Trading for a Living

[daveyjones 11]

You can't reinvest everything you make. Eventually, you will need to take money out of your trading accounts and pay bills, take your family on vacation, etc. But how often and how much should you transfer from your trading accounts to your personal accounts? Should you take out a fixed amount each month or a percentage of your earnings? What if your accounts are currently sitting lower than your opening balance? Should you wait until you move above that point before you reward yourself with a salary?

[NiC72 10]

Great thread. Unfortunately I have nothing to add at the moment. Looking forward to reading more of this thread.

[TraderWill 11]

Daveyjones, this is a great topic. If you've been trading for a while you know that there's a lot of hype about the fortunes you can make by trading for a living. The reality is that like every job or business it is a process of gradual growth. And if you know people who've started their own business, you'll know that they lived like paupers for years, building their business to the point where they could reap the rewards by paying themselves a decent salary.

 

It's the same with trading for living. If you have a profitable system, you first need to build your trading account so that you can increase the number of shares, contracts or lots that you trade. You also need to have an idea of how much you need or want to withdraw from your account on a monthly or quarterly basis, that becomes essentially the salary you want to receive. Once you trade enough shares, contracts or lots so that your account grows on average more per month or quarter than what you want to pay yourself as a salary, then you can start pulling money out of it. But not before. You want to be in the position that even after your periodic withdrawals the trading account continues to grow, albeit more slowly.

 

Depending on the initial size of your trading account, and on the profitability of your system, you may have to build your account for one or two years before you can start pulling money out of it. It can be done, but not as fast as some would have you believe. Of course the larger your starting account and the smaller your salary requirements, the faster the process.

[daveyjones 11]

Thanks Will, that's very sound advice.

[cuttshot 11]

davey,

 

It is very important that you focus on building your account before even considering taking any money out. Trading full time on a $10,000 account just wont cut it. You can start with a small account but you need to leave the profits alone. Pulling money out right away will just lead to you spinning your wheels.

 

How much money you pull out and when you do it depends on your lifestyle. Keep in mind there are fees when you pull the money out so you don't really want to be doing this too often. I have found it best to start with a budget for yourself. This way once you have built your account size up to make a living off you can pull the minimum amount out monthly/quarterly to cover expenses.

 

The budget will also help you guage when it's possible to trade full time for a living. You should make sure you can make money for an extended period of time before you consider going at this for a living. Making money for 2 months in a row will not guarantee future success. You could run into weeks or even months where you don't make any money. Hopefully you are using a system that doesn't let this happen very often but it is possible. You have to make sure you are able to ride these times out.

 

traderwill gave you some great advice. Having a successful system in place is very important. I would also recommend getting that budget in place so you know what you need to make in oder to cover expenses. From there you will be able to schedule your withdrawals.

[TimRacette 11]

I agree with cuttshot. Once you have a sizable account I find it necessary to remove all profits for the week from your trading account. Take physical delivery of that money and go cash it at the bank, touch it, hold it in your hand, and then deposit it into your check, savings, and investment accounts.

 

I think this process is important because it makes what we are doing tangible and real. Perhaps its mostly for psychological purposes, but if you leave the profits in your account, they are "at risk" of the market. Removing them each week keeps it structured more as a business.

[MadMarketScientist 11]

I like that idea of pulling out the profits. I think where some traders go wrong is thinking in terms of a salary and expecting a fixed dollar amount every xx week/weeks like when they are on payroll.

 

In all my years of trading my returns are never smooth -- some weeks/months the market is just so generous, other times it's incredibly stingy. I'd drive myself crazy if I had a "salary" expectation that was consistent/smooth.

 

Even when I look at my long-term non-traded assets like funds and stocks if I look at the monthly returns it is literally all over the map.

 

So, skimming out the profits makes sense but just don't expect that to ever be a consistent number. Assuming it's positive to begin with!

 

MMS

[jaysmith124 10]

When I made a decision to trade for a living, I wanted to see somebody post results just to solidify in my mind that it is possible. I have had a thought to post such transparency, but I am still contemplating the real purpose I want to do this. (Is it useful to my life purpose) But for now I am going to try and post an example clip should I decide to go through with the idea. I will record the entry and exit showing the trading results. It should be more than 10 second recording to show the trade executions.

PNC.avi

[MadMarketScientist 11]

There's probably a distinction that should be made about trading for a living.

 

There are countless multi-millionaires and even billionaires who feast in the markets at hedge funds, banks, brokers, etc... they are clearly trading for a Kings Living.

