Transition from Your 9 to 5 to Trading for a Living

[brownsfan019 17]

Transition from your 9 to 5 to Trading for a Living

 

Part time? Full Time? How about One Step at a Time?

 

by Don Bright

 

I interview dozens of potential new traders every month, and the question of Transitioning from the safety of a paycheck or business venture to successful trading comes up often. No need to leave job security behind, in my opinion. Let’s discuss a few scenarios.

 

One of the first things to take into consideration is to realize that trading is, indeed, a business, and must be treated as such. (See “The Business of Trading” TASC, August 2008). So, with this in mind, let’s cover some business basics. One of the primary reasons for lack of success in any business is lack of capital. I’m speaking of capital to properly run the business at this point, not “living expenses” which we’ll get to a bit later. There are many books and seminars and TV ads that attempt to convince the public that money can be made with their products with only a $25,000 retail brokerage account, this is extremely difficult in my opinion. Can and should you invest your own money with a retail account? Sure you should! Do your homework and trust yourself, not a stockbroker, to make investing decisions for you. But investing is not trading for a living. For our assumptions in this treatise, let’s assume an average stock price of around $50 per share. Merely buying 1000 shares of a single stock would tie up all your capital and margin. If you intention is to simply make $100K per year, this would require some extraordinary vision and a lot of overall risk. The strategies that our traders use, for the most part, require about $1 million or more to work properly. Bear in mind, I’m talking about “use of capital” not “abuse of capital”- and certainly not engaging in excessive risk. (Explanation of business model: Our traders can put up $20K or so, and then use our money to trade with, thus having the ability to engage in strategies that I will outline below. All P&L goes to our traders, we trade billions of shares and only keep a portion of their low commission costs).

 

OK, now that we’re thinking of starting a Trading business, let’s think about how to get started. Let’s assume you’re working a “normal” job, with a little flexibility, as most of us are. Time zones can actually play a part, as you will soon see. A great majority of my traders engage in what we call the Opening Only Strategy that has been discussed here in the past. This is one of our most lucrative single strategies, and has been working well for decades. Our traders place orders to buy or sell short a number of shares at pre-determined prices, prior to the opening print on NYSE stocks. We go through a pre-market calculation to determine limit prices that we would like enter this trade….if the stock gaps up or down from the previous day’s closing price. For example, I place 2000 shares to buy and 2000 shares to sell short in about 50 stocks each day (Bright Trading places about 40 million shares of this “opening only” variety each morning). I don’t want to be filled if the stock opens at a “fair” price based on market conditions. I only want to be filled on gaps prices. I try to get about a 10-15% fill rate, giving me stock, either long or short, on 5-8 stocks on average. The big edge is that I know that if I am filled, the NYSE Specialist is also filled at my price, in my same direction, long or short. Over the decades, even with all the changes on the NYSE, this is still a true assumption. I take profits with an automated program, or cover losses when they happen, and am usually finished with this strategy within 5 or 10 minutes (rarely longer than that). Our new people have averaged a 75/25 win/loss rate within the first couple of weeks of their starting date. We have many traders who engage in this strategy, and nothing else, when Transitioning to a more full time trading career. This allows for a half our prep time and a half hour trading time. Many make a good 6 figure income doing this, and this alone. Great way to keep your job while augmenting income and/or preparing for the move to full time trading. This requires the “use” of capital that I described, but not the “abuse.” Using a $million or more to make $100k or more per year.

 

Another strategy that only takes a half hour or so takes place at the end of the trading day. This strategy revolves around the MOC (Market on Close) imbalances that are published by the NYSE starting at 20 minutes prior to the closing bell. All day long various funds and groups place orders to buy or sell great number of shares at the very last price of the day, the “market on close” price. We filter for larger imbalances, either to buy or to sell, and immediately place orders that go along with the imbalance. We can then either take profits, or increase share size, for the next few minutes based on market conditions. We, as professional traders, can submit MOC orders to then close, or offset the imbalance during that last 20 minutes. So, again, a strategy that can me done in a very short time frame.

