Winners Circle

[mflutie]

When Can You Turn Pro?

James "Rev Shark" De Porre at [e-mail]
7/2/04
On Wednesday I wrote a couple of articles about the struggles of a new trader. Columns of that sort always trigger a very difficult question: How much capital should someone have before they should attempt to try trading as a full-time job?
It is very hard question to answer, because there are so many subjective considerations. The foremost one is, what is your cost of living? Some folks can live on $30,000 while others will struggle on $200,000. If you have a working spouse or other sources of income, that also changes the picture considerably.
Whatever your situation might be, you want to make sure you have your living costs covered for at least one year. Assuming you are not a complete novice to start with, one year should be a long enough period of time for you to assess whether you are cut out for the trading business. Of course, if the market trends in one direction the entire time, you may not really be able to evaluate your long-term ability to handle all sorts of different markets.
Assuming you have your living costs covered either by separate savings or other sources of income, how much capital do you need to dedicate to trading to make a go of it? The answer depends in large part on your style of trading. The shorter your time frame and the greater your turnover, the less capital you probably need. A longer-term position trading style would usually require greater capital, because you are not turning over your trades as qui>>
The real dilemma here is that if you are trading ultra-short-term, you can probably get away with quite a bit less capital, but you have higher risk. The more capital you have, the more patient you can be with trades. Traders with limited capital who are trying to generate some fast gains often find themselves churning their account and being slowly nibbled to death by minor losses.
I'm not suggesting that a longer-term time frame is always safer, but having enough capital so that you have the ability to be patient with trades and stay diversified to some degree is a major advantage at various times. Being forced to sell just to move the money elsewhere can be quite costly.
All of that is my long-winded way of saying you probably need a minimum of $100,000 up to $500,000 in capital before you should try quitting your job and trading full time. Remember, there are no guarantees, and if your timing is poor, you may not succeed even though you do possess the requisite skill.
If you are able to establish yourself in the trading business, it is one of the best jobs in the world. Your hard work and efforts will be rewarded over time, but Lady Luck is always lurking about to keep things interesting.