 

The distinction is can an above average individual successfully trade for a living over any length of time without the obvious advantages of a Wall St professional?

 

I still think the answer is yes but it does take an extraordinary commitment level since an individual trader does not have the advantages of a traditional professional.

 

MMS

[TimRacette 11]

It all comes down to size. A few of my colleauges own hedge funds downtown Chicago, some Alg some fundamental, two extremes. When you have 100M under management and bring in 20M in profits taking a 1% mgt fee and 30% profit split, thats a nice chunk of change. Compare that to your own trading account, what percentage would you have to make to bring in say 50k a year?

[jaysmith124 10]

I reacted on emotions of fear/anxiety to get out.

FCX.avi

[$5DAW 10]

I have another angle on removing money from your trading account. If you're a new or struggling trader and you have a successful day and make even a small profit, take it! I don't care if your account is in negative territory, if you made even a few hundred dollars and feel really good about your efforts, take a hundred dollars out of your account. This is a tough business, and it's not about points or pips, it's about money. Traders can lose focus on that, and it all seems like just numbers on a screen. Taking even a hundred dollars out of your account after your first good day can provide lasting positive psychological/emotional support.

 

Many traders know how to put money in their accounts, but several have never attempted to take money out! Have a plan, for your hundred bucks. Buy something for your desk/office, something you can see, feel and touch everyday, this will be a reminder for years to come of your beginning efforts as a trader. Don't wait for your 10k account to be 15 or 20k (it may never happen) just take a token withdraw to put yourself through the motions and buy that tangible object (no meals/drinks) that you can always say, "This is my FIRST reward from investing my time, my effort and my skill trading the (ES, 6E or CL) market." This works. The big withdraws will come later.

[TimRacette 11]

5Daw, part of that makes sense, taking the profits, but if someone's account balance is less than 10k I really don't see them trading it for a living. To make 40k in a year pretax you'd have to turn 400% profit or 800 ES points, thats an average of 15 points a week, and even if they used 2cts that'd be a hefty task. That being said I'm sure there's someone out there who will chime in saying they've done it, so it's by no means impossible. If you're making 60pts a month per contract every month you're doing well.

[$5DAW 10]

Tim, I like the way you think, but we (traders) have to start somewhere. I'll bet there are more "lookers" here in the Trader's Lab with 10k accounts than 100k accounts. I started trading the Deutsche Mark on the CME with a 5k account (the times have changed)! I pulled some money out on occasion, whenever "I got lucky," and started buying generic 1oz silver rounds, for $6 or $7.00 ea. I've had a stack of them on my desk for many many years, as a reminder of why I'm sitting here, little did I know.

[TimRacette 11]

5Daw, oh yeah you definitelly have to start somewhere, so I suppose pullin gmoney out of the account doesn't apply as much early on. Way to go!

[MightyMouse 12]

There's probably a distinction that should be made about trading for a living.

 

There are countless multi-millionaires and even billionaires who feast in the markets at hedge funds, banks, brokers, etc... they are clearly trading for a Kings Living.

 

The distinction is can an above average individual successfully trade for a living over any length of time without the obvious advantages of a Wall St professional?

 

I still think the answer is yes but it does take an extraordinary commitment level since an individual trader does not have the advantages of a traditional professional.

 

MMS

 

I have to disagree. The countless millionaires at the HFs banks, and brokerages, make money collecting fees, selling, and transacting business. The traders who do not trade with inside information or other illegal activity or soon to be illegal activity, such as the activity of hfts, have the same ups and downs that as any other trader who trades a similar time-frame as they do. The use of non public information is so common that it doesn't seem illegal anymore.

 

If you take Paul tudor jones, for example, he spends and has spent a great deal of time promoting himself and his business so that he could attract funds. He had some great early years, I suppose, and many many mediocre and losing years. If he had to rely on his trading, he would live in a duplex instead of a mansion on the water in Greenwich CT.

 

George soros is another great example. He too is a publicity seeking socialite who understands that he needs to attract money to his fund to make money. He has maybe done 10 great trades in his lifetime that made a great deal of money. His long run returns are good but not what you might think.

 

In either of these cases, you would be hard pressed to prove that they did better than the S&P did over the same period. The main difference is that if you traded the s&p during the same period, you didn't get 20% of the winning years like they did.

