How To Make R20k A Month Trading Even If You Have A Full-Time Job
Imagine topping up your monthly income with a bumper R20,000?
Sounds great, doesn’t it? Making a substantial amount of money on top of your monthly wage.
And the good news, it is achievable.
By putting some of your cash to work trading the global financial markets.
But, as easy as this sounds, there’s also the serious risk of losing money.
And this is why you need a solid strategy to follow, plus a good pinch of discipline.
So how can you boost your income substantially, whilst still holding down your day job?
What aspects do you need to include in your strategy?
And how can you improve your chances of succeeding?
Let’s see how you can make this a reality…
The Crucial Decision You Need To Make First
Before you begin wondering what you could spend the money you make from trading on, you need to size up if trading is actually for you first.
Not all people make good traders, and not all good traders are even profitable over the long run.
If you’re a conservative investor, this is unlikely to work for you.
Going against your internal investment grain is going to result in you making bad decisions.
But, if you’re prepared to take on the higher levels of risk that come with trading, you could be in the perfect position to reap the rewards.
Five Things All Successful Traders Have In Common
Successful traders tend to have certain traits in common.
These traits allow them to exploit the market, apply strategies to reduce their risk and make money over the long run.
So what are these traits?
Successful Trader Trait #1: A Will To Learn
If you want to trade, you need to take the time necessary to learn about the markets you want to trade and the instruments you want to use.
Learning as you go along isn’t an option.
This requires patience.
Successful Trader Trait #2: Unflappable
The best traders are those who can keep on top of their emotions, and have trust and belief in what they do.
If you tend to panic at the first sight of a stock market wobble, it’s unlikely you’ll make a good trader.
Ideally, you want to have a calm disposition, exercising patience and control over the decisions you make.
This also helps you to follow your strategy – a trader’s best friend.
Successful Trader Trait #3: Learn From Mistakes
There’s no way that you will be able to trade and get your picks right 100% of the time.
The world’s best traders still encounter losses.
As a successful trader, it’s essential you accept them, learn from them and move onto your next opportunity.
Successful Trader Trait #4: A Competitive Streak
Having a healthy competitive nature can make for an excellent trader.
This allows you to pick yourself up and dust yourself down when things don’t go as planned.
Not only will being competitive help you learn, but it will help you to strive and improve your trading game.
Successful Trader Trait #5: Love Trading
If you plan to trade around your full-time job, you need to love trading.
This will allow you to make the time to scour the markets, looking for your next trading opportunity.
It’ll fill you with excitement and make trading a truly enjoyable, and potentially profitable, pastime.
The Benefit of Being A Part-Time Trader
You have a superior advantage over professional traders.
You’re not reliant on the income you make from it to pay your bills.
Knowing that you have your salary coming in every month can give you an edge.
This helps you approach trading with a more relaxed frame of mind, and you can slowly build up your trading pot over the long-run.
Despite the image people and the media sell, trading is not a get rich quick scheme.
And this will help you with a common battle traders face – Their emotions.
The emotions and psychology of a trader can play havoc with their trading activities.
This is why you must have a trading strategy, which you follow, no matter what.
You can’t let fear and greed dictate what you do - This is the job of your strategy…
The Perfect Strategy For The Part-Time Trader
Your strategy is one of the most crucial aspects that can determine your success.
A vital part of this is risk management.
It’s all too easy to focus on potential profits, but it’s managing risks that determines how much money you make and how successful you’re going to be.
So what do you need to include in your strategy?
There are three key factors…
Money-Making Factor #1: Position Sizing
You have to control how much money you put into each trade you make.
This reduces your overall risk and means that even if you experience a string of losses, you’ll still have money left in your trading pot.
The best way to do this is by applying position sizing.
This involves only risking a specific percentage of your capital on each trade.
A good rule of thumb is 2% of your trading capital.
If you’re more conservative, go with 1%. If you’re more aggressive go with 3% or more.
So how does this work?
Let’s say you have R100,000 in your trading account and put a trade on.
You will only risk R2,000 on that trade (2% of R100,000).
The next trade you place will depend on the outcome of your previous trade.
So if you made a profit, say R4,000, your trading pot is now R104,000. You will risk R2,080 (2% of R104,000) on your next trade.
If you hit your stop loss and lost the R2,000 you risked in the previous trade, you’d put R1,960 at risk on your next trade (2% of R98,000).
Position sizing also gives you a psychological advantage as you’re not risking a large portion of your funds, which makes you more relaxed.
Money-Making Factor #2: Risk Reward Ratio
When deciding on your strategy, you also need to consider your risk reward ratio (RRR).
This helps you determine how much you’re willing to lose against potential winnings.
A good rule of thumb is a 1:2 risk reward ratio.
So how does this work in practise?
If you have R100,000 in your trading pot, adhering to your position sizing percentage of 2%, you decide to risk R2,000 on a trade.
This means if your trade hits its stop loss, you’ll lose R2,000.
What is also means is your take profit level should be double this. So you would place your take profit level where you’d make R4,000 from the trade.
You can change your RRR to suit you. For instance, you could go with 1:1 or 1:3, but know that tinkering with your ratio will affect the outcome of your trades.
Money-Making Factor #3: Getting Your Win Rate Right
To ensure you grow your money over time, you need your strategy to provide you with a minimum win rate.
The win rate you need depends on the risk reward ratio you follow.
If you use the risk reward ratio of 1:2 as above, you only need a 33% win rate to keep your head above water over the long run.
If you go with 1:1, you’ll need a win rate of 50% to make money.
