Hard Mode in Trading (Full-Time Trading)
Thinking about trading full-time, are we? - Mind of a trader series
Do you really want to make trading any harder than it needs to be? Really? I'm fairly certain you're too smart for that. Let’s talk. But first, a short introduction into this series.
Are you new to trading or perhaps struggling with consistent profitability? You’re probably thinking that you just need to work on your trading system? You just need to find that one secret that will make you successful in this game, right? Something is missing, you can feel that you are close, but can’t put quite your finger on it. I’m sorry to be the one to tell you, but you’re pointed in the wrong direction. There is no holly grail.
Any system, even the most basic one, can be profitable and people milk the markets in a myriad of different ways. It’s not the trading system that makes you a great trader, it’s really not. You need an edge in the market and you need the technical skills of execution, sure, but what makes great traders is the stuff between their ears. I would comfortably claim that trading is 90% your mind and 10% everything else (trading strategies, markets…).
In this series we will be focusing on the mind part of the trading equation, the most important part.
How to set up your trading so that it will be stress free?
How to alleviate and manage existing stress?
How to build a trading system that works with your personality?
How to make peace with uncertainty?
How to focus on what you actually control?
How to accept losses as a necessary part of trading?
How to manage your flaws by building your own personal rulebook?
How to stay disciplined?
How to manage your emotions?
How to alleviate your biggest fears?
Any successful trader could give you his playbook, word for word, but it would do you no good. Like it didn’t do me, until I’ve learned what was giving me problems and focused first on my mind. There are literally limitless strategies of making money in the market, however none of them will work for you if you’re still an emotional, undisciplined wreck of a trader. Even if you somehow get lucky and make a lot of money, you’ll just end up giving it back to the Gods of fortune and fame, likely ruining your life in the process. Look around, listen to the tales that trades sing in the darkness of the night. We’ve all been there. We’re all full of self-inflicted scars and scary stories of fortunes made and lost.
There are no quick solutions to the problems that lie between your ears. This is not something that can be solved overnight. If you have decided on the life of a trader, you will be battling your demons for the rest of your career. Nobody wants to hear this, I know, but the fact remains that the mind of every trader is their biggest obstacle to being consistently profitable. Well that and starting with insufficient capital, but that is a whole different topic.
I, for one, struggle with both monumentally. From the get go I’ve been undercapitalized and I’ve made my life insanely hard by quitting my job on day one (couldn’t be helped, I hated that place) therefore making myself dependent on my trading profits from the start. An impossible task for a new trader with a small starting capital. But hey, at least that was a quick and brutal way to learn things about the markets, trading and myself. I chose to play this game not just on “hard mode”, any mode here is hard, but the one reserved for absolute lunatics, “insane, wet your panties, cry to your mamma mode!” While I don’t regret going all in, balls on the table, figure it out on the go style, I wouldn’t recommend this path to anyone. Give yourself a fighting chance and take care of the basics first. This will be the foundation of your trading mentality and success.
Ensure your odds of success are as high as possible by:
Keeping your job and/or having alternate sources that pay the bills.
Having at least a year worth of expenses tucked away.
Starting with enough capital, so that you won’t have to fight for scraps or feel compelled to gamble. (more on this in an upcoming post)
You can start learning and trading as a side gig, while having a job. You don’t have to go all in, full time, at the start. This way you won’t have the pressure of having to make money until certain dates in order to pay your bills. That is not only very hard, but because of the volatility, unpredictability and the cyclical nature of the market, practically impossible. Trading is not like a regular job or even a regular business for most individual traders. The ups and downs in this game are monstrous and there are no guarantees that you will be making money at any point in time. There will be times you’ll be killing it and there will be times when nothing seems to work or the markets simply die on you. This is a long term game that is won by surviving the hard times and capitalizing big on the good times.
So unless you have
extremely low expenses (think mothers basement),
a huge trading account (a lot bigger than you think), and
you meticulously take out profits in the amount that covers months or years worth of living expenses,
the odds are stacked heavily against you.