 

I am not suggesting that some of these guys do not not have good runs, but the good runs, at best, taper off in most cases. If you take a population of, say, 10,000 traders, 4-5 statistically will kick ass. Aspiring traders will look at those 4-5 traders in awe. The fact is that those 4-5 traders will tell you how great and smart they are, but one should realize that those 4-5 traders had to happen statistically. Wall St will throw all kinds of money at these 4-5 guys because its easy to bullshit a bullshitter.

 

The final table at the WSOP is a great example of statistics at work. In fact, a lot of times those remaining poker players are the most degenerate gamblers of the group.

 

Wall St is and will always be a center where people who need capital will get it from people who have capital. That is its main purpose.

 

 

MM

[Cory2679 11]

If you take Paul tudor jones...He had some great early years, I suppose, and many many mediocre and losing years. If he had to rely on his trading, he would live in a duplex instead of a mansion on the water in Greenwich CT.

 

Can you expand on what you know about PTJ? I was under the (perhaps misguided) impression that PTJ has an excellent long-term track record...one of the best among high-profile traders/fund managers.

[MightyMouse 12]

Can you expand on what you know about PTJ? I was under the (perhaps misguided) impression that PTJ has an excellent long-term track record...one of the best among high-profile traders/fund managers.

 

Managed Futures Performance Rankings | Managed Futures

 

I do not know if these are all his funds.

[Cory2679 11]

Managed Futures Performance Rankings | Managed Futures

 

I do not know if these are all his funds.

 

Neither of those fund are actually directly ran by PTJ...they're ran by Steve Evans.

 

While they might seem mediocre averaged out over time, they can be complimentary and work something like a hedge with other funds...for example, their Raptor global equities fund was down 20% in 2008 (no surprise), but the Tensor fund (quant) was up 35%.

 

Tudor Corp.'s flagship fund is their BVI fund, which prior to the crisis, averaged something like 25%/year over about 20 years.

 

Tudor is an interesting firm because today it's really more like a large trading firm than a big pool of money managed soley by PTJ (like Soros, Robertson, etc.). He's said that if he quit tomorrow, his firm could continue on without missing a beat.

 

I have a special interest in PTJ because he once spoke to my class in college via video conference. He was a pretty cool guy. He told the class, if you were going to trade and be stranded on an island, and you could only take fundamental or technical analysis with you, which one would you take? Overwhelmingly the class said fundamental (of course...a college finance class), and he said, WRONG! lol

 

He spoke to us around the time of the crisis...he was frustrated with some of the portfolio managers in his firm for holding onto holdings that were in major downtrends, etc. He showed 50-day and 200-day moving averages and called stocks that were under both something, I can't remember, but some of his portfolio managers will still holding onto stocks that had fallen under both and that made him mad. lol

[TimRacette 11]

You can't beat the market, just like you can't beat the game of blackjack, you can only outperform it for periods of time by manipulating the odds.

[steve46 12]

Neither of those fund are actually directly ran by PTJ...they're ran by Steve Evans.

 

While they might seem mediocre averaged out over time, they can be complimentary and work something like a hedge with other funds...for example, their Raptor global equities fund was down 20% in 2008 (no surprise), but the Tensor fund (quant) was up 35%.

 

Tudor Corp.'s flagship fund is their BVI fund, which prior to the crisis, averaged something like 25%/year over about 20 years.

 

Tudor is an interesting firm because today it's really more like a large trading firm than a big pool of money managed soley by PTJ (like Soros, Robertson, etc.). He's said that if he quit tomorrow, his firm could continue on without missing a beat.

 

I have a special interest in PTJ because he once spoke to my class in college via video conference. He was a pretty cool guy. He told the class, if you were going to trade and be stranded on an island, and you could only take fundamental or technical analysis with you, which one would you take? Overwhelmingly the class said fundamental (of course...a college finance class), and he said, WRONG! lol

 

He spoke to us around the time of the crisis...he was frustrated with some of the portfolio managers in his firm for holding onto holdings that were in major downtrends, etc. He showed 50-day and 200-day moving averages and called stocks that were under both something, I can't remember, but some of his portfolio managers will still holding onto stocks that had fallen under both and that made him mad. lol

 

Hello Cory

 

Mr. Jones has a natural talent....he was born into money and learned how to make it, but looking at how human behavior affects the markets....at this point in his career I am guessing his estate is worth about 5-6 billion...You don't get to that point by careless or wild speculation.

 

Like yourself, I find it interesting that people are willing to comment when they don't even know who the decsion makers are within his organization. Its just laughable...

