When I look at this question, I see the answer in two parts: 1) what kind of lifestyle do you want? and 2) how much money do you need to start trading to get to that lifestyle?
What kind of lifestyle do you want?
You will first need to answer this question before moving on to the next. Do you want to party 5 nights a week and spend $200 a night? Do you want to live in a $5 million mansion? Maybe you just want to be a stay-at-home parent who has a few hundred dollars a month to help support your family.
This also applies to where you wish to live. If you’re trading in the U.S. market but living in Costa Rica, the lifestyle costs are different. You need to do some research and calculate what type of lifestyle you need or want and configure costs…
If you’re looking for a basic or generic answer, here’s an example: You have rent expense ($700), medical expense ($50), car expense ($200), cell phone expense ($60), electricity expense ($100), water expense ($50), food expense ($300), internet expense ($60), and additional expenses ($200) – on a monthly basis.
Your rough total, on a per month basis, is $3,000. Your number of wins, percentage of returns for those wins, losses, and your commissions and brokerage fees will determine if you meet that monthly expense goal.
Let’s say you win 3 times a week on average with only a few, minor losing trades (3 wins). 3 wins at $350 per trade equals $1,050. You have 2 losses at $100 per trade which amounts to a $200 loss. Your weekly total equals to $850 which is then multiplied by 4 weeks in a month: $3,400 monthly total.
How Do You Make $350 per Trade?
You could do 150 shares of a stock that goes up to $3, 200 shares of a stock that goes up to $2, or 500 shares of a stock that goes up to $0.70. Keep in mind that not all stocks are created equal…
Stocks at $60 per share don’t move the same as stocks in the $400 range. Stocks at $60 per share may move $1-$2 on a decent day, while stocks that are $200 may move $2-$5 (and so on).
How Much Capital You Need
Let’s say you’re trading a $50 stock that moves $1-$2; you may need 350 shares. To buy 350 shares of that stock, you will need (350 X $50 per share) $17,500. For a $200 stock that moves $2-$3 per share; you may need 200 shares. That will cost (200 X $200 per share) $40,000 (and so on).
Looking at the mathematical breakdown, we created a range from approximately $18,000 to $40,000. Somewhere in the middle ($25,000) is a good figure to start with if you’re looking to begin trading for a living.
You have to take into account your losses and other happenings to access your situation. However, you can use the same setup calculations to create hypothetical scenarios.