You could get lucky and strike big on the first go and by some miracle manage to keep your money. It is possible, just very unlikely. Most people are not that lucky and they’re not in the above mentioned position. I sure as hell wasn’t.
The only reason I’ve been able to somehow pull through, with plenty of pain and tears, was because I’m used to minimal spending and I took out a large percentage of my profits, when I was on a roll. And I still had to do odd jobs from time to time just to pay the bills, because things don’t always go as planned. Large draw-downs happen, bear markets happen, unpredictable real life situations happen. That’s life. If I had listened to the advice I’m giving you here, I would be in an immensely better position right now. Richer in money, but poorer in experience.
Hard mode
If you choose the “hard” level of this game and go all in, you will now be facing leveled up reinforced monsters and obstacles behind every corner, limited ammo, low health and no second lives to lean on.
I’ve already mentioned that having to pay bills every month will weigh heavily on your trading. It will mess with your mentality and you will feel the pressure of achieving more or less unachievable goals, forcing the market to abide by your own schedule. “By the fifteenth I have to make 2 grand or I’ll be evicted.” The market doesn’t give a shit about what you need or when! Add a few bad months to the equation and you end up a nervous wreck, doing all the wrong things, broke and begging for your old job back.
As traders we have to put ourselves in the best position possible so that when the stars do align for us, we can take what the market is willing to give us, and then somehow survive to the next round of favorable conditions for our trading strategies. We will not be making money every day, week or month. No strategy works all the time and there will be periods when everything that has been working thus far, won’t work anymore. There will be weeks when all the market does is mess with your head and take your money, one loss at the time. There will be months of relentless bears and zero liquidity. Sometimes, just not losing a ton of money, will be a win in itself. Hard times will come, for all of us. It’s the nature of the beast.
Being a full-time trader causes an impaired mental state, where you feel an immense pressure to perform, regardless of the conditions in the market, causing you to make mistakes:
Overtrading, taking way too many trades because you need the money.
Taking on too much risk, opening huge positions, messing with your mind and costing you money for every mistake.
You lose objectivity and insist on enforcing your will on the market, on being proven right, on extracting profits, when no profits can be extracted. Timing the market is almost impossible as it is, forcing your personal opinions on the market is just delusional.
Compromising on your risk management, leading to large losses.
Taking profits early, leaving money on the table.
Constantly trying new systems and forcing trades you shouldn’t be taking, because you need to feel that you’re working, like a job.
I’ve done them all and I’ve had to climb out of the darkness that ensued many times. The problem is that you keep digging yourself a deeper and deeper hole, while being more and more mentally and financially compromised. But life doesn’t care. The expenses remain. The bills come due. The family needs to eat. And nobody cares that you’re on a bad streak or that there’s a bear market and you’ll make it all back in a couple of years. You need the money now. Today!
The best way to ensure survival while playing games on this “hard” mode is by taking out all profits, as soon as you make them. So with a bit of luck and a string of winners in the market, you might be able to set aside a substantial amount of money and live off it for a while. That’s what I did. But unless you’ve got a lot of starting capital, that won’t last you very long and you’ll be back in the trenches with a compromised mind. All of this assuming you’re making profits and by that we’re also assuming that you’re making more money then you’re losing. Remember, you will be losing trades. You will be losing money. It’s unavoidable, it’s an essential part of the game. And while this might give you a chance to survive for a while, you are now sabotaging yourself by not growing your portfolio.
Trading for years and not seeing your portfolio grow a freaking inch, is no fun, let me tell you. And that’s the best case, a one in a million scenario! A more probable alternative is that you slowly deplete your account because your living expenses are larger than your trading profits. All this still assumes the unlikely scenario, that you’ve been a profitable trader since day fucking one.
Are you getting the picture now? You’re not just swimming against the current here, you’re fighting gravity itself with your hands tied behind your back!