 

Now to time zones. I have always traded in the Pacific Time Zone, where the market opens at 6:30 AM and closes at 1:30 PM. Many of our local traders, while transitioning, will come in at 6AM, trade the opening, and go to their jobs at 8 or 9AM. They then return for the last half hour of the day during lunch. Of course, your time zone may be different, but if you have some flexibility in your job, you too can transition this way.

 

I never advise anyone to quit a job to start any business venture, and trading is no exception. Traders need to keep a cool head, and not be worried about making house payments or feeding their families, especially during the first crucial months. I do suggest to those who find themselves retired or out of work to have enough money in the bank to cover expenses for a year or so while getting things rolling. So, take things one step at a time, keeping a level head, and start your trading career one step at a time. After you achieve a comfort level, you can easily move into a full day of trading with several more techniques.

 

Don Bright

 

 

=================

 

I thought this was a pretty good article from Don for those considering trading.

I've never worked w/ Don but always impressed with his comments and openness.

[Sledge 13]

A Nice article. Thanks Bf.

[nakachalet 10]

Transition from your 9 to 5 to Trading for a Living

 

Part time? Full Time? How about One Step at a Time?

 

by Don Bright

 

I interview dozens of potential new traders every month, and the question of Transitioning from the safety of a paycheck or business venture to successful trading comes up often. No need to leave job security behind, in my opinion. Let’s discuss a few scenarios.

 

One of the first things to take into consideration is to realize that trading is, indeed, a business, and must be treated as such. (See “The Business of Trading” TASC, August 2008). So, with this in mind, let’s cover some business basics. One of the primary reasons for lack of success in any business is lack of capital. I’m speaking of capital to properly run the business at this point, not “living expenses” which we’ll get to a bit later. There are many books and seminars and TV ads that attempt to convince the public that money can be made with their products with only a $25,000 retail brokerage account, this is extremely difficult in my opinion. Can and should you invest your own money with a retail account? Sure you should! Do your homework and trust yourself, not a stockbroker, to make investing decisions for you. But investing is not trading for a living. For our assumptions in this treatise, let’s assume an average stock price of around $50 per share. Merely buying 1000 shares of a single stock would tie up all your capital and margin. If you intention is to simply make $100K per year, this would require some extraordinary vision and a lot of overall risk. The strategies that our traders use, for the most part, require about $1 million or more to work properly. Bear in mind, I’m talking about “use of capital” not “abuse of capital”- and certainly not engaging in excessive risk. (Explanation of business model: Our traders can put up $20K or so, and then use our money to trade with, thus having the ability to engage in strategies that I will outline below. All P&L goes to our traders, we trade billions of shares and only keep a portion of their low commission costs).

 

OK, now that we’re thinking of starting a Trading business, let’s think about how to get started. Let’s assume you’re working a “normal” job, with a little flexibility, as most of us are. Time zones can actually play a part, as you will soon see. A great majority of my traders engage in what we call the Opening Only Strategy that has been discussed here in the past. This is one of our most lucrative single strategies, and has been working well for decades. Our traders place orders to buy or sell short a number of shares at pre-determined prices, prior to the opening print on NYSE stocks. We go through a pre-market calculation to determine limit prices that we would like enter this trade….if the stock gaps up or down from the previous day’s closing price. For example, I place 2000 shares to buy and 2000 shares to sell short in about 50 stocks each day (Bright Trading places about 40 million shares of this “opening only” variety each morning). I don’t want to be filled if the stock opens at a “fair” price based on market conditions. I only want to be filled on gaps prices. I try to get about a 10-15% fill rate, giving me stock, either long or short, on 5-8 stocks on average. The big edge is that I know that if I am filled, the NYSE Specialist is also filled at my price, in my same direction, long or short. Over the decades, even with all the changes on the NYSE, this is still a true assumption. I take profits with an automated program, or cover losses when they happen, and am usually finished with this strategy within 5 or 10 minutes (rarely longer than that). Our new people have averaged a 75/25 win/loss rate within the first couple of weeks of their starting date. We have many traders who engage in this strategy, and nothing else, when Transitioning to a more full time trading career. This allows for a half our prep time and a half hour trading time. Many make a good 6 figure income doing this, and this alone. Great way to keep your job while augmenting income and/or preparing for the move to full time trading. This requires the “use” of capital that I described, but not the “abuse.” Using a $million or more to make $100k or more per year.

