Is it possible to make a living trading in 2022?

Trading requires discipline

Being able to trade successfully for a living means achieving a level of focus and discipline that most people will never reach, no matter what career they choose. This contrasts with traditional investors, who buy relatively safe products and let their capital grow for decades. You can think of it as the difference between being a movie extra and an Oscar-winning actor.

The point here is not to discourage someone from pursuing their dream. If you want to make a living from day trading, it is important to do it with your eyes open.

Home-based day traders may not have a "boss," but this is not a good career choice for those who want flexible and low-key workdays. Day traders live and die by their trading schedules and plans. They diligently take notes on the stock on their watch list at predetermined times throughout the day.

When a profit target is reached on a trade, a successful trader closes the position without hesitation or temptation to wait in the hope of making even more profit. On the other hand, when a trade goes wrong, professional traders calmly cut their losses and close the position.

Apart from day trading, other prominent trading methods that are similar to day trading include scalping and swing trading.

Learn about trading

Before you quit your day job, spend some serious time educating yourself on all things trading. You should be familiar with almost every type of trading that takes place in the markets, but as a day trader, you should emphasize short-term strategies and the stocks that work best with those strategies.

The Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA) and the Internal Revenue Service (IRS) offer valuable information for traders. Introductory books on strategies and theories will help you get familiar with the playing field.

Once you understand the theories, products, and institutional players in the markets, spend some time testing your knowledge with a paper trading simulator. You should not make the leap into a full-time trading career until you have maintained extensive profitability through a variety of market conditions in a trading simulator.

Choose a good trading strategy

To start trading, you will need to develop a solid trading methodology that takes advantage of volatility without giving up risk management principles. Again, this methodology needs to be tested over months or years and in all different types of market environments. Start with a demo account and then start trading with real money. Slowly trade simulated positions for real risk-taking positions.

Reserve some income

Trading for a living does not lend itself to a "rags to riches" story. Whether you plan to day trade or not, you will need a significant amount of capital just to get started as a professional trader.

Many experienced traders suggest having at least a year of income set aside before you start. This is not the bankroll you will be trading with; you will need a separate capital for that. These funds should be set aside exclusively for living expenses such as housing, insurance, and food. Having this financial cushion will give you peace of mind and allow you to start your new career without the pressure of negotiating to “pay rent”.

Even when it comes to capital for your brokerage account, day traders need significant capital to trade seriously. FINRA has special requirements for "pattern day traders," which are defined as those who open and close a position on the same day at least four times per week. In other words, if you want to trade every day, you are a pattern trader.

FINRA requires that pattern day traders must maintain a brokerage account balance of $25,000. That's $25,000 on top of the year's worth of revenue you've set aside. In addition, you will need to do your daily trading in a margin account, although opening this type of brokerage account is not difficult for most traders.3

If you don't plan on day trading, but still want to make a living trading, you'll need to make each trade worth more. Since you won't be able to execute as many trades, each trade needs to be for a significant sum, and the more money you put into a trade, the more you expose your portfolio to risk.

You'll need to have a record-keeping strategy ready for tax season.

Prepare yourself mentally

Professional traders need to take the emotion out of their trading. Psychologically, you'll need to steel yourself for the severe financial losses that often accompany the first few months of day trading.1 The only way to overcome those losses is to approach them with calculative reason rather than emotion. Learn from your mistakes without getting caught up in emotional ups and downs.

The goal when trading for a living is to have a reliable and consistent stream of income, but that will take time, diligence, and luck to achieve. Not everyone has the mental toughness to work to the point where they have a consistently profitable strategy. Watching the daily fluctuations of your income can be extremely hard on the psyche, especially when it comes to a sustained experience that lasts for months.

The combination of speed, volatility, adrenaline and losses can make day trading a jarring experience for newcomers.