Compounding
If you’re starting with a small account your first job is to protect and grow that capital. Not to take profits out and start spending. Being dependent on trading for living expenses will hinder that possibility significantly. Decide upfront that you will compound those profits for the long term, think years. It’s your best shot at making it big someday. Compounding is an incredible tool for wealth creation, but it’s imperative that you be able to compound consistently, without interruption and for a long time.
If you had a 10,000 USD account for example and you made only 5% profit on your account every month and compounded that for 5 years, you would turn your account into 186,000 USD.
If you could manage 10% per month, that number becomes a positively unbelievable 3 million USD after just 5 years and only a 10,000 USD starting capital.
You can find and play with this calculator at the following LINK.
Now how do you like them apples? Listen, I’m not saying that this is easily achievable, but it is possible. More importantly though, it’s a clear indication of the importance of compounding. 10% per month on average is not that hard to achieve, but doing it on a consistent basis, month after month, year after year, without taking on any big losses, that’s the challenge. Some months you do better, some months you give a little back, but if you are consistent in your trading and keep adding your profits to your stack, good things will follow.
There are some limits to compounding though. Usually they involve liquidity, mental barriers and adapting to different trading or investing strategies as you grow your capital. What works for a 1,000 USD account, won’t necessarily work when you’re trading in millions! All this means is - don’t get too excited when making these calculations and the numbers are blowing your mind. When you compound more capital it is not only expected that your growth will slow down, it is also wise to take some money off the table and secure a prosperous future for yourself and your family. Never let greed lead you to ruin!
If you need some extra motivation just look at all those ninety year old billionaires. It’s not how good they are at making money that made them billionaires, it’s how good they are at keeping and compounding it for what seems like an eternity.
The first rule of compounding: “Never interrupt it unnecessarily.” - Charlie Munger
Source: https://finmasters.com/warren-buffett-net-worth
Scared money
In trading you have to sort of detach yourself from the outcome of any particular trade. Fact is, the markets are predominantly random and every trading system, no matter how good, sometimes wins and sometimes loses. The result of any one singular trade is irrelevant. What’s important is that in the grand scheme of things, on a large enough sample size (100, 1,000 or more trades) you end up being profitable.
When you are dependent on trading profits, it is impossible to see things this way. Every 100 USD lost in a trade is a bill you won’t be able to pay. Every 1,000 USD profit represents a full refrigerator for a month, rent, car or mortgage payment.
It is almost impossible to build and maintain a mind detached from money and profit/loss consequences of any particular trade, when you need that money and you need it now. You will be the embodiment of scared money and scared money doesn’t make money!
Are you worried that by not giving trading your full attention, you’ll somehow hamper your odds of success? No need. Yes, it may take a bit more effort and time to learn all you need to learn, but your odds of success went up 100x just by not being dependent on your trading for a living. Your accounts will now have a chance to grow and grow and you will be a better trader simply because you will not have that baggage and pressure on your back.
Funny thing is, I was a better trader when I couldn’t focus full-time on trading. I cared less. Zero stress. I only took the best trades, the ones that stick out of the charts and I left my capital alone for a few months. Good times.
There is something we haven’t talked about yet. Something I personally struggle with and I know I’m not the only one. Once you have tasted the freedom, independence and sovereignty of being a full-time trader, you effectively become unemployable. Take this seriously! Not necessarily because no one will be willing to employ you, although this is true to an extent, but because you won’t be willing to put up with everything that comes with having a job. A boss, a capped salary, a schedule and having to put on pants in the morning. Once you taste true freedom and limitless possibilities, there is no going back. You’ve been warned.
Want my advice? Don’t make this trading game any harder than it needs to be. There is no harm in waiting a few years before taking this particular plunge. Until then, buckle up, study, trade and compound. Don’t worry, you won’t be lacking in challenges, I can promise you that.
Disclaimer: nothing here is financial advice, just a fellow trader meditating on his trading journey, sharing the lessons he learned and debating some personal opinions that are only that, opinions and nothing more.
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