Memories of high failure rates among home-based trading greenhorns during the last equity market boom and bust have slowed what was once a stampede of professionals leaving corporate America to take on the markets in their own familiar surroundings and by their own set of rules.

Still, long after the tech-bust dust has settled, dedicated day traders and thousands more stay-at-home professionals with longer-term investing horizons are still trying to make a living playing the markets and being their own boss. High-speed online access to dozens of trading platforms for stocks, options, futures and foreign exchange, laptop computers, investment boot camps and countless chat rooms have changed this profession forever. However, day trading is often the riskiest venture for most amateurs-turned-professionals, though possibly the most alluring.

Be Realistic
“Day trading is not a get-rich-quick scheme, even though some seminars convincingly sell it as such. It’s a full-time, dead-serious business. It takes lots of cash, tools and discipline,” says J. Steven Niznik, a writer and consultant on technology industry jobs. Investors must brace for – and save up for — a steep learning curve and the likelihood for more setbacks than gains at the outset. And that’s just talking about the professional side of this career change. Working from the isolation of home, particularly when exposed in one way or another to around-the-clock financial markets that sway and bend to geopolitical news and central banker buzz, isn’t a good fit for everyone, especially those wanting to preserve a life away from the constant monitoring of positions. That said, a time-tested routine and discipline might in fact give traders a more flexible lifestyle than 9-to-5 offered them.

Don’t underestimate the amount of study and practice. “You can’t read three books and go for it. Yes, you have to be passionate about it, but in reality, a successful trader should be a little bit boring,”says trader and author Dr. Alexander Elder. Elder highlights some the personal and professional challenges facing the 16 home-based traders, both men and women, that he studies in his latest book Entries and Exits. {Editor’s note: See last month’s book review.} One, former business owner Michael Brenke, concedes that trading isn’t all adrenaline rush and profits at your fingertips. “There is a non-glamorous side to trading – isolation, no co-workers, being cut off from people. People who go to work, pay for dry cleaning their business clothes, and sit in traffic may envy you, but you have to make a much bigger effort to get out and about,” he says in the book. “The way you look at money really changes. You think of spending $25,000 to buy a car, but then ask, ‘How much income will I lose? Is that car worth the loss of income?’”

Is It Right For You?
So how is any reasonable person to know when to take this plunge, if at all? One place to start might be trying to define whether or not an investor’s financial health, inherent skill set, risk tolerance and investing philosophy are in fact suited for day trading — the short-term and often risky transactions aimed at capitalizing on intraday price fluctuations in higher-volume markets. A day trader will hold a stock anywhere from a few seconds to a few hours but will always get out of a position before the close of each day. Day traders usually buy on borrowed money, hoping that they will reap higher profits through leverage but running the risk of higher losses too.

Within this category exists scalping — quickly buying and selling a large volume of stocks or other contracts within seconds or minutes and hoping to earn a small per-transaction profit while minimizing risk. And then there’s momentum trading, for which the trader attempts to recognize a moving pattern during the day, buying at bottoms and selling at tops. “If you’re a nail biter, day trading may not be for you. Working a regular job and investing long term for retirement may save you from bloody fingertips,” Niznik said.

Some of Elder’s case studies who day trade talk of their daily dilemma of making a sandwich and missing a golden opportunity on their screen. Some home-based investors opt for so-called swing trading, in which they hold onto a stock or futures position for anywhere from a few hours to a few days. They, too, are attempting to predict the short-term fluctuations in prices but are willing to allow for some time passage for prices to move or to capture additional momentum in the stock’s price. Position traders, meanwhile, typically hold stocks for a period anywhere from one day to several weeks or months. Traders tend to be using chart-based, or technical techniques, to help make these decisions, which may not fully play out for several weeks or months.

Can You Handle Being Wrong?
Regardless of trading style, individuals from all walks of life may consider a screen-based career; it is often the likes of lawyers and doctors that have the smarts and the income to line a beginning trading account. In Entries and Exits, the 16 home-based traders who are offering a glimpse into their trading lives had former professions that ranged from a fundraiser to tour operator to psychoanalyst and more. It’s often not the obvious professions that turn in the best performances over time, according to Robert Deel, long-time trader, strategist and director of www.TradingSchool.com, where he’s tutored some 30,000 individuals and professional traders in market psychology, technical analysis and tactical trading.

