READ: I’m pretty much debt – free and I’m only 29 years old!
Can I trade for a living and stop my day job?
Well, let me throw that right back at you…
Can you afford to stop your day job?
You have R15,000 to pay for your mortgage, R10,000 worth of living expenses and a couple of extra thousands you have to pay for entertainment.
Say you have R100,000 in your trading account with the expectation you’ll make a decent 3% a month on your money.
This equates to R3,000. Which barely covers your entertainment expenses.
And even if you had some other money saved up, when you hit a rough patch with trading, where you take a couple of consecutive losing trades in a row, a couple of things can go horribly wrong.
~ You will depend on trading for a living which you’ll find to be extremely emotional
~ Because you’ll get your emotions involved, you’ll deviate away from your trading strategy as you think you’ll know better
` Your life savings and income will deplete faster than you you’re making money
The trick to making an income with trading is being able to re-invest the money to grow it at a consistent pace.
This means, you should seldom take money out of your trading account.
Or else how can it grow into that sizeable wealth you were expecting?
If you withdraw money every month from your trading account, this will slow your process down to making a sustainable income for a living.
So what do you do instead?
~ Keep your day job
~ See trading as a 2nd or 3rd form of income for retirement
~ Only trade with money you don’t need to withdraw any time soon
Recommended: The very next SMS you receive could make you R2,308
Should I listen to opinions from others when I trade?
This is another common yet lethal question that could lead you to a portfolio downfall.
When a trade lines up you’ll find traders seeking confirmation on whether they made the right choice or not.
They’ll turn on the TV and watch Bloomberg, CNBC or even Business Day, to see what the market sentiment is like.
They’ll phone their friends to ask them their opinions on the market’s they just got into.
And they’ll Google the companies to research any strong prospects that can support their decisions.
You might think that more opinions will help with your financial decisions, but this couldn’t be further from the truth.
The truth is, all the help you need with your trading decisions all lie in your strategy.
If you’re a technical analyst, then you’ll solely depend on the charts and the trading parameters you’ll need to make a decision.
If you’re a fundamental analyst, then you’ll look at the market information, ratio analysis and quantitative information.
Whatever your strategy is based on, make sure you have a decent amount of back tested and proven tested results.
Avoid the hyped media, the opinionated average joe, and anything else that has nothing to do with your trading strategy.
All the research you need are the back tested strategies you’ve worked on in time. Or trading strategies that others have been open to share with you…
Should I take more trades which will mean more profits?
There is an enormous variety of financial markets you can trade nowadays.
Thousands of stocks, hundreds currencies, indices and many commodities.
So you’d imagine that if you take as many trades as possible, you’ll make more money.
But remember, the markets are unpredictable.
And there is more uncertainty and unexpected moves with these markets.
Sometimes you’ll see a small cap penny share down 50%, a currency pair down 2000 pips and a commodity like oil which goes nowhere slowly.
These are the kinds of moves that can wipe out your account.
And second, you only have a limited amount of money you can trade.
Whether you have a R1,000 portfolio or R1,000,000 portfolio, it is not enough to try and trade every market.
My rule with a portfolio account is…
Never have more than five trades opened at any one time.
The reason is because I only risk 2% of my portfolio with any one trade.
And I never want to expose my portfolio to more than 10% potential loss at a time.
Anything can happen in the world which can turn my five trades into immediate losses.
So rather, look for high probability trades instead and take a maximum of five trades at a time to avoid losing more than 10% of your portfolio.
The key with trading is longevity and quality rather than quantity.