Updated: Feb 11
Understand what it means to be consistently profitable: Financial independence from trading means that you must be a successful trader who is consistently profitable. To become such a trader requires effort, skill, time and discipline. Many people want to know how much time it can take to become profitable. The answer is that each person is unique and the time it takes to be profitable depends upon one’s temperament, trading education, skills and mind-set among others. Becoming a successful trader is just like becoming a successful surgeon, or a successful fighter pilot; it takes time.
Profitability should be measured in dollars, not percentages: To be able to become financially independent from trading, your net profitability in dollars not percentages is what truly matters. Two traders may be earning the same in percentage terms, but very different in dollars. An annual profitability of 50% on $200,000 capital means about $8000 earned monthly; whereas 50% annual returns on a capital of $25000 is only $1042 dollars per month on average, which is clearly not sufficient for many people to support themselves and their families. So not only consistent profits but also the actual amount of profits matter when you are looking be financially independent.
A comfortable income is different for everyone: Financial independence is a subjective term. Everyone's circumstances, needs and lifestyle are different. For example, if you have an inheritance, alternate assets, a business generating money, a working spouse or fewer dependents, you will find it easier to meet your financial goals and feel financially independent. Others may need to earn much more.
Consistent profitability is not 'monthly' profitability: Most people think of trading as a direct substitute of a salaried job and want to measure trading profitability in months, but this notion is completely wrong. Profitability in trading means a steadily rising equity curve over months and years. It does not mean guaranteed monthly profits. Depending on your trading strategy, skills and market conditions, you may be earning many times more than your day’s job in some months. In others, you may be losing out or breaking even. The skills to manage your cash flows are very important here as profitable trading does not mean monthly or evenly spaced profits. If you are comfortable only with regular monthly cash flows, you may want to keep your day’s job.
Inherent risk of financial markets: There is always an inherent risk and uncertainty in the financial markets which is unavoidable and needs to be embraced. Even the most successful traders can have a bad year or less than expected profitability due to market conditions outside their control.
Hopefully, you now understand that you can trade for a living but for that you need invest time and effort in learning to be consistently profitable. You also need to be making enough profits in dollar terms and have great cash flow management skills. You must be open to the possibility that despite your best efforts, profitability can sometimes be lower than expected.
Can you keep your day's job and still be a successful trader? Yes. It is not at all necessary to quit your day’s job to become a successful trader. When you trade on the higher frames, of which I am a great proponent, you need only a few minutes of your daily time to trade efficiently. The best course of action is to focus on developing your trading skills and the correct mind set which is the actual short-cut to realizing your dream of financial independence.