Deel’s student database turns up perhaps surprising conclusions; some of the poorest trading results based on previous vocation are engineers, doctors, dentists, attorneys, economists, accountants and computer programmers. Of course, that’s not to say there are no trading success stories from these professions. “The theme here is intelligence and success, but these groups have certain psychological characteristics,” he says. “They don’t want to be wrong; to suggest they might be mistaken is often taken as an insult,” he says, adding, “In the case of engineers, in particular, they seem not to deal with chaos well.”

He’s also found that younger traders often show a better track record than even seasoned MBAs, who, he says, tend to want to back test and quantify every move, second guessing their budding trader’s instinct just as it’s taking shape. “You see an opportunity and strike. You can be wrong. Accept it and get out with a small loss.” In fact, some of the most successful traders are commercial airline pilots, according to Deel. “Everything in their job points to success: flying by instruments, following directions from the tower, getting a feel [for the flight and] the market at both the subconscious and conscious level, and trained to deal with stressful situations,” he says. Other probable candidates for profitable trading, according to Deel, are technicians trained to read EKG machines, and in some cases, cardiologists themselves, all of whom are “used to looking at charts…[understanding] the beating heart of the market.” Finally, among Deel’s students, commercial artists have fared well in the trading arena. “This group is mainly visual-oriented and perhaps not terribly mathematically inclined, but they’re problem solvers. They follow rules.”

Virtual Support
One of the best ways to test interest and competence in home-based trading may be through visits to chat rooms and e-mail groups that share trading ideas, which Elder highlights in his book and during the phone interview for this article. These groups can also offer social support for the now home-based trader. Collaboration certainly has its strong points and may be just the lifeline needed when striking out alone to trade.

But be careful about relying too heavily on the advice and support of others for a vocation that ultimately falls on the individual trader’s shoulders. Perhaps key to the decision to trade for a living is the willingness to hold the sole responsibility for one’s fortunes.

“Don’t blame others for your failures. This is an easy trap to fall into. No matter what happens, you put yourself into the situation. Therefore, you are responsible for the ultimate result,” wrote the late futures market trader and author Bruce Babcock in an introductory article for Reality Based Trading’s website. “Until you accept responsibility for everything, you will not be able to change your incorrect behaviors.”

It Takes Time
Deel says that even with joining a mentor program like the one he offers at www.TradingSchool.com, count on at least four years of practice or part-time trading before taking the jump into a full-time trading career. Ultimately, he says, would-be traders must think about their own personality and their ability to trade with as little emotion as possible. “We are an easy-gratification society. But [novice] traders are jumping into a gladiatorial arena dominated by professional killers. I am one of those killers. You’re not trading against your next door neighbor,” he says. “The formula for success is self-discipline plus knowledge plus skill equals experience. And those things equal profits.”

SIDEBAR
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Is Home-Based Trading for You?
The following quiz was compiled with the expert help of career and organizational consultant Liz Bywater, PhD, president of Bywater Consulting Group located in Yardley, Pa. Consider the findings, while not necessarily scientific, an initial step in determining trading-for-a-living compatibility.

Answer the following on a scale of 1 to 5.
1. I can tolerate uncertainty. ____
2. I am confident and self-assured. ____
3. I am flexible and can adapt to change. ____
4. I prefer working from home to working in a corporate setting. ___
5. I can create and stick to an efficient work schedule. ____
6. I have strategies to avoid feeling bored or lonely while working from home. ____
7. I have never had an addiction of any kind. ____
8. I make educated, decisive choices. ____
9. I am patient. ____
10. I have a financial back-up plan. ____

1 = I’m nothing like this.
2 = Well, I’m only a bit like this.
3 = I guess this describes me most of the time.
4 = Sure sounds like me.
5 = Wow, I couldn’t have said it better myself.

What Does it Mean?
10 – 19
Don’t leave your day job. Home-based trading just isn’t a good fit for you, at least not at this point in your career.

20 – 29
There could be a future for you in home-based
trading, but you may be happier and more
successful doing something else.

30 – 39
You appear well suited to try a career in
home-based trading.

40 and above
What are you waiting for? You’ve got the
right stuff. (No guarantee of financial
success is meant to be implied by this ranking.)
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