Is It Possible to Make a Living Trading Stocks?

What You Need to Know About Trading for a Living

Image by © The Balance 2018 

Stock enthusiasts have probably been asking whether it's possible to actually make a living trading stocks for a very long time.

The idea that you could quit your job and support yourself just by trading stocks is fascinating, and to some seems like an impossible fantasy. It is possible to make a living trading stocks, but the real question is if it's probable.

Novice investors buoyed by their success with paper trading simulations may take the leap of faith and decide that they're going to earn their living from the stock market. Some make it, but the vast majority just blow their accounts up. Studies on day trader performance have shown that most lose money over the long term.

Still, some people make a good living trading stocks and have done so successfully for years. Some people actually do sit on a tropical beach, or in a mansion high up in the Hollywood Hills, armed with only a laptop and an internet connection, carving out a living from the market. 

That, of course, is the allure of trading for a living: freedom. Freedom to be your own boss, ti work where, and when, you want, and to be financially secure.

The reality is that trading for a living is a tough job, one that requires a very specific skill set and risk tolerance that most people don’t possess.

Trading Requires Diligence

Being able to day trade for a living successfully means reaching a level of focused excellence that most people will never achieve, no matter what career they choose. It’s the difference between being a movie extra and an Oscar-winning actor or between playing in a pick-up football game in the park and being the Superbowl MVP.

The point is not to discourage someone from pursuing their dream, but it’s important, if you want to pursue day trading for a living, to go into it with your eyes wide open.

Get Educated About Trading

Spend some serious time educating yourself about everything you can related to trading. Most likely, you want to be a day trader look for short-term gains, not an investor seeking long-term profits, so put in the hours necessary to give yourself a strong understanding of the world you're about to enter.

The Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), and the Internal Revenue Service (IRS) all offer valuable information for day traders. Introductory books on strategies and theories will help you get acquainted with the playing field.

Choose a Good Trading Strategy

To get started trading, you'll need to develop a sound trading methodology, one that takes advantage of volatility, yet always keeps risk management as its core principle. Ideally, this methodology should be tested over months or years, in all different market environments, first with a demo account and then with real money.

Set Aside Some Income

Financially, many experienced traders suggest having at least one year’s worth of income set aside before you start. This is not the bankroll that you will trade with— you'll need separate capital for that, in amounts that vary depending on the kind of day trading you'll do—but money that you will use to pay your living expenses, including for housing, insurance, and food.

Having this financial cushion will give you peace of mind, allowing you to begin your new career without the pressure of having to trade to “make the rent.” You'll also need to have a record-keeping strategy ready for tax season.

Prepare Yourself Mentally

Psychologically, you will need to steel yourself for the income inconsistency that will likely accompany your trading

The goal when trading for a living is to have a reliable and consistent revenue stream, but that will take time, diligence, and luck to achieve. Having to bear the daily fluctuations of your income can be tough on the psyche over time.

The speed, fluctuations, adrenaline, and comparatively high loss ratio relative to wins can make investing a jarring experience for new day traders. This runs against the basic human impulse to “win” as much as possible. You'll need patience and cool-headedness; otherwise, the stress of day trading can wreak havoc on your emotional well-being.

These are some of the basic things to be aware of if you are going to try to make a living trading stocks. And though the odds are against your success, if you're one of the few who can master this art, you'll enjoy excitement, independence, and financial rewards.