 

If you study his moves, you will see that he is disciplined. If you have the opportunity, take a look at some of the charts for his holdings. The disclosure documents for larger holdings can give you clues as to when and under what conditions his managers pull the trigger...and the same for exits....it takes some effort to get the data but it is worth is if you are a long term investor.

 

In terms of risk, he has a good feel for portfolio limits (max risk on a portfolio level) and he knows the individual issues well enough that he has managed to stay out of trouble (look at what happened to Julian Robertson for instance).

 

Best of luck to you

[MightyMouse 12]

Neither of those fund are actually directly ran by PTJ...they're ran by Steve Evans.

 

While they might seem mediocre averaged out over time, they can be complimentary and work something like a hedge with other funds...for example, their Raptor global equities fund was down 20% in 2008 (no surprise), but the Tensor fund (quant) was up 35%.

 

Tudor Corp.'s flagship fund is their BVI fund, which prior to the crisis, averaged something like 25%/year over about 20 years.

 

Tudor is an interesting firm because today it's really more like a large trading firm than a big pool of money managed soley by PTJ (like Soros, Robertson, etc.). He's said that if he quit tomorrow, his firm could continue on without missing a beat.

 

I have a special interest in PTJ because he once spoke to my class in college via video conference. He was a pretty cool guy. He told the class, if you were going to trade and be stranded on an island, and you could only take fundamental or technical analysis with you, which one would you take? Overwhelmingly the class said fundamental (of course...a college finance class), and he said, WRONG! lol

 

He spoke to us around the time of the crisis...he was frustrated with some of the portfolio managers in his firm for holding onto holdings that were in major downtrends, etc. He showed 50-day and 200-day moving averages and called stocks that were under both something, I can't remember, but some of his portfolio managers will still holding onto stocks that had fallen under both and that made him mad. lol

 

Cory,

 

I am sure that his A, B, or C funds have objectives that are quite different from each other and will, therefore have differing returns. I think 25% profit is great, but you need a boat load of capital to survive on a return like that if you are an independent trader. The BVI fund ended up getting split and I am not sure what ended up happening to it. So, it will be difficult to say what ended up happening to that fund. I think the investments may have been toxic but again I am not sure. My point was that these high profile traders all have the same ups and downs that we do if they are not breaking rules and end up being billionaires because of the fees the collect and not from shear ror.

 

They pay lots of money to PR firms, sponsor charities, etc to gain exposure to persons who can drive money to their firms. Its a different game for them since they participate on the upside, but do not participate on the downside.

 

MM

[SIUYA 11]

MM - I agree with you regards survivorship bias, and the fact that wall street is there to line their own pockets (what industry isn't).

however I dont think you give enough credit to the likes of Soros and Jones for its the effect of compounding that is important. These guys maybe would not have the fortunes they have if they did not have funds - as they get to leverage other peoples money as well, but they would still have been spectacularly successful at the same time.....plus I lot of their funds under management for some of these guys is their own.

I for one would like to have access to more of these guys, place small amounts of money with them and watch it grow over the 10-20 years. (not over a few years)

[MightyMouse 12]

MM - I agree with you regards survivorship bias, and the fact that wall street is there to line their own pockets (what industry isn't).

however I dont think you give enough credit to the likes of Soros and Jones for its the effect of compounding that is important. These guys maybe would not have the fortunes they have if they did not have funds - as they get to leverage other peoples money as well, but they would still have been spectacularly successful at the same time.....plus I lot of their funds under management for some of these guys is their own.

I for one would like to have access to more of these guys, place small amounts of money with them and watch it grow over the 10-20 years. (not over a few years)

 

Siuya,

 

Nice of you to make a comment after a long day of fighting black marlin off the Great Coral Reef. If I had your money I would throw mine away.

 

I do give these guys lots of credit. Earning double digit returns for the period of time that they have been able to do it is iconic. No doubt.

 

MM

[Tradewinds 12]

• Don't spend money before you've earned it.
  
• Reward yourself when you have done well.
  
• The way you run your personal finances will influence how you take distributions from your trading account.
  
• To put yourself into the right frame of mind, do something like buy a good life insurance policy.
  
• Put some of your trading profits into a retirement account, but if you feel the need to choose between a retirement account, and life insurance, the estate tax benefits of the life insurance, make it a much better choice.
  
• The question of how much of a distribution to take, and what you want for capital should be quite easy to calculate, based on your historical rate of return, and what your goal for capital is. Decide what your goal for capital is, and when you want to achieve that, then do the math.