Opt for 1:3 and you only need to get a win rate of 25%.
Of course, the higher the reward to risk, the better you’re expecting a trade to perform.
So you need to find a balance that works with your strategy and the market you trade.
You should keep a trading journal that includes this information. If, over time, your win rate isn’t giving you the desired results, you need to change your strategy for finding trades.
How Much Money Do You Need To Start Trading?
You can open an account to trade with as little as R500 with some brokers.
But, R500 isn’t going to be enough to allow you to put your risk management strategy of position sizing into play.
Brokers offer this in order to get your account, they won’t make money from it and nor will you.
There are also some other considerations to think about before you decide how much to trade…
- Only use money to trade that you don’t need. You shouldn’t be using cash that you need to pay your bond with, for example.
- What are the requirements for the instruments you trade? If you’re trading an instrument that has a large minimum trade size, this means you’ll need a substantial trading pot to get started.
The smaller the amount you start with, the longer it will take for your trading capital to grow, but it’s all relative.
Ensure you’re comfortable with what you’re risking when trading.
Depending on what you trade, you could follow the above risk management strategies with a starting pot of R10,000.
How Soon Can You Earn R20k A Month?
Earning substantial amounts each month isn’t going to happen overnight.
You need to have the right expectations going in from the start. Good trading takes time to accomplish, there are no shortcuts.
You also need to be patient and let your risk management strategies work, and to understand their dynamics and how your position size, win rate and risk reward ratio work with each other.
It will also depend on:
- How much money you have to put to work
- How often you trade
- The risk/reward ratio you follow
- Your win rate
Let’s run through an example to see how you can achieve an additional income of R20k.
We’ll assume you:
- Have a trading account of R10,000
- Trade six times a week (24 times a month)
- Use a risk/reward ratio of 1:2
- Have a 60% win-rate
It would take you around three-and-a-half months to make a R20,000 profit on your account.
That’s not R20,000 per month, it’s R20,000 in profit after three-and-a-half months, and what you need to remember is that the profit made was used to generate more profit and that entire R20,000 (so none was withdrawn).
You ultimately want to get to a point where you can withdraw a certain amount, in our case R20,000 a month, and still have enough left over to keep generating the kind of returns that’ll allow you to keep doing so (and obviously grow your account).
That comes down to three things: Your risk reward ratio, position size and your win-rate.
What makes it tricky is that of those three, you cannot influence your win-rate (That’s what your strategy dictates). It’s also important to note that your win-rate is backwards focused, and can only give you an indication of potential performance.
Your account size also plays an important role here too. Traders with smaller account sizes tend to overtrade, which ultimately affects their win-rate and inevitably kills off their accounts.
Undercapitalization when trading is one of the biggest reasons most traders don’t make any money and eventually call it quits. Traders with R5,000 or R10,000 trading accounts expecting to double it every month are only fooling themselves.
However, when you see the rubbish splashed all over the internet it’s little wonder why these expectations are around.
What you need to keep in mind, irrespective of your goals and trading ambitions, is that trading is a business. And you need to treat it as such.
So how do you do that?
It all comes down to the numbers (as any money-making trader will tell you).
As a general rule of thumb, there’s a great equation you can use to determine what you need in order to take home your goal ‘income’.
It looks like this:
Your trading account size is such that if you risk 1% or 2% you can live off one R-multiple every month.
The R-Multiple measures the outcome of your trade in terms of risk.
To illustrate what the R-Multiple is let’s use an example - Let’s say you have a trade with the following levels:
- Entry: R100
- Stop Loss: R90
- Take Profit: R120
- Risk Reward: 2:1
If you exit at R110 your R-Multiple will be +1 (IE R10 profit), if you exit at R90 your R-Multiple will be -1 (IE R10 loss), and if you exit at R80 your R-Multiple will be -2 (IE R20 loss).
You want to compare your risk reward ratio to the final R-Multiple, and if you find its larger that means your take profit level could be a little too optimistic or you’re possibly closing your trades before they hit that level (thus reducing the R-Multiple).
You also want to make sure that your R-Multiple is never smaller than -1 as that means you've allowed the price to run past your stop loss level (like in our example above).
Ok so getting back to our quest of R20k a month...
Remember, your ideal trading account size is such that if you risk 1% or 2% you can live off one R-Multiple every month.
If you have a R50,000 account and you’re risking 2% per trade, that would be R1,000, and the rest will be used to grow your account.
So, if you can pull R1,000 for every R50,000 in your account, that means you’d need at least R500,000 in order to pull R20,000 every month (to live off one R-Multiple).
In our example earlier, opening 24 trades a month and keeping a solid win-rate is something very few traders can actually do.
Most of the traders I’ve come across who make real, consistent money only open a few trades a month.
It allows them to be much pickier, and ultimately helps them trade better.
If you only focus on improving as a trader, without all the stress of numerous open trades and banking an income, the money will eventually come.
Remember, you want to treat your trading like a business, not a casino.
How To Bank a Second Salary Without A Second Job
The crucial aspect to achieving this extra income each month is strategy.
You need to adhere to the risk management strategies we looked at above.
At the end of the day good trading is all about the numbers, and when you understand the numbers of your system, finding trades that match them means you can plan and predict when you’ll make money!
This will take time., you’re not going to get an idea of your system in just a matter of weeks.
But as long as you’re patient, dedicated, take your time and learn along the way, earning an additional R20,000 a month could just be a few steps away!
Until then, here’s to profitable trading.
The Money Lab