“Every market has a place for part-time traders,” says Marilyn McDonald, a Cottonwood Heights, Utah, part-time forex trader who works full time at Interbank FX. “It’s about fitting it into your lifestyle and risk proclivity.”
That may be where many part-time traders get hung up, especially those who must balance the demands of trading with full-time jobs, family and other commitments. With a methodical and consistent approach, however, part timers can make money.
REALISTIC EXPECTATIONS
Because they can only devote a portion of their day to trading activities, it does take longer for part timers to learn and master skills than someone who does it full time.
“How quickly one advances on the [learning] curve is almost directly proportionate to the time put toward learning,” says John Forman author of The Essentials of Trading and a part-time trader since the late 1980s.
Because the process is slower, it can be frustrating for new traders to stick with trading and make good decisions, he says.
“The first major hurdle people have to overcome is that mindset of realizing there is a path and process here, and it’s not something you can jump into and immediately make money at hand over fist,” Forman says. “... A year in trading is a drop in the bucket for the development process.”
Besides the amount of time needed to become successful, part-time traders also need to be realistic about how much money they can earn. Dan Passarelli, founder of Market Taker Mentoring LLC and author of Trading Option Greeks, puts it this way: “When you have a part-time job, you don’t expect to make as much as you would with a full-time job. It’s the same here. With part-time trading, you can make profits, but you’re not going to make a living probably.”
TIME TRIALS
Successful part-time trading, therefore, all starts with an honest look at how many hours individuals can consistently put toward trading activities, and at what time of day those hours occur.
“Everything spins off from that: what markets you can trade, how you can trade them, the types of positions you will have to hold, how much money you will need to trade those positions,” Forman explains. “So a lot of decisions should be made early on that people tend to skip—not that they intentionally do it. They don’t realize they have to do it.”
Passarelli, says, “Many new traders don’t appreciate the upfront investment in terms of sweat labor that’s required. It’s easy to say, ‘Trade with a plan.’ But unless you have a methodical plan worked out, and you’re educated about the risks and rewards and what can happen with the plan, ... it becomes difficult to come up with a logical plan that really makes sense. Before trading, if you know that you can commit even five hours to trading, sit down with someone who can help you come up with a [personalized] plan and get that worked out in your head. Then, it becomes [a matter of] sticking to the plan, and executing it becomes easy.”
Many part timers can only work on trading when they arrive home from their day jobs, which is often after many markets are closed.
“The question becomes, what kind of trading lends itself to looking at the market after your day job is done, which probably means looking at and analyzing the market on an end-of-day basis,” says Brett N. Steenbarger, Ph.D., trading psychology consultant, author of Enhancing Trader Performance and an active trader for 20 years. “From my experience, that means a longer-term kind of trading: longer-term swings in the market, holding periods of several days, certainly not day trading. It can even be hard if you are holding [a position] for a day or two because you will need to follow the market intraday for good execution on entries and exits. The longer the holding period, the more doable it becomes to work the market part time and follow it on an end-of-day basis.”
Paul Singh, of Rosemount, Minn., is a part-time trader with a full-time job. He offers this advice in an e-mail: “For swing trading, not being able to constantly follow the market is actually a good thing. It keeps the trader from micro-managing trades. Try your best to ignore the market and your trades during the day. If you have a plan for each of your trades, a stop and target should be in place that will manage the trade for you. Trust your research, forget about the market and focus on your day job.”
Most sources interviewed for this article agree that extremely short-term strategies and scalping are not good choices for part-time traders unless they are able to actively watch and manage their trades during market hours. This may be an option for people who work a second-shift job or whose job gives them flexibility to be in front of a screen all day.