 

Another strategy that only takes a half hour or so takes place at the end of the trading day. This strategy revolves around the MOC (Market on Close) imbalances that are published by the NYSE starting at 20 minutes prior to the closing bell. All day long various funds and groups place orders to buy or sell great number of shares at the very last price of the day, the “market on close” price. We filter for larger imbalances, either to buy or to sell, and immediately place orders that go along with the imbalance. We can then either take profits, or increase share size, for the next few minutes based on market conditions. We, as professional traders, can submit MOC orders to then close, or offset the imbalance during that last 20 minutes. So, again, a strategy that can me done in a very short time frame.

 

Now to time zones. I have always traded in the Pacific Time Zone, where the market opens at 6:30 AM and closes at 1:30 PM. Many of our local traders, while transitioning, will come in at 6AM, trade the opening, and go to their jobs at 8 or 9AM. They then return for the last half hour of the day during lunch. Of course, your time zone may be different, but if you have some flexibility in your job, you too can transition this way.

 

I never advise anyone to quit a job to start any business venture, and trading is no exception. Traders need to keep a cool head, and not be worried about making house payments or feeding their families, especially during the first crucial months. I do suggest to those who find themselves retired or out of work to have enough money in the bank to cover expenses for a year or so while getting things rolling. So, take things one step at a time, keeping a level head, and start your trading career one step at a time. After you achieve a comfort level, you can easily move into a full day of trading with several more techniques.

 

Don Bright

 

 

=================

 

I thought this was a pretty good article from Don for those considering trading.

I've never worked w/ Don but always impressed with his comments and openness.

 

the article is just too general, too vague and too inconclusive.... to become a guiding module for those who truly wish to join the trading profession.... imho.... :crap:

[Ingot54 13]

the article is just too general, too vague and too inconclusive.... to become a guiding module for those who truly wish to join the trading profession.... imho.... :crap:

The article was never meant to be specific I don't think, Nakachalet, but more to serve as a general heads-up that "trading for a living" needs careful consideration because of unforeseen circumstance.

 

Further, Don Bright seems to be saying that there is no need to quit an otherwise comfortable work situation in order to move to trading for income.

 

He seems to be showing that it is possible to trade for income while remaining in the current work situation (job). Such articles can not be expected to be more specific in nature, because there is only so far an article can go before beginning to address the situation of individuals. And down that road, the situations are as many as there are participants.

 

My own idea of "trading for a living" fits in nicely with the suggestions of Don Bright:

 

Firstly, find a trading strategy that fits in nicely with your work-day schedule.

Then master that strategy, so that you become accustomed to the things that can go wrong.

Finally, begin to move to a situation where you can limit your hours in your former occupation, and move to more active and maybe more aggressive management of your trading.

 

I did not arrive at this scenario on my own. Rather, I mentioned "trading for a living" once, and OptionTimer replied here: http://www.traderslaboratory.com/forums/trading/9935-creating-workable-trading-plan.html post #11

 

He was able to point out that trading for a living doesn't exist. He described it as trading with your capital, but drawing from that capital for living expenses.

 

Now that places things in another light, and to be candid with you, it does make far more sense, and is far more specific than the ethereal term: "Trading for a Living."

 

This will mean different things to different people, but the essence of it all is that you really need to have your living assured as a priority, and THEN get on with trading for further income - even if it is just supplemental to your employment cheque.

