The Ups and Downs of Daytrading for a Living

The last 4-6 weeks has been a valuable reminder that daytrading for a living can be fickle. But it's a lesson you absolutely must learn if you plan to support your retirement by daytrading. And it's especially important if you plan to do so sporadically.....randomly choosing which days you will trade, and which ones you won't, based solely on a whim. It's appealing to think you can work whenever you want, and in some cases you can. But if you had chosen to take the whole summer off and start up again in September, you might be experiencing some financial difficulty right now. So what can, and should, you do about it?

First, you need a backup plan. You need financial resources that can carry you through periods when trading is simply too dangerous. The LAST thing you want is to have all your eggs in the daytrading basket, finding yourself taking riskier and riskier trades just because you need to make some money. Frankly, the whole idea of retiring offshore and living a simpler life is that you leave the day-to-day stresses behind. You want daytrading to supplement your retirement...you don't want your retirement to depend exclusively on trading.

Secondly, you need to stick to your plan. If you are a conservative trader like me, you're better off sitting on the sidelines when the market is acting up like it did today, and it has done most of the last month. Trades can turn on you in a split second, and take a big chunk out of your precious capital. This is where a backup resource is helpful. If you've got a decent nest egg of savings that you can fall back on for a short time, you don't mind sitting out the tumultuous periods.

Finally, you need perspective. Why did you retire? Why did you choose daytrading to help...and I stress the word help....fund your retirement? Everyone has a different answer. Since I haven't retired yet, mine is speculative. But I think I will be retiring to a quiet, peaceful, inexpensive South American life because I want to get away from stress and enjoy the rest of my life in laid back heaven. And I will likely choose daytrading to help fund my retirement because, if done right, it can provide a relatively consistent income that you can generate from anywhere in the world you can find an internet hotspot.

But the real gist of this post is that you must understand that there are times to trade actively, and times to watch from the sidelines. You have to plan, both mentally and financially, for those periods where you don't generate any income from your trading.