However, because of its global nature and off-exchange structure, forex is one market that part-time traders can day trade after American exchanges are closed. McDonald has been trading forex live since 2006 and says, “It’s really difficult to do analysis of stocks at the end of the day and then place trades with a broker in the morning. It takes a lot of wrangling. But what’s nice about forex is that I can still work my day job, do my [trading] homework after work during the dead time (when the American session is closed), and then late in the evening when I’m ready to sit down, the market starts to pick up and I place my trades. I don’t have the time to stay up all night to watch my trades or have the time at work to do it, so I set my stops when I place my trades.
“This is nice because it really slows me down. I won’t make a bajillion dollars overnight, but I know why I get into trades and when to get out. ... I don’t trade every day if I don’t see setups. I don’t have to force a trade because I’m only doing this part time.”
BE CHOOSEY
The instrument one trades as a part timer depends on the trader’s style, according to Steenbarger. He says, “I’m not sure it makes a difference if you trade one asset class over another to be successful. ... Make sure the volatility is aligned with your risk appetite so that you would adjust the position size and the markets you participate in based on how much swing you can tolerate on a day-to-day basis.”
Although stocks and exchange-traded funds (ETFs) may be the easiest for novices to understand, other areas may be good choices for part timers. One is options.
Passarelli says, “If a trader has a directional strategy in stocks or futures, when there is a large, extreme move, he or she stands to lose a bunch. Because of this, the trader always needs to be able to keep an eye on the market or else he or she is not doing a good job of watching risk. With options, though, you can structure a position with limited risk and you always know what your risks are.”
Steve Gomez, a full-time trader in San Diego who began trading part time, says forex is a good training ground for many. “It’s an entry-level marketplace. For most, there are only about four [currency pairs] you need to watch.”
When choosing which instrument to trade, Forman says one of the keys is to understand exactly what one is trading. That, he says, has become a bigger part of the equation recently.
“There is so much available these days. For example, much has been said of leveraged ETFs lately. It is really a day trade, not a position or swing trade, instrument. And forex can suit a lot of part-time traders, but it can be a bit of a hurdle to understand because it’s a relationship market, not a straight out asset market. This can be tricky for beginners, especially when you throw in leverage,” Forman says.
Another key issue for traders when they choose which products to trade is knowing how much capital they have available for trading. Forex accounts can be opened for hundreds of dollars, whereas some futures contracts take many thousands.
“Once you know how much money you have, you can see what markets are available to you,” Forman says. “Most can trade stocks for whatever timeframe they want, but maybe futures is something someone with a small account can’t trade on a position basis because the price swings are too big for the type of risk [he or she] wants to take.”
In addition, Steenbarger explains that a trader’s time zone may be a factor in choosing a market. He says, “If you are trading currencies, you may want to operate on a different time zone than trading S&P stocks. So think through when markets are likely to move and when you would be likely to follow them.”
Also, for those who live on the west coast, getting up early may be an easy way to place trades on East Coast markets before having to leave home for a day job.
BE A PLANNER
Beyond the market and instrument choice, part-time traders need to have a clear vision for the trade from the entry to the exit before actually taking a position.
Because they cannot monitor the market continuously, when part timers enter positions, it is prudent for them to also place stops and limit orders at that time. This takes care of any unexpected market moves during the day.
Also, by employing limit and stop orders, it can help keep traders from looking at the markets during the day, which can get them out of a longer timeframe mode. “Because they can’t make decisions in real time, stops do it for them. Keep in mind that part-time traders can always adjust their stops each night as things change if needed,” Gomez says.
TIME MANAGEMENT
According to SFO’s 2008 subscriber survey, one of the major concerns for part-time traders is just finding the time to do it. McDonald understands the demands on a working parent’s life.
She says, “I get up in the morning. I have to get my kid off to school. I get five minutes alone at the computer in the morning if I’m lucky. I work all day. I go home, there’s homework, everybody’s hungry. By the time I sit down, there’s laundry and everything else. So really carving out an hour, hour and a half, two hours [for trading means] I really have to make an effort to make space for it.”