 

I hope that view helps.

Edited July 20, 2011 by Ingot54

[sm1929 10]

Ingot54 I hope you don't mind me making an addition to what you were saying.

 

Making sure your trading style fits your schedule is key not just so you have time to look at your charts but also so you are not looking at your charts when your mind is cluttered/tired. I highly recommend to those who have a 9-5 job that you increase the time frame of your charts from less than 2hrs, to 4hrs or more. This will give you ample time to look and analyze your charts, focus on your job and have a life. Having a life is rather important otherwise (as I've learned the hard way) your mind gets too tired and your trading becomes sub-par.

 

V.

[kuokam 10]

Hi Ingot,

I don't quite understand how a capital can survive if there is no income. Further, capital is just accumulated parts of previous incomes. No income, no capital or preservation thereof, IMHO.

 

Best 2012

 

The article was never meant to be specific I don't think, Nakachalet, but more to serve as a general heads-up that "trading for a living" needs careful consideration because of unforeseen circumstance.

 

 

He was able to point out that trading for a living doesn't exist. He described it as trading with your capital, but drawing from that capital for living expenses.

Now that places things in another light, and to be candid with you, it does make far more sense, and is far more specific than the ethereal term: "Trading for a Living."

 

This will mean different things to different people, but the essence of it all is that you really need to have your living assured as a priority, and THEN get on with trading for further income - even if it is just supplemental to your employment cheque.

 

I hope that view helps.

[baifriend 10]

agree. you can never have enough to start up.

It's like an ad to utilize his funding for his trading company.

 

 

the article is just too general, too vague and too inconclusive.... to become a guiding module for those who truly wish to join the trading profession.... imho.... :crap:

[zdo 20]

This topic brings back memories… the last real ‘job’ I had was running a brokerage and I was trying so hard to fit in adequate, or even barebones, personal trading time and couldn’t… sold my stake and started managing money… and again I was trying so hard to fit in adequate personal trading time (for income)… and couldn’t. So I quit all my ‘jobs’ and traded full time … working out my own interpolation of the Omega Strategy* - pretty clearly demarcating the time and action spent on ‘daytrading’ for income and ‘trading’ for building wealth… and some of that ‘trading’ did include ventures into property development which went ok but were not fun and were ultimately not liquid and fast enough for me. Don Bright mentioned “start your trading career one step at a time” to which I would reply “but don’t lollygag around too long” - especially if you are TOTALLY COMMITTED to trading and everything else is frustrating…

 

*

Amazon.com: The Omega Strategy (9780446326346): William Montapert: Books

http://www.biblio.com/9780884961871\

The omega strategy : how you can retire rich by 1986 by William David Montapert (Used, New, Out-of-Print) - Alibris

btw, I don’t remember the exact strategies presented in that book… I doubt I even read the whole thing… in case you don’t want to buy the book, the essence is something he got from his ‘Swiss’ mentors – split your workweek, roughly half into producing to cover living expenses, etc and half into producing and building capital / wealth.

 

PS… somewhat related to running things in a way as if you are already successful – the most important lesson I ever learned was to capitalize and size the trades in each account to where risk of ruin is so-o-o miniscule it’s completely negligible, where no one trade or even a series of bad trades matters in the slightest. That is freedom… freedom to even fvck up and still be ok, to still stay focused on what’s working, etc…

No one taught me this directly, but I will be eternally grateful to the traders who hinted at less extreme versions and to the one ‘really rich guy’ who unknowingly modeled these concepts for me…

 

… and, even though the huge majority of them come in as futures index, financial, and or energy traders, this is why I point all sub 6 figure accounts I mentor towards Oanda for at least 6 months - until they get their ‘identities’ (and physical, behavioral, and passion issues) straightened out

… and I recommend the same for all TL noobies who are starting out with sub 25k accounts

 

... and also, noobies and beyond, be careful to really question that word "professional" - it's a subtle trap