You wake up, place your trades, have breakfast, then play golf. Because you have a high I.Q. and have always been successful at everything - especially anything with numbers, you can't fail.
And, to make sure you can't fail, you surround yourself with computers and software, and real-time data, and books on trading. You EVEN attend trading seminars, listen to tapes in your car, and correspond with other traders in your spare time.
Of course, now, you have more spare time since you are "on your own". Isn't life wonderful?
Well, that's the dream, anyway. Here's the reality of the situation. And, before I get into that, let me repeat an oft heard cliche - "Don't quit your day job!". Now, if you are retired, or "laid off", or "downsized" you don't have much choice.
It seems to be one of the axioms of life that EVERYTHING seems "greener" (read that MONEY) on the other side. And so it is with trading for a living.
Let's, just for a moment, think about the various levels of trading. There's trading as a professional - you manage or trade somebody else's money. If you lose a few million one day, well, it's not YOUR money!
Then, there's "paper trading". I like it. I have never lost money paper trading. In fact, I have never broken out in a cold sweat paper trading. So, if I lose a few million one day this way, well, it not MY money!
Then, there's trading for "fun", or as a sideline, or a hobby - but you have another source of income. It's not as much fun as losing (excuse me) other people's money, or losing money on paper, but it CAN have its good moments.
Then, there's REAL trading for a living with real money - your own hard-earned money. And what I am talking about here is money that you NEED to live on, and pay your bills with. When you lose THIS money it hurts, it REALLY hurts.
This is when you can't sleep. This is when you stay up all night - night after night, working on the next trading system. This is when you tell your "significant other" that it's really going to work THIS time.
Then, there's the social aspect of watching little numbers flicker across a screen at home. Lots of fun. And of course you desperately want to tell your wife or husband or friend or, actually, ANYBODY about what just happened - except you can't find anybody within 5 square miles who has any idea what you'd be talking about. So, you call your friend across the country who is also having lots of fun trading.
Here's a critical point - in order for you to take the losses and the weeks (or months) of drawdown, you have to become stoic. You must be able to take the punishment and the fear day after day, or week after week if need be, and still make the trades. You have to sleep. So, in order to get to the point where the pain of loss doesn't hurt anymore, where you REALLY understand that it's just a cost of doing business, you have to turn off the emotions that can lead to trouble - to impulsive trading. And, in doing so, the wins aren't much fun either.
What happens is - it becomes a business. And, it's a very tough business. When you were (are) employed and make a minor mistake, or things don't quite go your way one day, they don't take several thousand dollars out of your paycheck. But, that's precisely what happens in trading. The good days are fine (take your spouse or friends out to dinner) and the bad days are just awful.
Oh, by the way, about your competitors - they're also very smart people who generally win at everything and are good with numbers, and have lots of computers. And 95% of them are going to lose money trading futures this year.
My best advise about trading for a living is that you do it if you are satisfied that you can make money in the market year after year. You do it if you can take the pressure, the drawdown, and the frustrating uncertainty of day-to-day price movement. You do it if you have a solid money management system in place. You do it if you have precise trading systems that make money in real time, in out-of-sample testing, in walk-forward testing. You do it if you have the emotional discipline and stability to stick with your system or systems. Then, you still DON'T QUIT your day job.
---Tom Loffman
Copyright, 1997
Tom Loffman, Equity Systems