to solve. Don’t let this dishearten you; achieving success in any career involves experiencing challenges and overcoming them, that’s how you continue to grow and gain wisdom.
If you want to know more of the most important insights I think traders need to succeed, check out my FREE 1 hour Masterclass.
