The simple answer to this is, no. The real answer is it depends.
The questions you need to ask yourself before you quit your job are:
- Do you have proven track record?
- Will trading your funds affect your day to day life?
- Can you continue to live without an income for a month or two?
If you can answer these questions; yes, no, yes. Then you should quit your job and become a trader full time.
Do you have a proven track record?
This is the easy question, this is about whether you are a good consistent profitable trader. Consistency isn’t just having a good day, week or month, it is about the long game, have you had a consistent year or two?
Given our risk recommendations of; no more than 1% per trade and no more than 2% at risk at any one time, we will always say that a monthly target of 5% profit is a fantastic average return.
In addition to this target, you should also bee looking to be consistent in your accounts growth. If you are achieving an average of 5% returns a month but your swings from profit to loss are extreme then you are clearly doing something wrong. Being down 20% one month and up 30% the next will return an average of 5% however the volatility of your account is out of control, and you are not far away from blowing that account.
A good way to look at it is to ask yourself this –
Fund managers stay away from risk, that is their largest mandate they will stick to. To their clients, they will say boast about the returns they intend to make however they will always say that your money is safe with them.
With that in mind, if your account is swinging 40% from high to low, are they realistically going to give you money to manage? No chance.
So when we ask, do you have a proven track record, we want to know if you are consistently profitable over a year and what was your largest draw down over that period. Draw down refers to the largest high to low swing of your account.
You do not need to be profitable every month, in fact it is unrealistic to think you will be but you need to be able to show consistent gains over a long time frame.
If you can show a proven track record then your ability as a trader is clear, the next questions come down to your personal situation.
Will trading your funds affect your day to day life?
This question refers to the amount you intend to trade in comparison to the amount you have in savings / back up. This will depend hugely on the person but if you are gambling your whole savings on making it as a trader by putting it in an account to trade, then you are risking too much.
Your life shouldn’t change because of what you are trading. That morning coffee you get should not be substituted because you have begun trading your funds.
If you think about it as a percentage, if you have 80% of all your money in a trading account, then you have a real risk of losing 80% of your capital. You should only risk what you can afford to lose. Ideally no more than 10% of your entire wealth should be risked in a trading account. In addition your total wealth should also be taken into consideration, as some will be considerably more than others.
Coming back to the question, if you quit your job and have started to cut back on your day to day luxuries then you have too much at risk. Wait to have a larger safety net before quitting your job!
Can you continue to live without an income for a month or two?
As you are more than aware, trading is a risky industry, you will definitely lose money trading. Good traders will understand this but use a consistent strategy to understand that they will make more returns than they will losses.
You therefore must be prepared to have bad months, and bad months will mean no salary. If you are reliant on being paid every month to pay bills then you should rule out trading full time until you have enough to be able to ride those poor performing months.
In an ideal world you would only withdraw from your trading account every quarter, half or yearly because that way you can take advantage of compounding your profits.
I understand that we are basically saying in this article that you need to have a lot of money before you can start trading as a career. It is not a lot of money but it is enough that won’t see you into financial problems.
Managing your finances are hugely important and making sure you have a nest egg to fall back is imperative when starting to trade as a living. If you are proving to be a consistent trader then it won’t take you long to start making sizable returns.
Should you quit your job?
Coming back to the question in hand, this will depend on your circumstances.
In an ideal world, yes you should quit your job. Trading as a profession gives you a huge amount of freedom in your life, your spare time increases and the returns that are possible can help improve your lifestyle as well as those around you.