Successful part-time traders have developed a plethora of ways to use the little time they have for trading to their advantage. Narrowing the field of possible trades is one method. McDonald focuses on one or two currency pairs and studies them. She says, “[The pairs] all have different personalities. If you don’t know them, you are more likely to make bad judgment calls.”
Forman suggests that as traders work through the learning and research phases, they find ways that will help them apply their strategies. This includes tools that remove what they should ignore but leave what they should consider when making trading decisions.
“For stock traders, this could be screeners,” he says. “In my case, I have many layers of screeners. So I go from the universe of thousands down to a handful and keep my amount of time to a minimum. It could also be the way you set up your charting package. You can configure your charts in such a way to take a quick look and see what you need. There are many such strategies you can employ to find little bits of time savings.”
Singh limits his trading to a basket of setups, and uses scanning software to speed the process. “Time management is tough for the part-time trader. You have to be very organized and create systems that make the job easier,” he says.
Singh follows the same routine each night. He scans sectors, looks for breakouts and breakdowns in specific stocks, and runs other scans. Then he reviews his watch list and develops a list of setups to focus on the following day, with his entry range, stop and target for each stock.
“This may seem like a lot of work, but after a while, it becomes very easy,” he says. “Using Telechart, I can flip through hundreds of stocks in a matter of minutes. I’d say one hour per night is all that’s needed to come up with a strong watch list.”
BE CONSISTENT
Another method for carving out time is making it a consistent part of a trader’s daily routine. Steenbarger suggests having a dedicated time of the day to make and review plans. “When I first got involved with trading, at the end of the day, I reviewed charts, the indicators and price series. I learned how they unfolded, and I developed a feel for the relationships. It was part time, but it was every day and was very useful.”
Singh creates a schedule for the day from the moment he wakes up, including a workout, family time, entertainment and trading. One simple way he finds to both watch TV and research trades is by recording his favorite shows. For example, an hour-long program only takes 40 minutes to watch without commercials, giving him 20 minutes to devote to trading.
Once a person can find time for trading, it needs to be the right kind. To be worthwhile, the time must allow the trader to be focused, not distracted. Gomez says that for him, that time is late at night. “Nine to 10 p.m. is the precious hour. The kids are in bed, and it’s the last hour before I go to bed. I have no interruptions.”
KEEP IT SIMPLE
Part-time traders also need to remember that their strategies should be designed so as not to take much time to monitor. Passarelli says, “It’s really important when you put on a trade to have the exits in mind and to stick to it. If you do that, you should be OK.” Based on that, he continues, “In a perfect world, for a part-time trader with a full-time job, to look at his or her positions once a day should take 15 minutes to monitor and make sure he or she knows what’s going on. If he or she can’t do that, it becomes tougher [to be successful].”
In the final analysis, all sources agree that part-time trading can be profitable. It just takes managing one’s expectations, dedicating oneself to the pursuit and being aware of one’s limitations. And it takes something more.
McDonald says, “Those who stay in it, truly enjoy [trading]. The minute it feels like an obligation, walk away.”
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The Part-Time Personality
“I’m observant and quick to react,” says Steve Gomez, a full-time trader. Therefore, scalp trading “played to my strong suit.” But being a quick-hit scalper was not a good fit for him as a part-time trader.
“My personality dictated that I needed to choose” either trading full time or working full time, he says.
So what personality traits are required to be a good part-time trader while also working a full-time job?
Gomez suggests it takes patience to let a planned trade work itself out. “If you are constantly checking the market, it’s human nature that you will find reasons to get out of a good trade,” he says.
Brett Steenbarger, trader psychologist, thinks it also requires someone who is good at doing more than one thing at a time, as well as the ability to analyze. He says, “Shorter-term trading is more from the gut, no time to plan or map out a trade. Longer holding periods, however, are more like investing. You have time to think through the trading plan. You can plan where to enter, engage money management, add to the position, take profits or scale out of the trade.”
Once you have the plan, Dan Passarelli of Market Taker Mentoring, says, “It all comes down to discipline” to stick to the plan.