Lots of people would like to trade stocks and options for a living. Very few can do it. Making enough money to live off of trading isn’t easy. It requires talent, hard work, discipline and other factors that don’t come overnight. While we’re not saying you can’t be a successful stock or options trader without the components we detail in this article, they are factors that can make for a smoother transition and increase your chances of trading full-time.
Experience as a Stock Trader
In many contexts, there’s a significant difference between trading stocks and trading options. Some stock day traders often buy and sell within minutes or hours of one another. They’re looking for the smallest movement in price to bank whatever profit they targeted on the trade. While options traders can and often do trade like this, they tend to hold their positions for longer periods. Longer term stock traders may buy and hold for months and years. Options traders do not have this luxury as options have a finite period of time. Not to mention there are so many other variables in options trading. Managing the greeks, implied volatility and time decay.
One thing that’s constant (or at least should be) between the two styles of trading is having and methodically executing a plan. Without discipline, stock traders can get fleeced. If you have traded stocks successfully, you most likely followed a rigid, emotionless system that told you — objectively — when to pull the trigger on both ends of a trade.
You need to do the same thing if you decide to get serious about trading options. Having been there before in a similar context will have helped. Therefore, before diving into options its better if you spend some time trading stocks in some capacity.
A Thriving Retirement Account
Money-related stress can crush aspirations and deter focus. If you’re a serious trader, you will have a considerable bit of cash in your account (most likely $25,000 or more), and you’ll likely risk more money on trades than most people are comfortable losing. The last thing you want to do as you embark on what you hope will be a profitable trading career is gamble your future.
Before you start trading, you should probably ensure you have an emergency fund and a retirement account that’s on track to have you where you need to be when you want to retire. These two things must be separate from the cash you trade with. Trading should not be your retirement plan. It’s too uncertain, too volatile, and too difficult to win at enough times to turn out consistent profits, let alone fund your retirement.
It’s easy to become obsessed. With a girl. With drinking. With golf, With whatever. None of these things do you any favors at the end of the day. You cannot be obsessed with your job, even if it’s the difficult and time-consuming task of being an options trader. If you don’t have a life outside of your work, you’re going to drive yourself insane. If you’re insane in the way I describe, you’re not going to be an effective trader.
To be a good trader, I’m convinced you have to be able to relax not merely in the moment, but overall. If you sit down at your desk relaxed, don’t overreact emotionally when you’re in the thick of things, and walk away from your desk feeling good about your mental state, you will operate in a more productive frame of mind than the trader who chucks his or her monitor across the room the second something goes wrong.
So, find things to do that relieve anxiety and make you feel like you have more going on in your life than work.
It’s All About Process and Your Mindset
If you had a dollar for every person who wanted to trade full-time and failed, you wouldn’t need to trade full-time because you would already have plenty of money. While the success rate is low, you do control your destiny.
Whether you have the three things detailed in this article going for you or not isn’t the issue. There’s a larger issue at play. And that’s going into being a trader by taking a thoughtful, holistic approach. How can you create conditions that make you ripe for success as an options trader? Do you have a plan? Can you stick to it? And will other non-trading related aspects of your life set you up for success or set you up to fail?
Coming at the process with this mindset creates conditions that should increase your chances of success. Steadydime is here to help. Try one of our options trading programs and we’ll do the homework for you.