Don't quit your job just yet. You really need to swing trade first and develop a track record. If you can't do that successfully, just be thankful you didn't give up your steady source of income first. Don't be thinking of all you are going to make, about how you are going to be careful and not lose much, about how you only want to make just enough to replace your current income, about reading and reading and reading before you trade, etc. I'm not trying to be negative, but I was in the same boat as you and I made the leap and wish like hell I would have done it differently. Not that I wouldn't have wanted to pursue trading, but I would have done things differently. I started out fantastically out of the gate and was so thankful I made the move, then I spent the next few years wrecking my life. I still trade and think I finally have enough experience to trade for a living, but now that's not possible because of my prior mistakes. I read and read and read and thought I'd be cautious, but when you need the money generated from trading to live it's just plain tough. Trading tests the very metal you're made of. I had no idea of the emotional and psychological challenges that were ahead for me. You will find many posts on this site and quotes from books that are true gems but the problem is without experience they really won't sink in, never mind trying to live by them (understanding and practical application are two different things). Besides, without having lived it you probably wouldn't really appreciate them. I really don't mean to be condescending or to preach so please don't take it that way. I just know that for most it takes real time to learn this business (whether it be daytrading, swing trading, or position trading).
Think about this before you make the move. If you try swing trading and position trading first and you can produce consistent results for 1-2 years and replace your income, you can consider making the move.....nothing lost as you were making money on top of your regular income
. However, suppose you make the move (feeling very prepared) and you don't make a penny for the next 1-2 years (supposing you can live with no income for 1-2 years) or worse yet you lose 50% of your capital.......then what? No job, no income. (The second supposition is not unlikely) The problem is that with trading, you just don't have loss after loss after loss. You'll have winning days and weeks, then losing days and weeks, so it always feels like you can make it.......very deceptive this business can be.
You need to be psychologically ready. In hindsight, it's not the trading techniques that matter, it's understanding and managing your emotional responses that matters. This is especially true as it relates to money management. I'm not saying that it needs to be complex, but you need to understand what the probability is that you'll win a given number of trades (i.e.-5 out of 10), and figure what % you are going to risk on a trade and how much you might make. Sounds easy right, but the problem also becomes that you don't know either of those, so how can you figure out how much you'll make or lose. So, swing trade (and daytrade a bit if you're off work), and keep a log. Did you get out within you're stop? Was the stop set appropriately for the trade? Did you get out of a winner prematurely? Did you let a winner turn into a loser? How will you handle having a winner with a partial gain........let it run or let it turn on you.......how much wiggle room will you give it? You need to think through these things otherwise the ups and downs of your P&L will ruin you. No how much you read in books or in threads, you need to come up with your own system based on your experience. Not necessarily a completely new idea on the markets, but your own compilation of the best ideas on trading, money management, etc., all in relation to your ability to trade the system real time. Also, don't paper trade, trade maybe as little as 10 shares, just so you have a stake (so you can't fudge what you "would've done")(don't factor commissions in these results with 10 shares for obvious reasons).
Sorry for the rambling. Others on this site post very eloquently, but never will you see the whole puzzle at once.
Good Luck,
Sal
School of Hard Knocks, Wall Street Campus
