Breaking free of wage slavery

Wage slavery is a very gentle form of oppression that creeps up on us … you get a job, find a place to live, buy the stuff you need … and before you know it, your choices are limited, and you’re tied down …

Sound familiar?

Earning money from a source outside your job is one of the best ways to break this cycle. And trading the financial markets has allowed many people to find that financial freedom.

First off, let me make something clear – this isn’t a recommendation to give up your day job to become a day trader. Yes, it’s possible to make a living from trading, but what I’m talking about here is supplementing your income with trading to a point where you can have more choices.

There are some important things you need before you can take this route:
• Motivation
• Capital you can afford to risk
• Time to invest
• A willingness to learn
• Discipline to keep with it

But I’m going to look at what I see as the biggest hurdle new traders come up against … again and again, I talk to traders who are disappointed that trading isn’t giving them a neat monthly salary they can rely on.

You can’t have it both ways.

The markets are, by their nature, unreliable – that’s what allows us to have incredible trading months … terrible ones … and all the ones inbetween.

What we don’t get are ‘ordinary’ months – there is no ‘ordinary’ in the markets, and our fluctuating returns are proof of that.

If you want a lesson on how impossible the markets are to control … look no further than China this week.

The measures put in by the Chinese government to control their stock market six months ago are set to expire today. Ahead of this, Thursday saw markets tumble, and more controls put in place to restrict major shareholders offloading their shares.

It’s an exercise in futility – to ban the selling of something, doesn’t make it more valuable. It just delays the off-loading process.

To be a successful trader in the markets, we need to embrace this uncertainty, rather than run scared from it. It is precisely this uncertainty that enables traders to make superior returns.

But what it won’t give you is a regular-sized wage packet at the end of each month.

So, what are the things we CAN control?

Risk-reward

Poor old risk – that social pariah, shunned and hated.

Risk is seen as the trader’s enemy – the one who’ll empty your trading account when the market has a bad day.

But the thing about risk – which can’t be said for its goody-two-shoes cousin ‘reward’ – is that risk can be quantified.

A good trader will always know exactly what his or her maximum possible risk on a trade could be. The same trader will also be able to tell you what his or her maximum acceptable drawdown for a week … a month … and a year would be.

As traders, we have the power to carefully predetermine any risk before we put a toe into the market.

Unfortunately, we can’t say the same for measuring our rewards …

Ask the same trader what their reward will be, and they’ll start uhming and ahhing … If I’m lucky, the market could run to … If I use trailing stops I might make … If the move happens before the Fed announcement on Friday, I’ll take …

It all sounds a bit hit and miss.

Rewards from trading are very volatile. One month you might make 10x what you made the previous month. And the next month you might take a loss.

If you’re not prepared for this, you’ll quickly become discouraged by trading, or – worse – get wiped out because you’ve become over-confident after a good month.

Your income from trading will fluctuate, so you’ll need to manage your finances to accommodate that.

When I first started trading, I clearly remember having a fantastic run for about 3 months, and calculating forward how rich I’d be in the next 5 years based on this performance. I don’t think there were enough ‘0’s on the calculator to tell me how rich I’d be … but, of course, that winning run came to an end, and I quickly learned that trading has ups and downs – and it’s a very long-term profit curve we need to look for, rather than massive monthly wage packet!

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