There are many people trading for income because they have a formula for success. They might have their own concoction of methods and a particular style that works for them, but winning traders also have a good plan that they are not afraid to change if needed. Additionally, successful traders do not let outside factors influence their daily actions or routine, as doing so will only add to the already difficult challenge of trading.
Trading for income is very difficult, especially with the rapid moves we have been seeing lately. Markets do not move in one direction, and if you go in with a short time frame, you’ll be dealing with more volatility. Over the long term, markets tend to rise, but this is not like the old days when a buy-and-hold strategy was the best move. Being rational, realistic, and flexible often pays off much better than being patient (that is still a good investing strategy, but we’re talking about trading here).
This is my long way of saying that success (to me at least) is not necessarily about gaining a big stack of wins; rather, it’s about longevity and persistence and being able to manage the numerous pressures that come with trading every single day.
As you’re trading the markets, you’re dealing with uncertainty, fear, and greed – that is a lot to manage! Are you also prepared to buy dips and sell rips when they come at you? Are you capitalized to the point that if you make a bad move, your account won’t be severely crippled?
Many traders feel the pressure to succeed so they can make their mortgage payment, pay bills, and put food on the table. Those expenses are pretty much fixed and never end. Your gains are not fixed, though. You will have setbacks – and then what will you do? If the markets always went in one direction, we could ride it out and never worry – but the markets don’t, and we can’t.
How do you deal with the pressure when you’re trading for income and stay in the game for the long-term?
- You have to ignore the noise! Do not listen to the pundits and talking heads; listen to the markets.
- You have to be properly capitalized. Many people suggest having a year’s worth of living expenses saved – and then a big stack to work from. I agree, though I think eighteen months of expenses saved is a better idea.
- You also need a plan of action that accounts for market changes, uncertainties, errors, and plain old bad luck. Hedging is one strategy to use, even if your returns will be reduced.
In my next post, we’ll cover putting together a smart plan of action that will keep you in the game. Til then, what questions do you have about handling the pressures of trading the markets?