Well, this post is very hypothetical as I am not a full time trader. Not yet as of today.
Hence, what I am going to say next may not make sense. It is more like my personal theoretical view as to how to achieve a full time trading dream. One should acknowledge that it is not easy, some stats say only 5% will succeed in this field.
Step 1 Take Baby Steps
Always keep your full time job. Don’t ever think of quitting your current job if you have not achieved consistent and sustainable trading profits. Always trade in less risky areas or familiar markets. For example Forex / CFDs Trading are not for everyone given their high leverage and volatility. Consider something less volatile such as Bursa stocks. Less risk, less return. Most important is to build up your confidence.
In terms of capital commitment, start with something small that you are comfortable with. Perhaps, one may consider 1-2 x of your monthly salary as initial capital.
Step 2 Be Realistic With Expected Return
How much return you expect is directly correlated with how much capital that has been deployed or can be deployed. At times, a portion of money may be stuck in some instruments that may need some time to realise the gains or loss.
Be realistic with the expected return. It is not easy to make net 1% per day consistently. The term consistency really matters. So what does it mean by realistic return?
For illustrative purpose – setting realistic expectations:
You have $50,000 as initial capital. Perhaps out of this $50,000, $20,000 is currently stuck in some instruments that are currently trading in range bound (i.e neither reaches TP or SL). Hence, you have remaining investable funds of $30,000. Historically, KLCI has the highest market return of about 10% per annum (as shown below).
Let’s assume you are a damn good trader and are able to beat the 10% benchmark by an additional 5% in return. Hence, an optimistic return goal may be up at least 15% per annum. A more conservative minimum return goal may be 8-10% since the actual market return (KLCI) has been on a declining trend.
Based on investable funds of $30,000 and realistic return of 10% per annum, we should target a minimum absolute return of $3,000 per annum or $250 per month. This is ignoring compounding effects and dividends.
Step 3 Invest In Yourself
Continue to re-fine your trading strategy by attending classes, reading books and discussing with real mentors (not “sales men”). Explore recent technologies (e.g new trading platform / algo trading) or new products / instruments and how they will assist you in your trading process.
Step 4 Proper Trading System / Plan, Software And Journal
Need to have proper trading system (manual or auto) to time entries / exits. I use TradingView to plan out my trading strategy.
Journal every trade and learn from mistakes. Simple excel will do – to document down reasons for entries / exits. Further, to document down your current performance till date.
Step 5 Really Backtested Your Trading System
TradingView allows me to backtest my system. My rule of thumb for a successful backtesting:
- Beat the Buy-and-Hold strategy
- % of profitable trade (in most trades) – close or more than 50%
- Ratio Profit to Loss > 1.5x
- Period – 5 years
Step 6 Timing The Markets
If overall general market is on a downtrend, it is harder to make money if you are taking long positions (could be due to regulatory limitations to short in the market). Unless the particular markets allows for effective shorting of the market, I suggest you to take “a wait-and-see” approach.
Step 7 Emergency Funds
Must always have sufficient liquid funds to cover all your expenses and commitments in case things don’t go your way. Minimum may be 6 months. However, I suggest for a higher threshold.
Conclusion: When To Jump
1. Consistent and sustainable monthly net profits – at least 75% of your net monthly working salary
2. Emergency funds of at least 18-24 months of net monthly working salary
3. Be mentally ready and don’t look back.
This post is not an investment advice or endorsement. Please refer to general disclaimer of this blog.