People often think that trading is a quick route to making millions. Far from it.
Let me remind you at the onset of this article that trading is not a reason to leave a job you hate. First ask yourself: Why do I want to trade? Do I see myself as a professional trader? Am I willing to pay the price?
So here are my five big reasons why you should not quit your day job to trade.
1: Day job = Source of funds
You will most likely lose all your money when you start trading. If that happens, you will at least still have your day job, which is a great source of funds. Keeping your day job enables you to stay in trading for long enough to excel. The reason why the success rate in financial markets is so low, is traders’ inability to stay trading for long enough to be good at it.
2: It limits damage
The worst state of mind to be trading in is one where you have to make money. This mindset leads to overtrading and big positions that overwhelm margins. When you have some steady, predictable income you can take losses with ease knowing your life is unaffected in the immediate short term by the activities of your trading account. That way you can let the powers of compounding do its thing, while you can focus on trading the right way.
3: You can do both
Traders often think they’re losing money because they don’t have enough time for the market. So quitting their jobs means making more money as they will spend more time with the markets, trading more and therefore making more. Ironically, this is most likely to have the exact opposite effect. More time trading often leads to more losses than profits. Market exits operate all the time, and they will be operating when you knock off for the day.
Trading longer timeframes (i.e. daily and weekly) will help traders to focus on both their day jobs and the markets after work. To start I recommend traders focus on non-continuous markets (markets that don’t trade overnight), as this will fit in with their schedule. With non-continuous markets, you can watch the markets without the prices disturbing you. Focusing on your day job during trading hours might just save you from making trading errors out of boredom.
4: It’s going to take time
Trading is like any other high-performance sport. It’s going to take some time before you reach the top. You have to give yourself some time to learn and be proficient with enough capital to pay the bills. You get to learn without the pressure of providing for living expenses. Give yourself some time to focus on the process, not the end goal.
5: Allow for compounding
Even when you get really good and posting consistent profits, like averaging +20% p/a, you would be better off letting those returns compound before you can start withdrawing capital from your trading account.
It helps to view trading accounts in a similar way as other long-term investments. It’s about building a long-term capital base, as opposed to a means for day-to-day expenses. It can be done of course, but give yourself some time to withstand the volatility the equity curve will present.
Cash Club blog
Njabulo Nsibande is a Just One Lap user-turned-contributor and a founding member of an investment club. His “Cash Club” blog details his experiences balancing the financial obligations of a young parent with his investment aspirations.
Follow Njabulo’s journey here every month. You can also follow his trading journey by listening to his Village Trader podcast.
Find him on Twitter: @njabulo_goje.